| Updated February, 2003 |  |
File A1-55 |
|||
 |
|||||
Actual Production History for Crop Insurance
The first step in developing a crop risk management program for a farm is to establish the proven yield and unit structure. The actual production history (APH) is used to set the guarantees under all of the Federal Crop Insurance Corporation (FCIC)-backed insurance plans except for the Group Risk Plan (GRP) and Group Risk Income Protection (GRIP). True risk protection must be based on the farm’s production potential. Providing historical yield records is the most realistic method of estimating it.
Actual production history
Proving an APH yield requires records for a minimum of four years and a maximum of ten years for each insurance unit. Information used to prove crop yields includes sale receipts, farm or commercial storage records, and feed consumption records. The records must be for continuous years, starting with the most recent year and continuing back in time. Once a missing year is reached, no history prior to that date may be used. For example, if a producer has nine years of production records spanning a ten-year period, only the years after the missing one are counted. It is not allowed to drop a yield from one year because of poor production in that year. An exception is made if the crop being insured was not planted in a certain year. In that case, a zero acreage report is submitted and continuous records are maintained even without data for that year. This is important for growers who rotate crops and those who have summer fallow acres that are normally not planted to the same crop continuously.
Transition yields
If at least four successive years of records are not available, a transition or T yield for each missing year must be substituted. Each county has a different T yield. It is based on the 10 year historical county average yield. Growers with no records are assigned 65 percent of the T yield as their APH yield (see the example). Growers with a record for one year receive 80 percent of the T yield for the other three years. With two records, they receive 90 percent of the T yield, and with three records, they receive 100 percent of the T yield for the one remaining year needed to calculate the APH. Once each year has been assigned a yield, the APH is just a simple average of the four yields.
If only a few years of yield records exist, the APH yield may be considerably below the actual expected yield because of the reduced T yields. In that case, buying a GRP and GRIP policy may be a good strategy, since GRP and GRIP guarantees are based on county yields rather than individual farm yields. This could provide a higher level of protection while building records to establish an APH yield.
A new farmer or one who has never planted the crop to be insured will receive 100 percent of the T yield for the APH. If he/she continues to plant the crop for four years, the T yields will be replaced with the actual production each year. New producers who have previously been closely associated with farming a particular unit, such as children taking over a family farm, can use the previous operator’s records to establish an APH yield.
Once four years or more of production history are available, the APH is the simple average of all of the yearly reported yields. The four years of history will eventually build to ten years. After ten years of history are reached, the APH becomes a moving ten-year average yield. As each new year of production history is added, the oldest record is dropped out of the calculation.
Cup, cap, and floor
When a new yield record is added to the APH history, the APH has a cup of 10 percent, that is, the proven yield is not allowed to decline by more than 10 percent in one year. Likewise, when a bumper crop record is added, the APH cannot increase by more than a cap of 20 percent in one year. A bumper crop yield will eventually work its way completely into the average because the following year the APH can again increase up to 20 percent.
The APH also has a floor equal to 70 percent of the T yield for growers with only a one-year record. Growers with two to four years of yield records have a floor equal to 75 percent of the T yield, while growers with five or more yield records have an 80 percent of T yield floor. This prevents a year in which a producer has a severe crop failure from having a disproportionately large influence on the APH yield, especially when only a few years of yield records are available.
Producers also can request that a low yield for a particular year be replaced with a yield equal to 60 percent of the county T-yield. In effect, this becomes the minimum reported yield. This adjustment can be requested for any past year used to calculate the APH yield.
Although the APH yield is usually just a simple average of the production history for each insurance unit, a grower who enters farming, adds new land, plants a new crop, produces a bumper crop, or has a crop failure can cause one or more of the special provisions to be implemented. Therefore, it is a good idea to establish the APH for each insurance unit with a licensed crop insurance agent long before the sign-up date. Even for the catastrophic level of coverage, an APH value for each farm unit is needed. It will also allow evaluation of higher levels of Multiple Peril Crop Insurance (MPCI) or coverage under one of the available revenue insurance contracts.
