By Ariel Singerman
During the 2021–22 citrus season, the Risk Management Agency (RMA) started offering a new option to Florida citrus growers for insuring their crop. The policy is called Actual Production History (APH) and provides coverage for yield losses based on a farm’s historical records. While the Whole Farm Revenue Protection (WFRP) policy also uses farm records as a basis for coverage, such coverage is against losses in farm revenue, and eligibility is limited to operations with an expected revenue under $1 million. The basis for those two policies contrasts the Citrus Fruit Dollar Amount policy that offers coverage based on a reference maximum dollar amount per acre established by RMA.
APH coverage levels range from 50% to 85% in 5% increments. Causes of insurable loss under this policy include adverse weather, fire, diseases (if specified in the special provisions) and postbloom fruit drop due to adverse weather. Coverage is offered for fresh and processed oranges and grapefruit, fresh mandarins/tangerines, tangelos and tangors grown in Central and Southwest Florida counties. Coverage for fresh and processed lemons is available in some counties. The price used to establish the premium and liability amount is set by the Federal Crop Insurance Corporation (FCIC). Growers can elect to insure at a lower price than established or, alternatively, can provide a contract price, if available.
The basis to establish the guarantee and premium in APH is called the APH approved yield, which consists of the average of the grower’s yield records for the last 10 seasons. Growers need to provide at least four years of yield records to obtain APH coverage. If such records are not available, the grower will be assigned transitional yields (T-yields) — an estimated yield figure based on historical average county yields — for each missing year. The number of years for which the grower has records available will determine what percentage of transitional yield is used to complete the missing years (see Table 1).
HOW IT COULD BE BENEFICIAL
Given HLB and its continuous negative impact on citrus yield in Florida, pounds solids and the number of boxes per acre have been trending down since 2005. Thus, the implementation of APH for citrus in Florida is problematic from an actuarial standpoint because it is offering coverage based on past seasons’ yields despite the downward trend. This causes the guarantees to be higher than what they would be if the downward trend were considered. Therefore, should such a trend continue, obtaining coverage under APH will likely be beneficial for growers. To illustrate this, Table 2 shows yield records for early and mid-season oranges in Polk County since 2010–11 to compute indemnities for the average county grower as if the APH program had been available during previous seasons.
Columns 2 and 3 in Table 2 show the actual average yield each season in Polk County and the percent decrease relative to the previous season, respectively. Columns 4 and 5 show the APH approved yield that RMA would have computed as the 10-year average and the percent decrease in yield relative to the APH yield, respectively. The values in column 5 (denoting the percent decrease in yield relative to the APH approved yield) are significantly higher than those in column 3 (denoting the percent decrease in actual yield) for most seasons. In fact, for some seasons, such as 2016–17, 2018–19 and 2019–20, yield increased relative to the previous season but decreased relative to the APH yield calculation. So, depending on the selected coverage, some growers would have still been compensated.
Columns 6, 8 and 10 in Table 2 show the APH guarantees at the 65%, 75% and 85% coverage level each season. Had the program been available during previous seasons and the hypothetical grower had chosen, for example, 65% coverage, the grower would have obtained compensation in five out of the last 10 seasons because yield in column 2 is lower than the 65% APH guarantee in column 6. Had the grower selected 75% coverage, the grower would have obtained compensation in seven out of the last 10 seasons. And, had the grower selected 85% coverage, the grower would have obtained compensation in nine out of the last 10 seasons. Columns 7, 9 and 11 in Table 2 illustrate what the compensation would have been at the 65%, 75% and 85% coverage level, respectively, in terms of boxes per acre each season. The dollar amount of the compensation would have depended on the price established by the FCIC each season.
The U.S. Department of Agriculture forecasted average state yield for the 2021–22 season of 131 boxes per acre for early and mid-season oranges. Continuing with the example of a hypothetical representative 1-acre grove in Polk County, this was used as a proxy for the county yield to illustrate the calculations for the premium and indemnity (in dollars). Such a yield represents a 20% reduction relative to last season’s yield (Table 2, column 3) but a 46% reduction relative to the APH approved yield (Table 2, column 5). Assuming the grower chose 65% coverage, the guarantee would have been set at 158 boxes per acre (Table 2, column 6). Had the grower chosen 75% coverage, the guarantee would have been set at 182 boxes per acre (Table 2, column 8). Had the grower chosen 85% coverage instead, the guarantee would have been set at 206 boxes per acre (Table 2, column 10).
Table 3 shows the amounts of the APH premium and indemnity at the 65%, 75% and 85% coverage levels. Panel A of Table 3 shows the values needed for computing the premium and indemnity. For example, the FCIC established the price for early and mid-season oranges at $10.83 per box. Therefore, the value of production per acre was set at $2,632 ($10.83 per box multiplied by 243 boxes per acre). The realization of yield in 2021–22 at 131 boxes per acre would imply that there was a loss of 46% relative to the APH yield. Thus, the value of production to count and the loss value would be $1,419 per acre and $1,213 per acre, respectively.
Panel B of Table 3 shows the guarantee, liability and deductible amounts as well as the amounts for the farmer premium and indemnity for the three different coverage levels. Panel B shows that a grower choosing 65% (75%) [85%] coverage would have had to pay $22 ($53) [$137] per acre as the premium. Should the grove’s yield in 2021–22 be 131 boxes per acre, the grower would receive $292 ($552) [$823] per acre as indemnity.
ADDITIONAL OPTIONS
The APH policy also offers the possibility of adding additional options for coverage. Two of the options that exacerbate the issue of higher guarantees are the Yield Cup and Yield Exclusion.
Yield Cup prevents APH yield from decreasing by more than 10% in any year, which makes the guarantees higher and, thus, increases the amount of indemnities. But it also has a higher premium because it is based on the effective coverage the grower obtains.
Yield Exclusion allows excluding catastrophic years from the APH yield calculation in exchange for a higher premium based on effective coverage. While future potential adjustments by RMA to address the issue of higher guarantees are possible, there are no details regarding how they will work, how soon or how often they will be implemented. Therefore, if the downward trend continues, obtaining coverage under APH will likely be beneficial to growers until such adjustments are implemented, and increasingly so for higher levels of coverage.
SUMMARY
The APH policy offers coverage against yield losses based on historical farm records. Given the negative impact of HLB on Florida citrus yield and the reliance of APH on the average yield for the previous 10 seasons, the APH guarantees are higher than what they would be if the downward trend was considered. For growers, this means that as long as the downward trend continues and is not taken into account by RMA, obtaining coverage under APH will likely be beneficial.
Ariel Singerman is an associate professor at the University of Florida Institute of Food and Agricultural Sciences Citrus Research and Education Center in Lake Alfred.
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