The Risk Management Safety Net: Market Penetration and Potential

VIII. Market Penetration for Hay, Livestock, Nursery, and Pasture/Range/Forage

Market Penetration for Hay, Pasture-Range-Forage, and Livestock

Hay, nursery, livestock, and pasture, range, and forage are all large commodities grown across the U.S. While the majority of field crops have good participation in the crop insurance program, market penetration for hay crops has been only 8-9 percent for the last several years, although this is up from the 3 percent in 2000 and 1 percent in 1990.

Additional risk management protection has recently become available for hay producers with the new Annual Forage (AF) Insurance product, which began with the 2014 crop year and covers annual hay. The Pasture, Rangeland, and Forage (PRF) program, which provides protection for perennial hay was expanded to an additional 19 states beginning with the 2016 crop year. With the release of the AF program and the expansion of the PRF program, market penetration is expected to increase for hay in the future. Additionally, early market indicators are that hay growers are also choosing to use the new WFRP insurance to insure hay. Based on the large market potential for hay shown in the table below, research on how to expand the risk management safety net for hay producers is a priority that RMA has identified and is currently pursuing through work with stakeholders.

Pasture, Rangeland and Forage coverage is now available across the lower 48 states. The PRF product uses a Rainfall Index to insure against a decline in an index value that is based on the long-term historical average precipitation for the same area of land and time period.

Livestock insurance was first authorized to be offered as a pilot program in 2000, as compared to crop commodities that began as early as the 1930’s. The two livestock products currently available are Livestock Gross Margin (LGM) which provides coverage for the margin between the value of the livestock and feed costs, and Livestock Risk Protection (LRP) which provides protection against a decline in price. Livestock is also covered under the WFRP product, but very limited participation was seen until 2016 when the WFRP policy eligibility limit for livestock was modified to a straight $1 million. Because of this, WFRP livestock insurance coverage will be reported in future analyses. The following table shows 2015 livestock market penetration:

Livestock market penetration is very low and is expected to remain low due to the legislated funding cap for expenses related to livestock sales. Expenses for livestock insurance programs are statutorily limited in the Act to $20 million per Fiscal Year. Livestock insurance expenses include premium subsidy paid on behalf of producers, and the administrative and operating subsidy paid on behalf of producers to insurance companies for selling and servicing the products.

The funding for expenses related to underwriting the various livestock insurance products is allocated across all livestock insurance products, and managed throughout the year to spread the allocations between products to assure that producers of all the insurable species have opportunities to purchase insurance and that the funds are fully utilized for the Fiscal Year. Given this funding limitation on expenses, Federal crop insurance will be unable to capture a significant portion of the market for livestock.

Market Penetration for Products Measured By Farm Revenue or Commodity Value

Some Federal crop insurance programs are based on expected revenue or value of the commodities and not measured by acres or number of head. The following table shows the 2015 market penetration for these crops. This was the first year for the new WFRP product which was offered in 45 states and sold in 33 states with an average per policy insurance coverage of just under $550,000. In 2016 WFRP became the first Federal crop insurance policy to be offered nationwide in every state and county.

The Apiculture program, providing coverage for an index measuring lack of rainfall compared to historic rainfall as a proxy to measure vegetation necessary for honey production, continues to have strong participation with 35 percent of the total market covered, up 32 percent from the 3 percent covered in 2011. This program was expanded from being available in 30 states in 2017 to providing risk management protection for bees and honey in the contiguous 48 states beginning with the 2018 crop year.

Contact Information

For more information, contact RMA Public Affairs.