Cherry insurance can provide a financial shelter for growers when the crop is rained on.
PHOTO BY GERALDINE WARNER
The federal cherry crop insurance program can partially reimburse growers if returns fall short because of fruit damage, poor quality, or low prices.
But the program does not provide any incentive for growers to pick poor quality fruit and take it to the packing house, says Dave Paul, director of the U.S. Department of Agriculture’s Risk Management Agency in Spokane, Washington. The intent of the Actual Revenue History insurance program was to provide growers with meaningful revenue protection for perishable crops for which no representative futures market exists.
At a grower meeting last winter, a fruit marketer said that cherry insurance programs were forcing growers to pick their fruit and take it to the warehouse, even if there was no market for it, in order to collect their insurance checks. He said he hoped that insurance programs could be changed, otherwise they would be the death of the industry.
But Paul said there’s no reason for a grower who’s insured under the ARH cherry program to take all their fruit to the packer if the market is oversupplied because it won’t make any difference to the amount of insurance the grower collects. In fact, the program is designed not to disrupt the market forces. The ARH program is the main one available to cherry growers.
False assumption
Marvin Lapp, field horticulturist at Washington Fruit and Produce Company, Yakima, who has served on a crop insurance advisory committee, said it’s not insurance that’s going to kill the industry but overproduction, particularly of small cherries. “It’s a false assumption that the crop insurance forces people to pick fruit that’s not worthwhile. They are not required to pick it for the insurance.”
The way the program works is this:
Payments are based on the grower’s actual revenue in past seasons, so growers are asked to provide production, acreage, and cherry revenue information for at least four years (up to ten) and the average annual revenue is calculated. If growers don’t have their own records, average revenues for the county where the orchard is located are used instead. The maximum coverage is 75 percent of the grower’s average revenue.
“The goal is to cover the insured producer in the event of a significant loss in revenue so they are able to continue farming in subsequent years,” Paul explained. It’s not to ensure they make a profit.
If insured growers believe their cherries are damaged or if they are short revenue on their crop, they can submit claims. To calculate a grower’s losses, the insurer calculates the value of the whole crop (not just the returns the grower received). This includes the value of all marketable cherries, regardless of whether they were picked and delivered to the packing house or not. “Marketable” means they would meet the standards for U.S. No. 1 grade or, in Washington State, the federal marketing order (essentially a 12-row cherry).
The insurer calculates:
- The amount received (packing house door equivalent) for cherries picked and sold. This amount must be reasonable.
- The pounds of marketable cherries that were picked, but not sold, multiplied by an annual price. This “annual price” is generally an average of the grower price received for delivered and sold production; or if no portion of the crop was sold, the season average price as determined by USDA’s National Agricultural Statistics Service. This would apply, for example, where a grower picks the crop only to find, when the fruit is delivered to the warehouse, that the market is flooded and the packer won’t take them.
- The pounds of marketable cherries that were not harvested, multiplied by the annual price (as above). For example, if the market is flooded the packer might tell the grower not to pick, to avoid the expense of harvesting and hauling the fruit.
If the total value of the crop is less than the amount the grower insured it for, the insurance will pay the difference.
Disincentive
Paul noted that it makes no difference to the calculated value of the crop whether the grower leaves the marketable fruit in the orchard or takes it to the packing house once a price is established through sold production. However, the grower does save money by not harvesting and hauling fruit if there is no market for it. “There is no reason to pick and send the fruit to the warehouse unless it makes economic sense for the grower to do so with or without the insurance,” he said. “There’s actually a disincentive to take cherries with little value to the packing house because the grower incurs the cost of picking and hauling.”
Paul said the contractor who developed the ARH program chose to value all marketable fruit (for insurance purposes) whether harvested or not to avoid having the insurance influence marketing decisions. Otherwise, packers could pick and choose which fruit to pack and sell knowing that the grower could collect insurance on what they didn’t pack.
“Doing so would take too much risk out of cherry production and all of a sudden the insurance impacts the market,” Paul said, “and we don’t want to go there.”
The cherry ARH pilot program began in 2009. The USDA has been gathering feedback from producers to find out how well it is working so that it can be improved. Feedback has generally been positive, Paul said, and the number of growers enrolling in the program has increased from year to year. Last season, 1,057 cherry growers in Washington were insured, with just over $210 million in total coverage.
Leave A Comment