A New Assurance
The USDA recently sought proposals to study the feasibility of providing crop insurance to producers of corn stover, straw and woody biomass. Research efforts are also underway for energy cane, switchgrass and camelina.
“USDA’s Risk Management Agency is eager to provide risk management services for biofuel crops that are being grown on a sufficiently commercial scale that provides necessary production and market data to allow assessment of their viability for crop insurance,” says Bill Murphy, RMA administrator. “RMA-financed studies are underway now to determine which crops meet this criteria. Those studies should be ready this summer. Mitigating the risks inherent in agricultural production will encourage farmers to produce biofuel crops, providing additional alternative fuel sources for America.”
According to Murphy, the ability to secure crop insurance is a prerequisite before most farmers can grow a new crop, largely because banks and lenders generally require crop insurance as collateral to approve operating loans for farmers. Without an operating loan, many farmers can’t afford to plant their fields. Since crop insurance is generally required by lenders before a loan is approved, the situation has become a bit like the chicken and the egg scenario, Murphy continues. “It’s a critical program to be developed to go along with this developing industry,” he says.
The RMA has been looking into the issue for several years, and was specifically directed by the 2008 Farm Bill to look into the feasibility of developing crop insurance programs for biofuel feedstocks. Although efforts right now are focused on six specific crops, Murphy says other feedstocks will likely be addressed in the future.
There are two possible paths forward for the development of crop insurance programs for biofuel feedstocks, Murphy says. One is similar to programs developed for crops like corn. The other is modeled after a crop insurance program that has been developed specifically for areas like pasture and rangeland. Traditional crop insurance programs, such as the one for corn, allow growers to purchase insurance based on their own history of production. Crop insurance programs for rangeland and pasture, alternatively, don’t rely on actual measurements of a crop’s growth. Rather, the RMA uses a rainfall index or vegetative index to determine the amount of production on a piece of land.
“It’s the way we found that we could ensure these crops where there isn’t really any history of production or harvest,” Murphy says. “It’s been successful. Actually, growers like it quite a bit. We introduced this concept to growers in the biofuel industry, however, they wanted a standalone product [like corn insurance].” One clear benefit of an insurance program based on the same concept as RMA’s program for rangeland and pasture is that it could likely be developed more quickly.
There are several things the biorefining industry can do to assist the RMA in the development of insurance products for biofuel feedstocks. Most importantly, it can share production data with the RMA. “As we move forward we’ll need information like their contract data, how much production—if any, and how much they are paying for [feedstocks],” Murphy says. “I see us working closely with the industry and moving forward with it.”