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Rainfall Index Insurance Education: Exploration and Challenges in the Northeast and Southeast

Brittney Goodrich

Summary

Livestock producers have traditionally been underserved when it comes to risk management products offered federally by the USDA. In 2009, Pasture Rangeland and Forage (PRF) insurance became available nationwide, offering risk protection to perennial forage producers by employing a rainfall index to trigger payments if rainfall levels do not meet specified coverage levels. This program provides insurance for livestock and forage producers against the detriment of drought on forage production. Despite this being one of the few subsidized insurance options for livestock producers, only around a third of permanent pasture and rangeland acreage is enrolled in PRF in 2020 (USDA RMA Summary of Business, 2020; USDA Ag Census, 2017). This percentage is low compared to traditional crops which often see 80%-90% of acreage enrolled (USDA RMA, 2017). The objective of our educational programming was twofold: provide exposure and interactive education to livestock producers about the PRF program and gather information regarding the barriers of entry to this program to help guide future risk management extension efforts.

We conducted focus groups with livestock and hay producers, industry stakeholders, extension educators and academics to initially determine common barriers to enrollment in PRF. Using this information, we developed an educational video (https://www.youtube.com/watch?reload=9&v=z_BLexYDAUY) and handout informing livestock and hay producers about PRF. We also developed a survey that included an interactive learning exercise in which producers walked through a realistic PRF decision for their operation. The video, handout and interactive exercise focused on choices of two-month index intervals, which tend to confuse producers since this is an area where PRF decisions become more complex than traditional crop insurance. The interactive exercise included actual premiums, insured values, and coverage information for the participant’s chosen hay or pasture land. In the exercise, producers made a hypothetical enrollment decision and selected whether they would like us to email their decisions to them so they could share with a crop insurance agent.

The education was conducted at Sunbelt Ag Expo in Moultrie, GA and will be conducted at the New York Farm Show (February 27-29, 2020). The following summarizes preliminary results from the Sunbelt Ag Expo; the ERME presentation in April will include impacts and findings from the New York Farm Show as well. At Sunbelt, we operated a booth with 8 laptop computers (and headphones) on which participants viewed the educational video regarding PRF and then participated in the interactive exercise. Approximately 150 livestock or hay producers viewed the video, 139 of which completed the survey. We anticipate a similar number at the New York Farm Show.

Prior to watching the educational video, 58% of participants had heard of the PRF program. Of those 80 participants with prior knowledge of the PRF program, only 20% were enrolled in PRF for the 2019 crop year. This suggests lack of awareness is not the only contributing factor to low PRF enrollment. As for the reasons for non-enrollment, 32% of the producers with prior knowledge felt it was not relevant for their operation, 24% thought the program was too complicated or they didn’t have enough information to make a proper decision. Participants were screened prior to watching the video to make sure they had an economic interest in either forage or livestock production so that the insurance would be relevant for their farm operation. Thus, both of these reasons for not participating suggest additional education may influence certain producers towards utilizing PRF as a risk management strategy.

After walking through realistic PRF policy decision during the exercise, participants were asked hypothetically if they would purchase the insurance policy they had just selected for their operation. 67% of respondents said they would purchase the insurance policy. Participants also had the option to receive a summary of their decision via email or postal mail to facilitate sharing with a crop insurance agent, 35% of participants opted in to the emailed or mailed summary. We also asked participants a general question about whether or not they now planned to enroll in PRF for 2020. 28% of respondents were planning to enroll and 40% stated they would consider enrolling in PRF for the 2020 year. This possibility of up to 68% of participants enrolling in PRF having participated in our education suggests a substantial increase from the 20% who were enrolled being simply aware of the program. From this education we determined it is not only important to inform producers that this product is available, but also to provide proper unbiased education regarding the complex program.

We also learned through focus groups that the USDA RMA online decision tool for PRF is not sufficient in generating PRF interest among producers, nor is it sufficient in explaining the product. Additionally, crop insurance agents may not have the correct incentives to suggest PRF policies that actually reduce a producer’s risk. Producers need education from unbiased extension specialists and agents in order to properly utilize this risk management tool. Overall, this suggests complicated index insurance products may need substantial educational resources before they become widely adopted.

References:
The Risk Management Safety Net: Market Penetration and Market Potential.” USDA-RMA (September 2017).

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