April 10, 2020
While it’s been almost two years now that hemp has been legal to grow, thanks to the Farm Bill passed in 2018, there are still a lot of unknowns and factors being ironed out. Banking, financing, local, state and federal guidelines and regulations, testing, importing, exporting, and of course, insurance. Until recently, hemp farmers were not able to take out insurance on their valuable hemp crops. Why Crop Insurance? Farmers of any size should have insurance on their crops, no matter what they are growing. Crops are a valuable commodity, but there are a lot of things that can threaten and prevent a successful harvest, thereby cutting off all profits. To prevent that from happening, crop insurance protects the farmer against any loss they may sustain during the growing season. Crop insurance can protect against catastrophic damage from freezes, drought, disease, flood or loss of the crop because of a quality problem. Insurance covers the loss of yield or revenue that can come from a decrease in production or fluctuation in the market price of the crop. Specific types of insurance coverage vary by crop. Crop insurance is essential for farmers, who make a significant investment in their crops and rely on the harvest to produce a profit, despite slim margins and unpredictability from the market and Mother Nature. Now, hemp farmers are being given that same opportunity to have a much-needed safety net, which is especially welcome thanks to hemp being a somewhat unpredictable or fickle crop. Hemp Insurance: Two Programs In February, the USDA introduced two different insurance programs for hemp farmers as protection for their crops: multi-peril crop insurance and noninsured crop disaster assistance. As with much in this industry, the programs came with stipulations about who was eligible, and there was also a tight deadline… as in less than six weeks from the time the announcement was made. Eligible farmers had until March 16 to obtain their coverage. AND, the insurance is not yet available in all states where growing hemp is legal. So while this is a step in the right direction, it’s not yet available for every licensed, eligible grower. In states where insurance is available, eligible farmers must be licensed to grow hemp and have a buyer contract already in place. Without those two things, don’t even bother to try and obtain coverage. But here’s another rub in this new USDA offering. There isn’t a lot of clarity around what qualifies as a buyer contract, according to the USDA. Add to that the surplus of raw material on the market and the buyer contract stipulation adds yet another challenge that hemp farmers need to overcome. Eligibility aside, what do the two insurance programs include? The multi-peril crop insurance (MPCI) covers a loss of yield because natural causes for hemp grown for fiber, grain or CBD. So rain, flood, drought, pests, excessive hail, even broad market changes. It basically addresses things that are beyond the farmer’s control. This coverage is only available in 21 states, as of this year – and only in certain counties in those states. In addition to the two main requirements mentioned above (licensed to grow hemp and a buyer’s contract), farmers must have been growing hemp for at least one year, be in compliance with state or tribal regulations and grow a minimum of five acres of hemp (for CBD, but if growing for fiber or grain, that number is 20 acres). Starting with the 2021 growing season, hemp grown in containers will be eligible for coverage under the nursery crop insurance program and the nursery value select program. Coverage with MPCI is 50/55 but can be supplemented to be 75/100. 50/55 coverage means that if production/yield is less than 50% of the average, the loss is paid at 55%. Noninsured crop disaster assistance (NAP) offers coverage for lower harvest yields, destroyed crops, or prevented planting. This program fills a gap by providing protection to hemp farmers when permanent crop insurance program is available. Eligibility is similar to the above – the licensing and buyer’s contract, compliance with regulations. For NAP, farmers must also provide a processor contract and THC level test results to the USDA by August 15, their acreage reporting date. NAP coverage is the same 50/55 as MPCI. Crops that have to be destroyed because they are hot will not be covered by either type of insurance. Hemp farmers still need to use extreme caution with their crops to ensure THC levels remain below the 0.3% threshold. A third type of insurance coverage was added, whole farm revenue protection. This plan offers coverage on all farm commodities with total insured revenue of $8.5 million. So while not an option for small or new hemp growing operations, it is out there for the big farms. Plan Now for the 2021 Growing Season While the deadline for insurance coverage is past for the 2020 growing season, farmers need to make decisions now for the 2021 growing season. For those who were able to obtain insurance for this year, that process is easier since the regulations (as they stand now) have already been met. They are licensed, adhere to local, state, federal, and tribal regulations, have a buyer/processor contract. Having this history will make the process of obtaining insurance for the next growing season easier (barring any drastic changes made by the USDA). For new farmers or ones who did not meet the requirements for coverage, this is the time to put the necessary components in place. One of the requirements is a growing history of one year on five or 20 acres (depending on the purpose of the crop, whether for CBD or grain/fiber), so anyone just starting out will want to consider getting plants in the ground in order to establish that history. It is also a chance to ensure all regulations are being met and obtain the necessary licenses and contracts. Need Help? The deadline for these two federal hemp insurance programs is part, but there are still alternative ways to obtain coverage. While this coverage is generic and not as comprehensive as either the MPCI or NAP, it will give some protection to the farmer. Be ready for the 2021 growing season by doing your homework now and putting the necessary pieces in place. If you need help finding an approved insurance provider who can set you up with the right crop insurance policy for your farm, contact us today. If you need to locate an approved testing lab, learn information on your state’s regulations, or need help finding a buyer, we will tap into our extensive network to find the information and just the right fit for your needs. The WherezHemp qualified consultants are standing by to help in any way. Our goal is to help you succeed and ease any concerns or uncertainty as you navigate the hemp and CBD landscape. We have the largest nationwide network of hemp and CBD industry professionals, ready to meet your needs. As an added bonus, you can be a part of that network and receive the benefits that come with connecting with the top hemp and CBD professionals in the country.