What Is Revenue Protection And Why Is It An Important Policy To Offer Farmers?

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Revenue Protection (RP) provides coverage to protect against loss of revenue caused by low prices, low yields, or a combination of both.  This Federal crop insurance policy has become one of the most valuable risk management tools for farmers across the United States.  More than 75 percent of the Federal crop insurance policies sold today provide some form of revenue protection.

One of the key components of a RP policy is the utilization of a harvest price.  RP policies allows the farmer to receive the greater of the harvest price or the projected price at time of sales to determine the revenue guarantee. When buying a RP policy, the farmer automatically receives protection for the harvest price but can choose to exclude the added price coverage by opting to select the Harvest Price Exclusion (HPE).  If the farmer opts to do so, they will pay a lower premium rate.

The RP policy is designed to provide additional assurance to those farmers who often market their crop before harvest. Many farmers enter a forward contract to sell a portion of their production before harvest. Usually, these contracts pay the farmer for the production they deliver after harvest based on the contracted price. If the farmer loses the crop, they are still obligated to deliver the contracted amount of protection under the forward contract. But since the crop is lost, the farmer would have to either buy the commodity at the harvest price and deliver that, or financially settle the buyer’s contract at the contract price. RP helps provides the farmer with sufficient funds to settle the forward contract.

RP is also important for farmers who raise dairy cows, cattle, hogs, poultry or other animals and grow their own feed. If a disaster wipes out feed production, the farmer must enter the market and purchase feed at the going price, which most likely would reflect higher crop prices due to a “short” crop reflecting the effects of the disaster. RP provides farmers with the needed funds to afford the higher feed costs and continue to maintain the animals avoiding untimely or unnecessary liquidation or other disrupting impacts.

*Updated April 2021