|Production Risk Management|
By Jon Clements
the five major risk areas fruit growers face—production, marketing,
financial, legal (and environmental), and human resource—production
risk is arguably the most basic. Without annual production of a fruit
crop, the other risk areas (particularly financial) take on new meaning
and/or importance. Fortunately, most fruit growers already do a good job
of managing production risk, however, they need to be continually
vigilant and proactive in managing this risk.
simply, production risk is the risk that production yield will be lower
than desired due to weather or some other unpredictable event. Fruit
growers deal with the vagaries of weather and its potential impact on
their fruit production (both yield and quality) every growing season. If
you’ve been growing fruit for long, you probably know and understand
your production risks quite well! Examples of production risk include:
· Spring frost reduces fruit set in a block of apples that
normally produces 800 bushels/acre—now there are only 200 bushels/acre
· Birds get into a Pick-Your-Own (PYO) blueberry patch just
ahead of what are now unhappy customers—PYO revenue is reduced by 50%.
· Hail hits a fresh fruit apple orchard—now the remaining
fruit is suitable for processing only, reducing gross dollar returns
· Failure to apply a timely insecticide to strawberries
results in plant bug injury that is unacceptable for the fresh fruit
· Etc., etc.—you get the idea!
of production risk include: Adverse Weather; Pest Damage; Input
Timeliness/Quality; Machinery Breakdown; and Lack of Production Know
How. Briefly, let’s look at specific sources and some risk-reducing
responses fruit growers might take for each of these.
Adverse Weather: Sources are obvious: hail, drought, frost,
extreme heat or cold, wind, etc. For fruit growers, hail and frost can
result in complete loss (production and or quality) of current growing
season production. Weather is uncontrollable, however, risk management
seeks to avoid
against bad weather circumstances resulting in crop loss. For example,
planting on good sites to avoid frost ‘pockets’ or installing
irrigation to reduce drought effects are ways to avoid weather damage.
Purchasing crop insurance is recommended for all fruit growers.
Catastrophic (CAT) insurance at a minimum guarantees an income if the
insurable crop is completely lost to hail or frost, and ‘buy-up’
options of Multi-Peril Crop Insurance (MPCI) protect against some
quality losses. Adjusted Gross Revenue (AGR) insurance is tailored to
diversified fruit farms. Diversification is another strategy to reduce
losses caused by weather. For example, peach production losses from
mid-winter cold bud injury can be compensated by a successful apple crop
if both fruits are grown.
Pest Damage: Insects, diseases, mammals, birds,
weeds—every fruit grower deals with these pests on an almost daily
basis. Pest pressure varies by fruit crop and time of year, however, to
avoid loss caused by pests, growers need to use timely inputs, stay
educated, and use appropriate technology. For example, the use of
weather monitoring equipment and computer models to predict when apple
scab is active (or not) can help an apple grower more effectively time
fungicide applications and reduce their risk of blemished fruit (quality
loss) at harvest.
Timeliness/Quality: Site selection, cultivar/rootstock selection, orchard
system and tree support, and choice of crop production chemicals and
usage are all examples where input timeliness and quality can make the
difference between success (profit) and failure (red ink). Fruit growers
a level of proficiency and education to reduce risk associated with poor
input timeliness and quality. Experienced fruit growers know that
timeliness of inputs/operations is critical to produce a profitable
crop. Sometimes you get some leeway, but often you do not—there is no
sleeping on the job! The perfect example is fruit thinning of apples,
where a very narrow window of chemical thinner application(s) at the
right times and rates can make the difference between a crop of very
small, low-value fruit vs. large, high-value apples.
Breakdown: Equipment failure is inconvenient at best, but costly
and/or a disaster at worse! Planned maintenance of tractors, sprayer,
harvest equipment, etc. is the best way to reduce
against the risk posed by untimely machinery breakdown. A realistic
replacement schedule of worn/obsolete equipment is a good idea.
Production Know-How: Producing a successful fruit crop requires extensive
knowledge of site selection, crop protectant rates and timing, current
and forecast weather and environmental conditions, and horticultural
techniques (i.e, pruning, tree/vine support, nutrition, etc.).
Education—i.e. attending Extension meetings, reading publications,
joining industry organizations, etc. is critical to avoid
against loss of yield and quality as a result of poor input decisions.
Technology can play an important role to retain
and gain production know-how.
to production risk as described above include: Diversification;
Technology; Site Selection; Timeliness of Operations; Record Keeping;
and Crop Insurance.
Diversification: Has three D’s—Different crops, Different locations,
Different markets. The concept is easy to grasp, but pulling it off
successfully takes hard work, and growing and marketing savvy. It’s
all-too-easy to bite off more than you can chew! Enterprise analysis and
good record keeping are important to know if the inputs for growing a
new crop are not exceeding the returns. Off-farm employment is a less
obvious but very common form of diversification among fruit growers. For
example, an apple grower with multiple varieties and/or crops (peaches,
cherries, blueberries, etc.) is also a computer consultant in town.
Technology: Irrigation, drainage tile, and wind machines
are examples of technology to protect against adverse weather events.
Mating disruption, degree-day and ‘expert’ models, computers,
weather stations, and site-specific weather data (i.e. ‘SkyBit’
E-Weather) are technology tools that help fruit growers make integrated
pest management decisions. Dwarf rootstocks, improved varieties,
intensive orcharding, and plant
Precision agriculture involves using new technology to get
site-specific farming results. Geographic
Information Systems (GIS), Global Positioning Systems (GPS), sensors,
and Variable Rate Technology (VRT) are all newly developed tools to help
the modern day farmer with precision agriculture.
· Geographic Information Systems (GIS):
Combines information about specific geographic
locations. Use to query,
analyze and map an area to aid in the decision making process.
· Global Positioning Systems (GPS):
A satellite navigation system controlled by
the U.S. Department of Defense that provides specially coded satellite
signals that can be processed in a GPS receiver, enabling the receiver
to compute position, velocity and time.
· Sensors: Used to identify and monitor hazardous
atmospheres and possess the ability to detect several different gases in
multiple farm environments.
· Variable Rate Technology (VRT):
Alternative chemical, seeding, and fertilizer
application systems focused on reducing input costs.
Site Selection: Choosing a good site is the one major response to
weather-related production risks a fruit grower has some control over
it. Needless to say, choosing a site adapted to the fruit being grown
and avoiding ‘frost pockets’ or ‘wet feet’ situations is the
basis for growing a profitable fruit crop.
of Operations: A major source of production risk is a lack
of timeliness of operations. Pest management, fruit thinning, fertility
and plant nutrition, pruning and training, and harvest timing (among
others) are all crop inputs with specific timing requirements.
Experienced fruit growers know that timeliness of inputs/operations is
critical to produce a profitable crop. Sometimes you get some leeway,
but often you do not—it bears repeating, here is no sleeping allowed
on this job! Time and labor management are good skills to have or
Record keeping: In a nutshell, you “can’t manage what you can’t
measure!” Information is the power to make informed decisions. Record
keeping is your source of information. Enterprise analysis—how well
are you using your inputs to produce a crop?—requires accurate record
keeping. Good record keeping, although it seems like one of the more
difficult and time-consuming tasks for some fruit growers, is an
essential tool for managing risk!
Crop Insurance: A valuable and basic risk management tool that allows
fruit growers to insure against losses due to adverse weather
conditions. It shifts unavoidable production risks to an insurance
company for a fixed dollar premium per acre. In addition, crop insurance
can help you market more profitably, improve access to credit, guarantee
a minimum income level, reassure partners and family, and above all,
provides some peace of mind! Crop insurance is recommended for all fruit
growers, and there are several types available, including: Multi-Peril
Crop Insurance (MPCI) which is based on Actual Production History (APH);
Non-Insured Crop Disaster Assistance (NAP) for fruit crops not covered
by MPCI; and Adjusted Gross Revenue (AGR) which is especially suited for
diversified fruit farms. Catastrophic (CAT) insurance provides a basic
level of MPCI for a very low premium—it is the minimum level of
coverage available. Need more information about crop insurance or want
to purchase a policy? Contact a crop insurance agent in your area by
using the ‘agent locator’ on the USDA/RMA website,
Crop insurance can be utilized as an important part of a total risk
management plan to assure a fixed amount of cash-flow protection from
adverse weather and other unavoidable named perils that producers are
exposed to during the coverage period.
· Multiple Peril Crop Insurance (MPCI) is a
broad-based crop insurance program that covers numerous crops in the
mid-atlantic region. For
most crops, MPCI covers unavoidable production losses caused by natural
hazards such as flooding and drought.
Losses resulting from poor farming practices or theft are not
covered through MPCI.
· A producer can choose to insure a specified
acreage of a crop or his/her revenue (whole-farm plan).
· Crops insured by acreage are on an Actual
Production History (APH) yield plan.
APH is an estimate of a producer’s average yield on the insured
acreage for four to ten consecutive years.
Crops can be insured at 50-85% (in increments of 5%) of a
producer’s APH yield.
· Insurable crops vary by county—written
agreements may be an option for crops not specifically insurable in your
· Price elections are set by the Risk Management
Agency for selected crops and are utilized as a maximum price to insure
crops. Crops can be insured
at a price between 55-100% of the price election.
· A low cost, minimum level coverage policy
called catastrophic coverage or CAT is also available.
This policy insures 50% of an APH yield and 55% of a price
election. CAT coverage is
fully subsidized by the government with no premium cost to the producer,
except for a $100 administrative fee, regardless of the amount of
· Indemnity payments are made when your average
yield per acre is less than your guaranteed yield.
This payment is calculated by multiplying the number of insured
acres by the yield difference times the indemnity price.
· Premium rates of payment for insurance are
based on the coverage level chosen, the loss history for your county,
and your APH yield.
· Late and prevented planting payments are also
available for some crops if due to an insurable cause of loss.
There are replanting provisions for various crops available as
· Adjusted Gross Revenue (AGR) and Adjusted
Gross Revenue-Lite (AGR-L) are whole-farm programs that provide
protection against low revenue due to unavoidable natural disasters and
market fluctuations that occur during the insurance year.
· Covered farm revenue for AGR and AGR-Lite
include income from animals and animal products, aquaculture, and
Crop insurance can play a major
role in providing a producer with peace of mind.
Crop insurance policies are tools used to reassure partners and
family, guarantee a minimum level of income, improve credit status, and
protect against disasters. Contact
an insurance agent for more information.
In conclusion, today’s growing and marketing environment
requires fruit growers to be skilled producers and sellers. One of those
skills needs to be devoting considerable attention to reducing overall
risk—including loss of production and fruit quality—via a
comprehensive risk management strategy. Good risk management = happy and
profitable fruit grower!