RMA to Pilot Limited Irrigation Insurance in SD-6 HPA

Just got the news that Risk Management Agency (RMA) is gearing up to launch their long-awaited limited irrigation insurance program in our SD-6 Local Enhanced Management Area (LEMA) - in 2013.  I've blogged about this developing program earlier (here) when it was being considered for a 3-state (Kansas, Colorado and Nebraska) roll-out.

This program is being designed to provide irrigated producers a proportional level of crop insurance for restricted irrigated cropping patterns - only for irrigated corn and soybeans initially (as these are the only two crops they have the yield to water use data for at this time).  Currently crop insurance is available only for fully irrigated crops, or, dryland crops, but nothing in between.  The thinking has been that if producers could get fair (proportional) insurance coverage (more risk management options) they would be more likely to limit irrigation and conserve water.  Of course, this protection gets even more important when these same producers are required to restrict pumpage.  The reduced coverages would be easier on the insurance companies, as well. 

A related issue is the effect of restricted irrigation (mandates or otherwise) on actual production history's (APH's).  The plan is that the pilot insurance program will be tried out under a special written agreement in the SD-6 HPA - where a LEMA order is expected soon to restrict their irrigation pumpage to 55 acre-inches over the next 5 years.  Under said agreements a special accounting will be done in regard to the production yields.  Bottom line is that participating producers' yield histories will not be affected during the special program period.

This is a win-win situation in my opinion and I wish to thank RMA and all those involved in offering this program to the SD-6 producers.  It will be interesting to find out how the producers opt to use this program - if at all.  Keep in mind, with the flexibility to use the 55 inches as desired, it is possible that some producers will not need it at all.  For example, those who choose to fully irrigate in 4 of the 5 LEMA years and go to dryland production in the other year will not need it.  On the other hand, anyone planning to use just their 11 acre-inch average allocation per year should be more interested.

There are many other details that are being worked at this time.  I'll try to do another article later on this program as an update. It's great to see the various levels of government supporting the locally developing LEMA plan.

Emergency Drought Permits in Kansas

Just a few weeks ago the Division of Water Resources announced the offering of an emergency drought term permit for water right owners looking at exceeding their annual water right amounts in order to complete the 2011 crop.  The drought in much of southern and central Kansas has been one for the ages to be sure.  The feeling was to shut off irrigation to stay within the limits of the water right and lose all or a substantial amount of the crop production would be a waste of the state's water resources invested in the production to date, so some mechanism needed to be provided to bring in this crop.

Basically the emergency permits require a water right owner to set aside his or her annual water right and be provided a two-year term permit (2011 and 2012) worth double the amount under the regular water right.  What ever is overpumped this year must be compensated for next year.  The need apparently was there because DWR has now eclipsed 800 term permits in the works - in literally 3-4 weeks time.  There is more to this program, but it clearly is a short-term, attempt to get through this devastatingly dry year.

More funadamentally, however, it could be argued that every water right owner knew on January 1, 2011 how much water he or she had for the year.  The safe decision would always be to plant only the acres and crop populations that could be completed ONLY with the irrigation water (assuming NO rainfall is received).  The problem with this mindset is that in the other 68 years out of 70 they underproduce because they fail to take production advantage of whatever rainfall is received.  When it all boils down, it's an economic and risk management system.  Seems like most producers have economic production goals and a risk tolerance well above the safest levels.  So we tend to operate for the bounty of the moderately dry, average and wet years and scramble for the fixes in the driest of the dry years.  Nothing more than human nature I suspect.  And in the end, the fixes do keep additional water from getting used, so it seems like reasonable business to me.

Limited Irrigation Insurance Coverage?

A number of areas in Kansas are already, or poised soon, to see reduced irrigation applications for crops due to a variety of reasons including regulatory compliance, well yield reductions, groundwater control areas, enhanced management efforts and the like.

Applying less than the full crop water needs is called “limited” or “deficit” irrigation, and Kansas is actually encouraging such irrigation as an important water conservation tool.  Our developing groundwater models are showing us that reduced irrigation can be a significant reduction in water use - and if done correctly can be accomplished with less economic impact than other conservation approaches for the same amount of water savings. I've blogged about this before, but basically the last few acre-inches applied to an irrigated crop are the least profitable, so these are the inches that should be targeted for conservation gains if economic concerns are important.  This means deficit irrigation.

Crop insurance plays a part in all of this because it's an important risk management tool for crop producers.  The problem is, currently there is no crop insurance for limited or deficit irrigation - a field may be insured as fully irrigated or as dryland.  Thus the risk factor of deficit irrigating, if one has to, or purposely chooses to do so, looms large.

Not only does dryland crop insurance not adequately cover the production or revenue losses a producer could face with a limited irrigated crop, but it also doesn’t provide as much collateral for the bank, when seeking next year’s loan, as would occur with a limited irrigated crop insurance.  This alone is another reason to  provide this new tool.

Kansas, along with Nebraska and Colorado, has been working with personnel from the USDA Risk Management Agency (RMA) Regional Field Office, and the USDA RMA in Kansas City to develop and offer a pilot program of limited irrigation insurance coverage.  The USDA – RMA has given a tentative approval to develop and offer limited irrigated crop insurance in Kansas, Nebraska and Colorado, perhaps as soon as 2012, if certain products, procedures and milestones can be met.

Agricultural engineers in all 3 states have developed crop production curve tables, also known as Irrigation Yield Adjustment Tables. These tables are expected to serve for the production guarantee during the transition of getting four or more years of limited irrigated crop harvests.  We are fully supporting RMA's efforts as the enhanced management areas of GMD 4 are going to be instant recipients of the program if they implement their reduced water usage plans in 2012 through 2016.