Area Plans insure against an area-wide usually county-wide loss of production on a crop. It is based on the concept that when an entire county’s crop yield is low, most producers in that county will also have low yields. National Agricultural Statistical Service (NASS) county data is used to set the expected and actual county yields.
Under an area plan, the insured chooses a percent of the expected county yield or revenue which is published by RMA in the actuarial documents. If the actual county yield or revenue falls below the expected county yield, a loss occurs regardless of the farm-specific production.
There are three Area Plans of Insurance:
Area Yield Protection Plan (AYP)
The AYP plan provides coverage based on the experience of the county, rather than an individual farm. A loss may occur if the final county yield falls below the insured’s expected (or trigger) yield. FCIC issues the final county yield in the calendar year following the insured crop year. Since this plan is based on a county yield and not a producer’s individual yield, it is possible for a producer to have a low yield on their farm and not receive any payment under this plan.
Area Revenue Protection (ARP)
The Area Revenue Protection Plan provides the yield protection of the Area Yield Protection Plan, but also provides against a loss of revenue due to production loss, price decline or a combination of both. ARP is similar to the RP plan as the initial guarantee is calculated using the projected price, but the revenue guarantee will increase if the harvest price is greater than the projected price. If the harvest price is lower than the projected price, the policy guarantee remains the same. A loss occurs when the Final County Revenue falls below the Expected County Revenue (or Trigger) Guarantee.
Area Revenue with Harvest Price Exclusion (ARP-HPE)
The ARP-HPE is similar to the ARP plan except that the guarantee is not adjusted up by the Harvest Price. The guarantee is always based on the projected price, but losses are calculated using the harvest price. This plan is very similar to the RPE-HPE plan except it is based on the experience of the county, rather than the individual producer.