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North Bay Business Journal

Monday, January 27, 2014, 7:00 am

Winegrape growers, farms rush to secure crop insurance

Drought raises alarms over frost protection, irrigation

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    As California grapples with what is shaping up to be one of the worst droughts in decades, winegrape growers and other agriculture businesses are racing to strengthen or establish crop insurance policies as a hedge against potential weather-related damage that could translate to big financial losses.

    All ag businesses have until Jan. 31 of this year to renew, strengthen or open new federally subsidized policies, and the vast majority of vineyards across the North Coast are taking full advantage, according to Chris Maloney, who’s crop insurance agency was acquired by Santa Rosa-based American AgCredit late last year.

    “We are experiencing a lot of concern with our policyholders and with new people to the program regarding the potential lack of rain,” Ms. Maloney said. While she couldn’t yet estimate by how much business has increased so far compared to last year, she nevertheless said her office has been swamped with inquiries from a wide range of vineyards.

    During a typical year, a vineyard policy might cover between 50 percent and 60 percent of the crop. But with the looming possibility of a sustained drought, many vineyards are upping their premiums to cover up to 80 percent of their crops.

    “We’re seeing a lot of people move out of the 50 to 60 percent range and into the 75 to 80 percent range, so they are worried,” Ms. Maloney said.

    Douglas McIlroy, director of winegrowing for Rodney Strong Wine Estates near Healdsburg and who also manages his own vineyard, is doing exactly that.

    “We pretty much get crop insurance every year that would cover our operating costs,” he said of his personal ranch. “This year, we decided to go from 65 percent to 75 percent. When I was talking to my broker and asked if he’d been busy, he said lots of people were asking the question of how much can I buy up and how much is will it cost.”

    Mr. McIlroy said grapegrowers and other ag businesses haven’t faced water levels this low since 1976 and 1977, although 1990 and 1991 saw a statewide drought. Ms. Maloney similarly said her office hasn’t yielded so many inquiries from vineyards in some time.

    “It’s just very different,” she said. “In 2008, there was a huge drought issue in the county. In 2010, there were very high temperatures and there was a lot of heat damage. In 2011, there was rain damage. But those things happened suddenly without a lot of warning. This is more anticipatory.”

    As polices are increased, premiums naturally increase. But policies and premiums differ for each vineyard and each farm, depending on a number of factors ranging from how water is sourced to overall annual yield to what type of crops are grown, including different varieties of grapes, according to Ms. Maloney.  Premiums also depend on how much coverage is purchased because the amount of the federal subsidy, from the U.S. Department of Agriculture, also changes.

    A key piece of the insurance puzzle — and faring better during the dry spell — is how the water is sourced. Specifically, vineyards that rely heavily on reservoirs not adjacent to a stream could be in for a long season if rainfall remains perilously low, Mr. McIlroy of Rodney Strong said.

    “There’s vineyards that rely 100 percent on reservoirs. A lot of those are dry right now, and if we don’t get some rain, those are the most susceptible,” he said. “Not only do they need water to get the crop through, but also for frost protections.”

    Other vineyards that divert directly from a stream could face challenges, particularly if the state sends out a letter of curtailment. While Lake Mendocino — a key source for Alexander and Dry Creek valleys — might have a year’s worth of water stored up, “that doesn’t mean the state water board wouldn’t curtail that, too,” Mr. McIlroy said, adding that every vineyard is going to be concerned about frost protection if the warm, dry weather persists, which could lead to early budding on vines.

    As such, vineyards are being encouraged to take advantage of the federal crop insurance as one way to curb potential losses — before the Jan. 31 deadline.  The California Association of Winegrape Growers issued a memo to its members detailing some of the key points in either renewing policies or becoming newly insured.

    “Federal crop insurance will cover yield losses for winegrapes due to failure of water supply for irrigation, including groundwater and surface water deliveries from irrigation districts,” said the trade group also known as CAWG.

    It also noted that current year crop insurance policies only cover yield losses in 2014 “and does not cover damage to vines and their future productivity.”

    Insured grapegrowers fall into two categories — newly insured and renewal insured. The difference can impact the amount of coverage on yield losses that result from failure in irrigation supply, which includes drought. Vineyards that renew 2013 policies are considered renewals, but if vineyards add additional varietals to an existing policy, those varietals are considered newly insured.

    Given that policies and coverage will differ for each vineyard, grapegrowers are encouraged to seek professional guidance from their agent or broker, CAWG told its members.

    While much of the North Coast crop insurance includes vineyards, other sectors of agriculture are feeling the pressure and are similarly seeking more coverage, Ms. Maloney, of American AgCredit, said.

    “We have livestock and grass is an issue,” she said. “So it is definitely affecting livestock procedures.”

    Mr. McIlroy said Rodney Strong is similarly considering upping its insurance coverage to include its cabernet sauvignon grapes. Another benefit, he said, is that grapegrowers don’t have to begin paying the premium until 30 days after harvest begins.  

    “The one federal subsidy that the wine growing community gets is crop insurance,” Mr. McIlroy said. “It’s for times like this.”

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    Comments

    1 Comment

    1. January 29, 2014, 3:00 pm

      by naksuthin

      “Federal crop insurance will cover yield losses for winegrapes due to failure of water supply for irrigation, including groundwater and surface water deliveries from irrigation districts”

      I don’t know why the taxpayers are paying the insurance to guarantee that farmers don’t have a bad year.
      Do you know of any other business where the government will step in and pay THEIR premiums if they go bankrupt or have a bad year??

      Come on. This is not a socialist country where the government guarantees farmers can’t lose. This is a free market economy where each business sinks or swims on its own.

      If growers want to buy crop insurance…that’s their business. But the taxpayers shouldn’t be footing the bill.

      Outrageous!!


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