Livestock Risk Protection insurance (LRP) is a price insurance policy livestock producers can purchase to reduce price risk and losses, but LRP is not widely used by cattle producers. Several reasons could explain why few producers have not used LRP in the past, but the cost of LRP is a big reason. In 2019 and 2020, the LRP premium subsidy rate was increased to reduce the insurance premium cost to producers. The premium subsidy increased to 20% from 13% of the total premium cost in 2019. Then, in 2020, a tiered subsidy rate was set. Subsidy rates became 35% for coverage between 95–100%, 40% for coverage between 90–94.99%, 45% for coverage between 85–89.99%, 50% for coverage between 80–84.99%, and 55% for coverage between 70–79.99%. We recently published research analyzing the impact of the premium subsidy rate increase on feeder and fed cattle LRP costs. We found producers’ premiums for feeder cattle LRP policies were reduced between $1.41-$1.90 per cwt and $0.95-$1.56 per cwt for fed cattle LRP policies with the new subsidy rate. The figure shows the range of cost savings based on coverage level. These changes also increased the chances a LRP policy would pay an indemnity greater than the premium. In the past, indemnity payments would rarely be higher than the premium cost. These policy changes significantly reduced LRP cost, which might make LRP a more viable risk management tool for producers.
Figure 1. Reduction in Producer Premiums for Feeder and Fed Cattle LRP policies from Recent Subsidy Rate Increases
Boyer, C.N., and A.P. Griffith. In press. “Increasing Livestock Risk Protection Subsidies Impact on Producer Premiums” Agricultural Finance Review Available at: https://www.emerald.com/insight/content/doi/10.1108/AFR-05-2022-0066/full/html#:~:text=The%20increased%20subsidy%20in%202019,is%20lower%20to%20start%20with.
Boyer, C.N., and A.P. Griffith. In press. “Subsidy Rate Changes on Livestock Risk Protection for Feeder Cattle” Journal of Agricultural and Resource Economics Available at: https://ideas.repec.org/a/ags/jlaare/316752.html
Boyer, Chris, and Andrew Griffith. “Livestock Risk Protection Cost is Lower“. Southern Ag Today 2(36.2). August 30, 2022. Permalink