Introduction

The Julian Samora Research Institute (JSRI) and Michigan Food and Farming Systems (MIFFS), with funds provided by the North Central Extension Risk Management Education from the University of Nebraska, collaborated in developing a project promoting understanding of risk management and mitigation approaches among small-scale farmers in Michigan. The project described and analyzed production, financial, and human risks, and provided available information to beginning, Latino, limited resources (LR), and socially disadvantaged (SD) specialty crop producers identifying and mitigating risk, crop insurance, and disaster assistance programs. In addition, the two organizations were interested in the role of social capital in facilitating the dissemination of information on farm risk and risk mitigation within small farmers’ networks, as well as the role of social capital motives among small-scale farmers when buying an insurance policy for their farming operations.

We expect that the lessons learned from this project will help producers improve their economic sustainability by using their knowledge of risk management and mitigation issues, encouraging behavioral change, and promoting the development of robust relationships with insurance agents, educators, and technical service providers.

Due to pandemic restrictions imposed by government health agencies and university regulations, we obtained the information presented in this paper through online focus groups and personal phone interviews with Latino producers, socially disadvantaged farmers, representatives from government agencies, private insurance providers, and farmers’ organizations. In addition, 50 participating farmers completed an instrument on the different types of risks they face, how they deal with them, their sources of information, and their experiences with agencies/companies that provide insurance policies in rural areas.

Farmers Participating in the Project

The Latino farmers who participated in this project have small operations, no more than 60 acres, and mainly cultivate only one crop, in most cases blueberries. Some of them produce vegetables such as tomatoes, tomatillos, different types of hot peppers (chiles), and other specialty herbs oriented for Latino consumption. They produce locally, are naturalists, and are concerned about the environment. In general, their educational attainment is low, not higher than elementary school, and they still use old agricultural practices inherited from their ancestors.

They face several constraints in their agricultural practices:

A. Lack of a well-defined business plan;

B. Limited or nonexistent practice of record keeping;

C. Lack of a well-conceived marketing plan for their products;

D. Limited access to formal financial markets; and

E. Lack of proactive plans to deal with catastrophic events.

The lack of knowledge about the different types of insurances available for farmers hinders these farmers when preparing for catastrophic events; this makes most of them hesitant to buy appropriate insurance for their farms. A small group of participating farmers reported having a previous experience with insurance companies. Unfortunately, for some of them, the experience was negative due to the length of time insurance companies took to pay for the damages caused by a catastrophic event and the fact that only a percentage of the value of the damages incurred was covered. This generated a lack of trust on the part of farmers toward insurance providers. Further, given the size of their farms, their locations, and the scope of their operations many small-scale farmers cannot afford to purchase insurance policies that cover catastrophic events.

These farmers face several types of risks to their agricultural operations, some of which we describe in this paper. Because of climate change, their farms must cope with the rise in temperatures, making some crops unsuitable for production in certain areas. Other catastrophic events due to climate change are major floods, droughts, and tornados that cause considerable damages to crops and facilities. Farmers struggle with invasive weeds and pests that damage their crops. Other weather-related incidents that could affect farmers are barn fires, vandalism, fallen trees on equipment, and the presence of wild animals.

Participating farmers have to cope with other types of risky events not directly related to their agricultural practices but which could affect the productivity and sustainability of their operations. Among them are:

A. Shortages of farmworkers: In the last few years, due to antiimmigration policies and the pandemic, fewer farmworkers were available, especially during harvesting time. This forced farmers to leave crops in the field which had a direct negative impact on the farm’s revenue and sustainability.

B. Lack of appropriate technology and tools. Participant farmers lack a clear understanding of the types of technology that are most appropriate for their agricultural practices. This tends to limit the efficiency of their operations. Further, the size of their networks does not facilitate understanding of the appropriate technology and tools suitable for their farms.

C. Lack of access to credit markets. This is a major constraint which limits access to funds to purchase needed equipment and tools. As a result, they turn to family and close friends to obtain needed funds for their operations and/or use credit cards, which typically have high interest rates. The more land a small-scale farmer buys or leases, the more money and labor is needed for farm operations.

D. Lack of a well-developed marketing plan. The lack of a marketing plan makes them vulnerable to price changes and makes it difficult to find buyers for their products. In many cases, looking for buyers constitutes a high opportunity cost due to the time spent searching for them instead of allocating that time to other productive activities.

E. Lack of a retirement plan. Many longtime farmers do not have retirement plans. They do not have a clear idea of what they will be doing after retirement, whether they will be moving to another house, what health care costs they will incur, and if they will sell/rent their farm. This lack of preparedness for retirement creates high uncertainty and has a direct impact on the farm’s sustainability.

F. Lack of a well-developed succession plan on inter-generational farms. This is common in this size of farms and could impact future operations. It may lead to a rupture of the farm’s ownership structure after having been in the family for many generations. It is well-known that intergenerational farming is decreasing across the United States.

G. Lack of a handbook with safety protocols. The lack of these protocols makes it very difficult to cope with risky events as no one knows their role when one occurs, how to collect data on the losses due to the event, how to deal with the insurance company if they have a policy, etc.

The northward shift of the agricultural climate zone due to global climate change opens new possibilities for producing crops that a few years ago were not possible to produce in those areas, but production may also have a negative impact on the environment through the release of carbons.

Perceptions of Farmers

Fifty participating farmers completed an instrument with questions about the main risks facing their operations, how they cope with those risks, their sources of information for farm risk mitigation and risk management programs, and their experiences with insurance providers. In addition, we were interested in learning about the role that social capital motives play when farmers buy an insurance policy. The main purpose of the instrument was to learn from the farmers their understanding of risks and risk mitigation approaches.

Responses to questions included in the assessment instrument show the following:

Q: Identify the three most important sources of risk on your farm.

The three most important sources of risk on farms are:

a. Pest and plant diseases;

b. Control of wildlife;

c. Failure of machinery, equipment, and tools.

Q: How many times in the past 5 years have you been unable to pay farm bills using farm-generated funds?

Nearly two fifths of respondents were unable to pay one or two times, while nearly one fifth indicated that they did not have any problems paying their bills, and just over one tenth reported that they had not been capable of paying their bills three to four times in the last 5 years.

Q: What are the three most important sources of information about farm operating risks?

Participating farmers indicated that the three most important sources of information about farm operating risks are:

a. Extension services;

b. Other farmers;

c. Family members.

Q: Identify the three most important responses to farm risk.

Participating farmers identified the following as the three most important responses to farm risk:

a. Production diversification;

b. Buying crop insurance;

c. Using a greenhouse to make production more predictable.

Q: Organizations that provided you with information related to farm risk mitigation/management programs.

Farmers indicated that private organizations such as NGOs are their main source of information for these programs. Most of these farmers praised the service that Michigan Food & Farming Systems (MIFFS) provides by disseminating information about risk mitigation programs.

Q: Do you have any type of farm insurance?

Only two fifths of farmers who participated in this program reported having any type of farm insurance.

Q: Are you aware of available disaster and crop insurance programs offered to farmers?

Only one third of respondents replied affirmatively to this question.

Q: If YES, have you ever participated in one of these programs?

Over half of farmers who were aware of disaster and crop insurance programs participated in one of these programs.

Q: Did you have a good experience with the insurance company when you attempted to file an insurance claim due to a catastrophic event on your family farm?

A large majority of these farmers (86 percent) reported not having a good experience with the insurance provider.

Q: Do you prefer NOT to participate in a disaster and crop insurance program for your farming operations.

Approximately half of these farmers prefer not participate in a disaster and crop insurance program. 

Q: What are your most important sources for responding to a serious operational loss?

The following three items were identified as the most important sources for responding to a serious operational loss.

a. Personal savings and property;

b. Help from friends and family;

c. Farm resources.

The Role of Social Capital Motives

According to the seminal paper “The Relative Importance of Selfishness and Social Capital Motives” (Robison, L.J. et al, 2011), there are five social motives that influence the behavior of persons when buying a good or service. The five social capital motives are: 1) Own Consumption, 2) Self Respect (internal validation), 3) Goodwill (external validation), 4) Sense of Belonging, and 5) Sharing.

Neoclassical economic theory holds that people participate in the market mainly based on self-interest and preferences. The theory states that the “own consumption” motive is far and away (95%) the principal reason why people participate in the market. The social capital motives framework challenges this assumption. Robison et. al. (2011) conducted several empirical studies evaluating the motive people have when buying different types of goods and services (i.e., buying gasoline, getting a haircut, participating in recycling programs, having a colonoscopy, etc.). They demonstrated that self-interest and preferences are not the always the overwhelming principal motive as stated by neoclassical economic theory.

The instrument asked Latino farmers to assign percentages to each of the five motives when planning to buy an insurance policy for their farms. The results show that own consumption becomes the most important but accounts for only 73.6% (far below 95%), while sense of belonging resulted in the second most important with 13.1%. These results show that Latino farmersʼ main motives for buying an insurance policy are to protect them and their farming assets and to become a member of a network of productive and efficient farmers.

Demographic Characteristics of Participating Farmers

The following are some of the demographic characteristics of the farmers who completed the assessment instrument.

A. Fifty-four percent reported not having a high school degree, 17% are high school graduates, and 17% have a bachelor’s degree.

B. Most of them communicate in Spanish at home and with other farmers.

C. On average, these farmers have 18 acres in production.

D. Participant farmers reported on average 9.7 years on farming.

E. On average, they are producing three different agricultural products at their farms.

F. Only 53% are full-time farmers.

G. The average distance from their farms to main market is 50 miles.

Requested Risk Mitigation Actions

Farmers who participated in this project requested the following to assist them in mitigating the risks they face in their farming operations:

1. Develop and provide a risk mitigation program at no cost. The project was able to find written information and videos, both in English and Spanish, about risk mitigation programs, which were posted on the MIFFS website. A future program should emphasize development of a training program focused on farm risk mitigation for underserved and disadvantaged farmers.

2. More information about climate change. Since climate change is becoming one of the main sources of farm risk and having a huge impact on productivity and sustainability, it becomes imperative to develop a program to gather and distribute information, and to develop training workshops for farmers about the growing crisis. The workshops should also include information on how farmers can mitigate the impact of climate change on agricultural production.

3. Develop an Integrated Pest Management program (IPM) as a way to reduce risk. As stated above, pests and weeds are important sources of risk for farming operations and make it important to work jointly with MSU Extension in developing information and training workshops on IPM programs. Experiences working with these farmers show that it becomes necessary for outreach workers to keep promoting the importance of these programs among farmers and inviting them to participate in the workshops.

4. Information about food safety and risk mitigation. Farmers expressed concern about food safety regulations and the potential risk for their operations if they do not comply with all the specifications which are continually evolving. In many cases, in order to comply with the regulations, farmers need to incur costs (i.e., product management and storage, tracking numbers, chemical operations, etc.) that affect their bottom line. On the other hand, not complying with the regulations could have a direct impact on the quality and marketing of their products. JSRI and MIFFS have been offering training workshops about these regulations to both farmers and farmworkers.

5. Access to new technology. Most of these farmers do not have the necessary financial resources to buy appropriate equipment and tools to use in their farms. Their access to credit is very limited to suppliers of seeds, fertilizers, and in some cases equipment. A paradox is that some farmers decide to buy relatively big tractors which they use only for a few weeks a year. A study by Siles et.al., (2021) found that the social capital motives that could explain such purchases is external validation. Some farmers want to show their peers and neighboring farmers their capability to buy large equipment, although its use is limited.

6. Information about how to operate greenhouses. Greenhouses are becoming one of the farmers’ initial responses to the climate change since they can control temperature, humidity, pests, plant irrigation, and other factors in these facilities and that makes their production more predictable. This is why they are interested in learning how to operate green and hoop houses to reduce the incidence of many of the risky events they currently face when farming in open fields.

7. Opportunities to purchase risk-reducing investments. Due to the relatively high costs of appropriate technology (greenhouses) and their financial limitations, farmers are interested in opportunities to learn how to access these production facilities. Currently, the federal government has a program to facilitate the purchase of greenhouses by socially disadvantaged farmers. Farmers with small operations, however, face many constraints when trying to access these programs; among them is their immigration status, their lack of production records, language and education limitations, among others.

8. Crop diversification. Most farmers use this production approach as a way to reduce operating risks at their farms. Given the scale of their operations, small disadvantaged farmers also use this risk mitigation approach.

9. Producers’ association for sharing risky outcomes. This approach is widely used by farmers in developing countries, but it is also appropriate for small farmers and their operations here in the U.S. Under this production method, small farmers create a network with their peers to exchange information about production risks and mitigation approaches, where to obtain the best deal for production inputs, markets that offer the best prices for their products, among others. In addition, they join forces to market their products, transport their products to markets, and work together in the recovery process when a catastrophic event occurs.

10. Affordable insurance policies. Due to the high cost of insurance policies, most disadvantaged farmers cannot afford to buy any type of insurance to cover their farming operations.

11. Access to credit. There are many factors that limit access by small disadvantaged farmers to credit programs offered by formal financial markets. Among them are: immigration status, language and education limitations, lack of a credit history, reluctance to work with a bank due to past bad experiences, and not keeping a checking account. The lack of access to credit prevents these farmers from having the required resources to buy a crop insurance policy and other insurances prior to the cropping season.

12. A well-crafted succession plan. The lack of a succession plan adds uncertainty regarding the future farm’s operations. In many cases, the sudden death of one of the farm’s owners could seriously affect the farm’s operations up to the point of stopping agricultural operations.

13. A labor requirement plan to avoid shortages at harvest time. In the last few years, there have been important shortages of farm labor especially during the harvest season. In many cases, farmers had to leave some of their products in the fields due to lack of farmworkers.

Participation of Private Insurance Companies in Risk Mitigation Programs

As we did with farmers, we conducted focus groups with farm insurance providers to learn about the types of programs they offer, how they contact and communicate with Latino and disadvantaged farmers, and the constraints they face when dealing with these farmers.

One of the first issues most providers emphasized is that only few insurance companies are authorized to sell crop insurance to farmers. Providers must get approval from the United States Department of Agriculture Risk Management Agency to sell crop insurance. A a list of these providers by state is available at the USDA Risk Management Agency’s website.

Liability insurance is the most common type of insurance that farmers access. This type of insurance can cover the farm property, including the farmer’s home and other physical facilities, the machinery, farm equipment, tools employed for farming operations, automobiles, and other equipment used to transport products to market. Physical facilities are covered for fire, floods, and other catastrophic events. Other insurance policies can also cover any injures that visitors can have while visiting the farm or for people that come to the farm for U-pick programs.

In addition, there are some specialized insurance policies to cover accidents suffered by farmworkers while working in the farm; these are worker compensation insurances. It is very important for farmers to buy this type of insurance due to the large numbers of workers they employ at certain times of the year, and given the type of risky work they perform.

Other insurances cover livestock as property, but not crops. Some insurance policies protect the entire process from farm to fork. During the focus groups, providers told us that farm leases are covered through the same insurance policies stated above.

An important type of insurance is life insurance; none of the farmers included in this project has this insurance. A life insurance pays a predetermined sum of money agreed at the time the farmer buys the policy for his/her family after he or she dies in an accident or after he/she dies of natural causes. Many times, this insurance becomes very helpful to the farmer’s family in continuing the farming operations.

Constraints Faced By Private Insurance Companies For Their Operations With Farmers

Insurance providers currently serving or interested in serving disadvantaged farmers face several constraints in doing so. Among them are:

A. The farm size is not suitable for insurance companies. The average acreage that participant farmers operate is less than 20 acres, which makes it difficult for insurance providers to serve them due to the high administrative costs these operations have and the type of insurances they can afford.

B. Disadvantaged farmers need to develop good recordkeeping systems. The lack of up-to-date farm records becomes a major constraint that insurance providers face when serving disadvantaged farmers. In many cases, the lack of farm records also prevents these farmers from accessing government assistance programs.

C. Several family members are involved in the decision-making process. It is common among disadvantaged farmers to ask the advice of close and extended family members when they need to make a decision that could affect their farming operations. This is also the case when dealing with insurance providers, making the decision process slow and cumbersome.

D. How to get a good reputation with farmers. In general, disadvantaged farmers do not want to work with insurance providers because of bad past experiences and the high cost of insurance policies. Where providers are interested in serving these farmers, they face reluctance on the part of farmers, which makes a policy purchase very difficult. Many providers expressed their interest in developing a good reputation with farmers and are currently thinking of ways to do so.

E. Snowball approach as the way to contact farmers. Insurance providers believe that the best way to contact disadvantaged farmers is through a snowball process. That is, getting referrals from those farmers they know. Since many of these farmers are located mainly in secluded areas, work part-time outside their farms, and are not members of networks of other racial and ethnic groups, it is very difficult for providers to contact them directly. The snowball process is helpful in these instances.

F. Insurance providers' limited outreach to Latino, women, African American and veteran farmers. Insurance providers tend to concentrate their outreach efforts on farmers with large operations since these farmers know the advantages of possessing different types of insurances policies to mitigate risks on their farming operations. In addition, these farmers maintain their farming records up to date and, thereby, their financial capacity to buy insurance policies as well.

G. Many farms are moving to the production of cannabis. Since the legalization of cannabis in Michigan, many farmers are replacing some of their crops with hemp and marijuana. The current performance and high prices of these crops are generating substantial revenues to farmers. The prevailing regulations related to the high cannabidiol (CBD) content of these crops increases the insurance price, making it more difficult to obtain an insurance policy.

Dissemination of Information

The information collected by this project was processed and analyzed, a summary of the results was made available to farmers, insurance providers, and students through a presentation at the annual MIFFS conference and informational videos in English and Spanish posted on YouTube.

A. The presentation at the MIFFS conference provided basic information about the project and promoted awareness of risk mitigation approaches to small and disadvantaged farmers.

B. Two informational videos were produced, one in English and the other in Spanish, on risk mitigation programs for small farmers.

C. A webinar titled “Introduction to Social Capital in Spanish” was delivered via Zoom.

D. Two webinars on the role of social capital on risk mitigation programs were delivered via Zoom.

E. A video on social capital and risk mitigation programs was produced and made available on the Internet.

F. A board game was designed to show farmers the difference between risk and uncertainty and to teach them how to make decisions when faced with risk and uncertainty issues.

G. Posted risk-related publications, articles, and videos on the MIFFS website.

Conclusion

This was a very important project focused on promoting awareness and understanding of farm risks and risk mitigation approaches among beginning, small-scale, and socially disadvantaged farmers. We learned about the constraints insurance providers face when attempting to serve disadvantaged farmers, the lack of information these farmers have about the different types of farm insurance policies, their interest in crop insurance, and the relatively small number of private insurance companies that have the approval of the Risk Management Agency. Farmers also have little knowledge about risk mitigation programs available from the federal government.

The inclusion of social capital and its five motives in a risk mitigation program opens the possibility of promoting participation by disadvantaged farmers in these programs once they realize the importance of expanding their networks to enhance their sources of knowledge of risk approaches, learn of emerging market opportunities, and changes in farm regulations. It is critical that they go beyond their current networks.

We plan to include the lessons learned through this project about farm risk and risk mitigation approaches in the two-course sequence Introduction to Farm Management that we teach in a bilingual format for farmers. This course is a result of a collaborative effort of the Julian Samora Research Institute, Michigan Farming and Food Systems, the National Immigration Farmers Initiative, and Lake Michigan College.

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