If you are considering transferring your farming operation to another person you may want to look into a couple of options offered by the Federal Multi-Peril Crop Insurance (MPCI) program to take advantage of good production history.
The basis for crop insurance is your actual production history (APH). This is your actual acres planted and actual yields averaged for up to the most recent 10 years. If you have a good APH, the person taking over all or part of your operation may want to use your APH for their crop insurance program. There are two ways of doing this:
First and most common method. The person taking over has been involved in establishing the current operations by participating in both management decisions and the physical activities necessary to produce the crops. If you have not done both, you are not eligible for this option.
If you qualify for this option, you will need verifiable evidence that you have participated in both activities. There is no set standard for what qualifies as verifiable evidence, but it is recommended that you keep a log or diary of those activities that would qualify you in case you need to provide them in a future audit.
Note that even if the current operation has 10 years of history in the MPCI program, you would only be eligible to use those years that you were involved in the management and physical activities of the operation. The current operator must agree to do this by signing a consent form for you to use their history. For those in a beginning farmer or veteran farmer program, either the management decisions or physical activities may apply so you may not have to perform both management and physical activities.
Second but uncommon method. This method doesn’t require the new operator to be involved in past management and physical activities of the operation. It does however require that the new operator farm on a share rent basis with the previous operator for at least the first year.
You are still required to have the previous operator’s signature on the appropriate forms and have access to his or her records. As a precautionary measure, it is highly recommended that you keep copies of the records. After the first year of farming on a share rent basis, you will no longer be required to continue share renting. Instead, you will be allowed to use the previous operator’s production history combined with your own.
Just as it is important to have accurate and up-to-date financial records for your bank, it is also extremely important to have accurate and verifiable records for your crop insurance program. The Federal Crop Insurance program performs random audits and requires audits when you have a loss over specific dollar amounts. If you are audited, you will be required to provide the records to the auditor, and if your past history is not verifiable, it could result in the repayment of past claims and penalties. Having verifiable records is especially important for farms that include livestock because it may be more difficult to provide accurate data if you are feeding some or all of your crops to your livestock. Be sure to keep track of your livestock feeding records as they can be used to verify your production history.
Make sure you consult with a knowledgeable crop insurance advisor prior to making these decisions to cover all your bases.