2 Important Types of Insurance for Contract Livestock and Poultry Growers: Care, Custody, and Control and Loss of Business IncomeNovember 24, 2022
Production agriculture is continuing to expand and demand more sophisticated agreements and contracts between the farmer/grower, vertical integrator, and the end processor of the agricultural products. With that expansion and evolution comes important types of insurance for contract livestock and poultry growers.
This includes all lines of ag production whether it involves field commodities such as grains or fruits and vegetables, animal and poultry products such as milk or eggs, and meat products such as beef, pork, poultry, or other exotic meats. The cost of production has increased, and the financial input and outlay are becoming a serious investment. It is drawing attention from investors, and they are looking for ways to protect and guarantee a return on their substantial investments.
2 Important Types of Insurance for Contract Livestock and Poultry Growers
Two areas that are key in this business environment are Care, Custody, and Control (CCC) and the Loss of Business Income (BI). These are two different circumstances and exposures, and we will define each and contrast the similarities and differences between the two. We will begin with the definitions.
1. Livestock Care, Custody, and Control
First, CCC, by definition, is the responsibility that a grower assumes because they have agreed to take possession of the animals or poultry during a specific period of time. This may be for capturing the production from the stock such as eggs in poultry or young stock for growing in swine.
The grower agrees to tend the stock, keeping the growing and producing environment safe and healthy. They are expected to look after the animals and care for them as if they have full ownership of the stock. The grower may be held responsible for the value of the stock if they are lost due to their negligence.
The financial loss can quickly grow to tens of thousands of dollars and varies depending at what production stage the stock would be at when the loss occurred. For example, laying hens that are in the 90 percent production range are valued much higher than layers that are just weeks away from the “spent hen” category. Likewise, hogs that have just been moved from the nursery to the finishing barn may be valued at $75 to $100 per head as opposed to the fat hog ready for market valued in excess of $250 per head.
You can take these two examples and apply them to other circumstances you may find on the farm. The important thing is to consider the value in the stock that the farmer is caring for. It is a huge responsibility and an event where there is significant financial loss can be economically devastating. This is where Care, Custody, and Control Insurance can step in, mitigate risk, and mitigate loss.
2. Loss of Business Income
Second, BI becomes a significant problem after there is a CCC loss. Not only has the value of the physical stock been wiped out, but the future earning potential from the stock has been eliminated.
In this situation, it becomes more challenging as there are two entities that have lost income potential. Depending on how the contract is written, the farmer/grower may lose income if the herd or flock can no longer produce to the end of its normal life span. There may be no payment made to the grower.
The vertical integrator or the end processor has no product to market. There is a financial loss to any of these entities. This is Loss of Business Income. Again, it can quickly amount to 10s and even 100s of thousands of dollars in value.
How These Types of Insurance Respond in the Event of a Loss
How these different types of insurance for contract livestock and poultry growers respond in the event of a loss is different. Here’s what you need to know:
Care, Custody, and Control Loss is a Liability Situation
The CCC loss is a liability situation. Since the loss is a result of the negligence of the farmer, he may be required by contract to reimburse the owner. The farmer/grower is held responsible for the economic loss to the owner of the stock.
The property that was generating a cash flow stream no longer exists. A Care, Custody, and Control Endorsement on the insurance policy would respond in this situation.
Existing Contracts Can Affect the Loss of Business Income Response
The BI loss is two-fold. Both the farmer and the owner of the stock have lost an opportunity for income. The farmer may not be paid for caring for the stock and the owner will not be paid as the stock is no longer able to generate the income stream.
This can become very confusing and complicated depending on the contractual language in the contract between the farmer and the owner of the stock. It is imperative that if a contract exists, it is reviewed before a loss may occur to understand where responsibility will ultimately fall.
There are many assumptions that are made that are not complete or correct. In fact, there are circumstances where they are absolutely wrong and this can affect how and when insurance responds to a loss.
Is Your Contract Livestock Operation Fully Covered?
These are just two important types of insurance for contract livestock and poultry growers, but they don’t cover everything in your operation. It is very important to have a pointed conversation with all parties involved to avoid confusion and detrimental economic surprises.
Our knowledgeable staff here at Ruhl Insurance will be happy to assist you in navigating this important and complicated subject. They can be reached toll-free at 800-537-6889 or 717-665-2283. You can also reach out through firstname.lastname@example.org.
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.