Willamette Valley’s signature nut crop among the last to adopt the tool.

Oregon hazelnut producers have gotten used to being a fairly cloistered bunch.

After all, the vast majority of North American hazelnuts are grown in a single valley in just one state.

While the industry’s tight-knit, secluded character is often considered part of its charm, it’s also apparently caused hazelnut farmers to miss out on a risk management tool that’s available to most others in the U.S.

Hazelnuts are now the only major tree nut, and among the last specialty crops, to forego federal crop insurance — most likely due to the industry’s relatively small size and isolation, experts say.

“It’s something that probably should have happened a long time ago, but hopefully we can get that rectified in the next couple of years,” said Brannick Sweetser, a policy analyst at AgriLogic Consulting.

Well-trodden path

At the behest of the Oregon Hazelnut Commission, Sweetser’s company is gathering data to submit to the USDA and help hazelnut growers jump on the crop insurance bandwagon.

Being late to the party offers an advantage in at least one respect.

The path to developing crop insurance programs, even for niche commodities, is well-trodden enough that hazelnut growers are unlikely to encounter any surprises, Sweetser said.

Applying for crop insurance is a confidential process, so it’s unknown if any proposals from other crop sectors were initially rejected before their programs were eventually authorized, he said.

But based on his experience with other niche commodities, including pomegranates and kiwifruit, Sweetser doesn’t believe that hazelnuts are likely to raise objections from USDA.

“We wouldn’t expect that to happen, with hazelnuts being the last specialty crop,” he said.

The lack of a crop insurance program hasn’t sprung from any obstacles particular to hazelnuts, or an aversion among farmers, experts say. Rather, it’s simply been overlooked up until now.

“We’ve just dropped under the radar,” said Bruce Chapin, whose family grows hazelnuts near Salem.

Farmers say the relatively small number of hazelnut producers and the industry’s compact geographic footprint probably hasn’t made it an attractive prospect for crop insurance, which is more common among major commodities like corn and soybeans.

“If you’d only have three customers, why would you want to create a program for just three customers?” said Austin Chapin, a hazelnut farmer and Bruce Chapin’s son.

From that perspective, the proposed hazelnut crop insurance program could be viewed as a sign of the industry’s growing prominence and maturity.

Over the past decade and a half, the number of Oregon hazelnut farmers — most of them in the Willamette Valley — has increased by roughly 65%, to about 1,360, according to USDA. The crop’s production area has roughly tripled in that time, from 37,000 acres to nearly 100,000 acres.

Whether hazelnut growers will embrace the risk management tool is another issue. Because they’ve gone so long without crop insurance, they’re often unfamiliar with how it works or whether it’ll fit their operation.

“It’s so new, I just don’t know,” said Rich Birkemeier, a hazelnut farmer near Canby, reflecting an attitude common among growers contacted during a recent industry summer tour.

Farmers Bruce and Helle Ruddenklau said they’ve relied on growing a diversity of crops to hedge against any misfortunes that might befall their hazelnut orchard near Amity.

However, planting hazelnuts requires a large investment and they’re of higher value than many field crops, so it can be tough to offset a seriously bad year, said Bruce Ruddenklau.

“It’s a lot of income-earning potential,” he said. “The potential for significant economic loss is also pretty high.”

Those factors indicate crop insurance may offer a useful benefit, though the details will determine whether it pencils out, said Helle Ruddenklau, his wife. “Just how expensive is it going to be?”

Crop insurance seems especially relevant for growers exclusively devoted to hazelnuts, who have all their eggs in one basket in terms of yearly income, said Jimmy Lee, a grower near Albany, Ore.

“If it makes sense, I’d go for it because hazelnuts are all I grow,” Lee said. “If the premiums are subsidized, it would probably make a lot of sense for people.”

How it works

The premiums are indeed subsidized by the federal government, which is a crucial feature of the crop insurance program.

Growers can choose what percentage of their average production they want to insure, with payouts triggered if their yields drop below that threshold.

As a general rule, the share of the premium covered by the USDA decreases as the insured percentage of crop production increases.

Originally invented in 1938 as a way to help major commodity growers during the Great Depression, crop insurance was expanded to become available to specialty crops in the 1980 Farm Bill, though each sector must separately apply for inclusion. These programs collectively cost the government about $8 billion a year.

The USDA’s involvement is critical because the potential for losses can be immense: A disaster that strikes one farmer is likely to affect many others in the same region, so the risk is too great for private insurers to take on without government assistance, said Sweetser of AgriLogic.

“This isn’t something that would just occur in the private marketplace,” he said. “They would have gone out of business.”

A common axiom of the insurance industry is that customers are better off avoiding payouts, since they generally necessitate car accidents, house fires and other tragedies. That’s also true for crop insurance, which is aimed at mitigating a farmer’s loss rather than totally compensating for it, Sweetser said.

“You never want to have a crop insurance claim. You just want to produce your crop,” he said.

Based on what he’s heard from other farmers who use crop insurance, hazelnut grower Jim Pardey said he doesn’t believe the financial investment would be worthwhile — even though his orchard near Woodburn, was severely damaged in an ice storm several years ago.

Considering the relatively limited payout, and the likelihood of triggering one in any given year, the premiums would probably prove too expensive, Pardey said.

“I think you’d be paying more for the insurance than what you get out of it,” he said. “I just don’t think it’s in the bottom line.”

The cyclical nature of hazelnut yields also raises the possibility that some farmers may try to game the system, said an employee of a hazelnut processor who did not want to be named. As an alternate bearing crop, hazelnuts are known to shift between high and low production from year to year.

“Guys know their cycle and they would buy on their off-year,” he said.

Sweetser, of AgriLogic, said that alternate bearing isn’t unique to hazelnuts, and crop insurance has successful been adopted for crops that share this characteristic, including olives and pistachios. It’s possible to “build controls” into the crop insurance program to account for these variations.

“This is why we are looking for as much grower participation as possible, so we have plentiful data to capture the natural yield variability and any alternate bearing tendencies,” he said.

Regarding the financial benefits of crop insurance, experts say the tool is meant to guard against steep losses that can result from volatile weather.

“You’re seeing more interest among the industry, saying: Hey, we need a backstop,” said James Bennett, founding agent of Till Insurance, which is assisting AgriLogic in gathering data for the hazelnut program.

Farmers who obtain crop-specific insurance can reduce their premiums for “whole farm” insurance, which covers the revenues generated by their entire operation, Bennett said.

In some cases, obtaining crop insurance can also ease the process of obtaining a loan, or even be required by a farm lender.

“It will open up flexibility and options for these guys on the risk management side,” Bennett said.

Potential hazards

And the hazelnut industry is facing no shortage of potential hazards.

The Willamette Valley has experienced several severe ice storms that devastated some orchards in the past couple of decades, causing “millions of dollars in damage,” said Nik Wiman, orchard crops specialist with the Oregon State University Extension Service.

“Old trees are really prone to limb breakage and toppling over” when covered in layers of ice, but in extreme cases, newly planted orchards were heavily damaged as well, Wiman said.

“The ice load on the trees was so heavy that it split even younger trees. There was so much weight on the canopy that the branches were held to the ground,” he said. “The trunk can’t withstand that much force and the trees were splitting down the trunk.”

On the flip side, heat is another major concern, as it can set back trees and hurt yields.

For example, the “heat dome” over Oregon in 2021 raised temperatures to record levels, reaching 116 Fahrenheit for three days near Aurora, Ore., Wiman said. “I do think that we’re at higher risk of those heat events going forward being more impactful.”

Meanwhile, invasive species are an omnipresent threat and growers must contend with a mutated form of Eastern Filbert Blight, which can overcome the resistance that’s been bred into newer tree cultivars, he said.

Whether damage from the pathogen would be eligible for compensation is a matter that AgriLogic will “delve into more as we get into development portion of the program,” said Sweetser. Disease is often covered by crop insurance, so long as proper control measures are implemented.

At this stage, though, the company is simply collecting production data, examining insurable “causes of loss” and building a case to demonstrate the proposal is supported by farmers.

“The interest has to come from the industry themselves. They have to be the ones who push for it,” said Bennett of Till Insurance.

Once that “concept proposal” is finished, likely later this year, it’ll be reviewed by independent economists who will submit their recommendations to the USDA’s Federal Crop Insurance Corporation.

If the FCIC decides to move ahead with the idea, then AgriLogic would hammer out the pricing methodology and other specifics, which would again undergo review for roughly a year and a half.

“They pick through it, poke holes, provide feedback and see if there’s anything that should be added or changed,” Sweetser said.

If the FCIC ultimately approves the proposal, the insurance program would be jointly administered by USDA and private insurance companies, who are reimbursed for selling and servicing individual farmer policies. These “approved insurance providers” are also able to share in the risks and some of the profits if premiums exceed paid claims.

So, there’s still plenty of time for hazelnut growers to become more familiar with the concept, as Sweetser estimates the program would become functional in late 2028 at the earliest.

“It’s a long process that brings in lots of different parties to make sure that what comes out at the end is sustainable and serves the industry,” he said.

Source - https://capitalpress.com