Managing risk: uslp offers warranties for beef producersWritten by Christy Martinez
As a part of fulfilling that mission, in early March uslp partnered with the Wyoming Stock Growers Association (WSGA) to offer livestock warranties, in the event of disease, quarantine or traceback challenges. The warranties provide beef producers with financial safeguards in the event of brucellosis or other catastrophic diseases, such as foot and moth, tuberculosis, BSE and anthrax.
“Whether it be perception, or the presence of health risks to animals or humans, the global marketplace is mired in aversion to risk. Warranties offered by uslp provide producers of animal proteins tools to manage catastrophic economic risks that could wipe their operation out in the blink of an eye,” says uslp information.
It was in 2005 that the uslp concept first came to Tim Watts, who grew up on a cow/calf operation near Miles City, Mont. and who has worked in economic consulting for the last two decades.
“Having been a cattleman, and having worked in economic consulting and public policy, he saw the need for all kinds of risk management tools – hedges, options and various forms of insurance,” says Duane Gangwish of uslp. “But, when it came to dealing with catastrophic diseases, and their impacts, there was nothing in the marketplace to provide any kind of certainty for livestock producers.”
Gangwish says uslp first developed warranties for all sectors of the cattle industry, including cow/calf, stocker and feedlot. He says that other species are included in the organization’s long-term plan, and they’re currently in development.
Who can join?
“Our strategy from the beginning was to work with the state cattlemen’s organizations,” says Gangwish of getting the word out about the warranties. “Our outreach has been to those organizations, and we have 13 states enrolled as Member Services Partners. We’re in conversations with the rest of them at differing levels; we just started in the marketplace in November 2011, so we’re still in the process of building.”
Gangwish says the goal of the partnerships is to enhance what the organizations are already doing – offering products and services to their members. However, he notes that cattle producers need not be members of a specific organization to take advantage of the livestock warranties.
“The warranties are available to anyone,” he says.
According to WSGA, the uslp warranty allows the rancher, not the federal government, to establish the value of their animals. Any time an animal dies from one of the covered diseases or must be destroyed, based on a destruction order by a governing agency, the rancher receives the per head value they selected when the warranty was purchased.
“uslp developed an interactive process by which producers establish the warranty replacement values for their livestock and poultry to protect against catastrophic mortality losses, the lump sum warranty payment values for quarantine and traceback liability coverage,” says uslp.
Who should purchase?
“One of the ideal candidates is someone who has concern about contracting one of the diseases,” says Gangwish of those who would purchase a warranty, noting that the second candidate would be a producer who is at risk of quarantine. “In the event you’re quarantined, there is a business interruption payment.”
Gangwish gives as an example a spring-calving herd.
“If you sell freshly-weaned calves, and you’re quarantined in January, it’s a hassle, but that’s far different than if you’re quarantined in September with a stop movement order,” he explains. “You might not have the feed for those calves, and with the warranty you get to choose the level of payment you’ll get. It starts at $90 per head and goes up to $500 per head. Producers can custom-tailor the coverage to what they feel is appropriate, and the cost of the warranty varies with the choices they make.”
The third candidate for a warranty would be a producer who desires traceback and liability coverage.
“Traceback liability has been a huge concern to many producers attempting to capture added value. While there is great reward in providing that information to consumers, the unprotected risk is too great to capture that reward,” says WSGA.
“We’re becoming more and more of a litigious society, and our warranty helps defray some legal costs, settlements and adjudications that might come out of a traceback suit or from a consumer eating our product,” explains Gangwish.
All three components come in one package, and Gangwish says producers choose the level of coverage they desire for each component, based on their operation.
“They have the ability to tailor what best fits their operation,” he says.
Cost-wise, Gangwish says uslp feels the warranties are relatively inexpensive.
“In most cases, it will cost less than one day’s worth of feed per year, so it ranges from 90 cents per head per year, depending on the values a producer chooses. If they choose higher levels, it goes up from there,” he states.
As an example, Gangwish says a herd of 100 cows with 20 replacements and four bulls, at a basic level of coverage, would cost $113 per year.
“We feel very comfortable with its relative cost in the marketplace for the protections it covers,” he adds.
“The important thing is for producers to evaluate their own operations and evaluate some of the proposed changes that APHIS is looking at, in terms of catastrophic diseases and historical indemnity programs,” says Gangwish. “We see the warranty as an additional tool for producers who might want to evaluate their risk.”
Warranty includes three aspects
Producers who follow U.S. Livestock Producers (uslp) membership guidelines are eligible for producer-specified coverage for:
1) Animal mortality due to specified diseases,
2) Payments for quarantines and
3) Reimbursement for covered legal fees associated with traceback actions.