Risk Management Agency fixes potato insurance in wake of fraud
Potato farmers in Grand Forks County, N.D., were stung by excessive premiums in the past several years, in part because of a fraud by brothers Aaron and Derek Johnson of Northwood in 2015. Kelly Grotte, a Thompson, N.D., potato grower, appreciates Risk Management Agency efforts to correct the situation, saving his farm $35,000 in premiums a year and keeping in the high-value crop.
THOMPSON, N.D. — Farmer Kelly Grotte learned three things about crop insurance in 2020.
First is the importance of speaking up about a crop insurance rate discrepancy. Second, there’s the impact frauds can have on honest growers, especially in small-acreage specialty crops .
And third, he’s learned the value of a dedicated public servant.
Grotte, 58, and his wife, Joni, have farmed for 35 years near Thompson, which is a few miles south of the city of Grand Forks. They operate Grotte Farms with son, Andrew, 30, on the farm where Joni’s father, Duane Myron, farmed and raised potatoes since the 1930s.
The Grottes raise table stock red and yellow potatoes, as well as sugar beets, wheat and soybeans. Potatoes are a high-management, high-risk crop. The Grottes have carried crop insurance all along, but very seldom have had a claim.
Five years ago, even though his Actual Production History had gone up, the price of crop insurance premiums had tripled.
Alarmed, Grotte called the U.S. Department of Agriculture’s Risk Management Agency’s regional office in Billings, Mont. He spoke with Shelia (pronounced SHEE-la) Schenk, then a specialist for potatoes, and now regional RMA deputy director, who worked on the problem.
Grotte told Schenk he was considering going to the “catastrophic” coverage levels — low cost but almost no protection. Based on indications the so-called “buy-up” program was going to be updated satisfactorily, he stuck with it.
He’s glad he did.
The 2019 crop was a disaster, and dropping the insurance would have cost him $500,000.
“It really would have been tough on the farm,” he said.
Further, the RMA revisions Schenk worked on saved him $35,000 a year in premium payments.
“It’s going in the right direction,” he said.
Spuds since the ’30s
The Grottes raise potatoes on light-textured to sandy soil, in a radius of about 10 to 12 miles.
Up to half of their potato acres in any given year are irrigated. They sell all open market potatoes, through Nokota Packers Inc., at Buxton, N.D., and to Associated Potato Growers Inc., a packing and marketing cooperative, where producers own storage bins.
“This area is a real good area for raising potatoes — most of the time,” Grotte said.
Historically, the Grottes’ crop insurance rates for potatoes had ranged from $35 per acre to $40 per acre. In 2013 to 2014, their rates started rising. As it turns out, part of the reason was a major fraud case.
On Dec. 11, 2014, Aaron Scott Johnson of Northwood, N.D., and his brother, Derek M. Johnson, on March 9, 2015, were sentenced for conspiracy in a rare crop insurance fraud case .
The USDA proved the Johnsons improperly had received indemnity payments totaling more than $2 million since 2002, as well as crop disaster payments, and that they falsely reported that stored crop damage was from “soft rot.”
The Johnsons had “conspired to ensure” that their potatoes “sustained physical damages and losses,” prosecutors said. The court found that the Johnsons had directed an employee to spray stored potatoes with Rid-X and Flush, chemicals to break down solids in septic systems, as well as other techniques that caused potatoes to rot.
Aaron was sentenced to four years in prison and five years of supervised release. He was released Dec. 15, 2017. Derek was convicted in the conspiracy and sentenced to serve 18 months in prison and five years supervised probation.
While all this was making the news, it was having a silent, hidden effect on county yields that would spill over to Grotte and others in the county.
Meanwhile, Grotte and others were alarmed at another potato grower who they perceived repeatedly planting potatoes on saline (salty) soil west of Grand Forks, appearing to have a crop failure, causing other claims that could affect them.
At the same time, Grotte discovered potato insurance rates across the line to Traill County were basically staying the same.
“And ours were double, in Grand Forks County,” Kelly said. For example, rates went from about $50 per acre in 2012 for 60% coverage, to $165 in 2018.
It was costing 10 times the premiums for analogous insurance for sugarbeets, another high-value crop that he raises.
Shelia Schenk has a heart for farming.
She grew up around farming and ranching in central Montana, with undergraduate degrees in animal science and education, and a master’s in agriculture education, all from Montana State University. She started an award-winning career in agricultural education, but went with an RMA career in 2015.
She started at RMA as a “specialist,” assigned to sunflowers, safflower and flax, and eventually added potatoes, sugarbeets and onions. She first talked to Grotte in 2017, and made two trips to the Red River Valley in 2018 to study the problem, one in conjunction with Northern Plains Potato Growers Association field day.
Schenk said there are several reasons for the county’s insurance rates to have risen. One big reason is a general rise in potato values and yields.
The fraud had an effect, but the timing didn’t help.
The RMA updates crop insurance policy rates and T-yields (county yields) change every three years. In 2014, the RMA collected data for the 2015 review for potatoes insurance. The Johnsons were convicted in late 2014 and sentenced in March 2015. They pursued appeals into 2016 .
Aides to former Sen. Heidi Heitkamp, D-N.D., followed the Johnsons' fraud case and urged RMA to put Grand Forks county on a “watch list” for its insurance implications. Schenk said the RMA could “clean the fraudulent data from the data set” for a new rate structure, but the premium wouldn’t change until 2019 — and not retroactively.
It wasn’t the only problem. Grotte and others were concerned that some growers in Grand Forks County repeatedly were planting potatoes on some saline land, resulting in repeated crop insurance claims. Under the old rate structure, that may have affected their rates, too.
“The rates were skyrocketing and there were potatoes being planted in places where we knew it wasn’t prime potato land and there wouldn’t be a harvest there, and we knew that was causing our rates to go up,” Joni said. “The yield for the area was pushed down.”
Flat vs. variable
Besides the fraud, Schenk also learned that the RMA had changed how it set potato insurance rates in certain counties. In the past, they’d established “rate area maps” for some counties that differentiated rates within a county, instead of countywide T-yields. But they dropped that because the differences were small, and moved to one rate per county for Grand Forks County, as well as Walsh, Pembina and Traill counties. (Each type of potato has its own rate.)
When Grotte and others raised the premium issue, RMA learned that rates didn’t go up in the other counties. Schenk studied the issue with help from Northern Plains Potato Growers Association and Andy Robinson, a potato specialist for North Dakota State University and the University of Minnesota.
At Schenk’s urging, RMA changed the rating structure in those counties. Farmers with strong APH were rewarded with lower rate surcharges.
Bottom line: Grotte’s rates came down to $75 for the same coverage in 2019. Schenk said the premium rates keep coming down as long as his APH remains favorable.
“Whenever we do make a rating change, we don’t want it to completely skyrocket or bottom out,” Schenk said. “We try to cap it at a 20% change for the year.”
Schenk said she didn’t do anything other RMA officers wouldn’t do. She credits Grotte for being persistent. RMA wants to use taxpayer funds wisely to provide insurance that “safeguards the current and next generation” of producers, she said.
“Producers provide food and nutrition security to millions of Americans,” she said. “One thing we don’t want to do is put a program out there, and nobody’s able to utilize it.”
Producers and their groups provide feedback about how the program works and doesn’t work. She said Grotte’s persistence kept the issue at the forefront and benefited him and his neighbors.
The Grottes are happy, knowing they can grow potatoes without bearing all of the risk.
“You’re adding stress for sure, to yourself,” Joni said. “When that storm comes in the summer, you’re laying in bed and you get a 5- to 6-inch rain and you lose your crop, at least you have something (with insurance). Otherwise you wouldn’t have it.”