South Dakota Crop Insurance Practice Exam

How is ARPI indemnity calculated?

1. Based on the single farmer's crop yield

2. Based on statewide averages

3. Based on the experience of a county

4. Equal to production costs

The correct answer is: Based on the experience of a county

The calculation of ARPI (Area Revenue Protection Insurance) indemnity is based on the experience of a county. This means that ARPI does not look at individual farmer yields or costs directly but rather evaluates the overall revenue performance within a specific area or county. This method takes into account the average yields and commodity prices across the county to determine whether the revenue falls below the insured revenue guarantee. If the actual county revenue falls below the threshold set by the insurance policy, an indemnity payment is made to the policyholder. This approach provides a layer of financial protection against revenue losses due to adverse weather conditions, market fluctuations, or other factors affecting crop production in that area. Considering the context of the other options, determining indemnities based solely on a single farmer's crop yield would not reflect the collective risk of the area, and using statewide averages might not accurately represent a specific county's conditions. Additionally, using production costs as the basis for indemnity does not align with the revenue-focused nature of ARPI, which seeks to mitigate income loss rather than cover production expenses directly.