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Selling beef: When your ranch liability insurance doesn’t cut it

Monica Gokey for Progressive Cattleman Published on 25 June 2018
A homegrown steak

A freezer full of homegrown beef is the rancher’s bounty – and a lot of ranchers who finish an animal for themselves often do so for friends and neighbors as well.

With cattle prices in the gutter and a burgeoning know-your-rancher movement afoot, some feel like there’s never been a better time to explore – or expand – direct sales.

As synonymous as “cattle” and “beef” seem, they represent two very different sides of the same coin from a business perspective. For producers looking to dabble in both worlds, it pays to know the landscape. If you’ve traditionally been a cow-calf producer, selling beef directly to customers might not be covered by your ranch’s general liability insurance.

“Your farm liability policy is generally not going to cover off-farm activities or non-farm activities on the farm,” says Matt Stannard, an educator with Farm Commons. Farm Commons is a not-for-profit group that provides legal education to people in agriculture, mostly through online resources and in-person workshops. “Farm activities are those involved with direct production,” Stannard says.

For a typical cow-calf operation, direct production would include things like moving cattle around, fencing, corral maintenance or any kind of cow work – in general, activities that directly relate to raising beef cows for sale.

“When you talk about non-farming activities on the farm, you’re talking about value-added products, ranch stays, agritourism – those are probably not covered in a simple ranch policy. But a commercial liability policy ought to cover those things,” Stannard adds, with the caveat it’s up to the policyholder to double-check.

Trailering finished cattle to the butcher, storing frozen beef for sale, selling at farmers’ markets or inviting beef customers over for a ranch tour are examples of activities not directly related to cow-calf production. Those activities might align more closely with a fledgling beef business.

Because they’re ancillary to a ranch’s traditional production model, finding a good insurance policy that covers them is your first line of defense in protecting your assets.

Stannard suggests being really specific about what you want to do when talking with an insurance agent. Instead of using words like “agritourism,” tell an agent, “I want to host a jerky-making class on the ranch.” Instead of saying you want to host ranch tours, say, “I want to invite my beef customers to an open house twice a year, where we’ll do x, y and z.”

When it comes to finding the right insurance, Stannard says there’s no substitute for networking with other producers with similar enterprises.

Selling beef by the quarter, half or whole can be a great way to diversity

“If it feels like the agents in your area aren’t covering something other people are doing, it could just be a knowledge gap,” he adds. In other words, insurers may shy away from writing coverage if they’re simply unfamiliar with what risks are involved in a particular farm activity.

The regulatory climate for direct food sales varies by state. On top of that, different insurers may require producers to have standard operating procedures in place – a kind of rulebook for how a business plans to mitigate the risk of foodborne illness.

For producers getting into direct sales, transporting meat is one key area of risk exposure. Tom Schmalz of Central District Health in Idaho has some basic suggestions.

“So there are preventive controls – using good hygiene habits, cleaning and sanitizing, having standard operating procedures and training,” Schmalz says. That would include things like regularly washing out your coolers, keeping your meat freezer clean or washing your hands regularly when handling frozen meat packages.

Temperature logging is another tactic Schmalz suggests. “Take a temperature of the product when someone picks it up or when you deliver it to the customer from the butcher,” he says. “If there was a foodborne illness, that temperature log would be evidence showing it was transported cold to the customer.”

Temperature logs keep track of both time and temperature, and advances in gadgetry have made temperature logging easier than ever, Schmalz says. He points to equipment that can sync with a smartphone, pinging the owner to let them know if a freezer or cooler warms above a certain temperature.

Butchering is the next major area of risk exposure, and it is regulated by the USDA at the federal level. Meat intended for sale directly to customers generally needs to be processed at a USDA-inspected facility.

Custom-exempt processing is used by meat producers who sell live animals to their customers. Custom-exempt processors are defined as those providing butchering services for consumption by the owner of an animal and their immediate family. All meat packages are labeled “not for sale.”

Beef producers who rely on custom-exempt processors (which tend to be less expensive than USDA-inspected processors) generally sell a live animal to a customer, and the customer squares up with the rancher and the processor separately for their services.

Last, business structure can also play a role in mitigating the risks of selling beef directly to customers. Stannard says one way he sees producers protect themselves is to flesh out a new business into its own limited liability company (LLC).

“Most small farm enterprises are sole proprietors or partnerships,” Stannard explains. “People like to keep it simple. But if you’re a sole proprietor or in a partnership, your personal assets are your business assets – and they’re always available to satisfy your business liability.”

“Once you switch to an LLC, or incorporate, then your business assets are separate from your personal assets – only business assets are subject to satisfy liability,” Stannard says.

Business assets under an LLC set up to sell beef directly to customers might include things like a chest freezer, temperature-logging equipment or a trailer for sending cattle to the butcher.

Ranch assets – things such as land, tractors, cattle – would generally be housed outside the LLC, which would protect them in the event the beef business was sued. (That’s generally true, but in rare cases a court could reach around an LLC to use personal or ranch assets to satisfy a claim. That would be the exception, however, not the rule.)

Changing organizational structure can help protect personal assets, but finding the right insurance is a business’s best line of defense in protecting business assets. “We know people who have operated for years and realized they weren’t covered,” Stannard says.

Finding good insurance and taking the time to learn the landscape of the business world might be what most cattle producers chock up to an unpleasant chore, but the payoff in getting it right could mean starting a rewarding new business venture off on the right foot.  end mark

PHOTO 1: A homegrown steak is the rancher’s bounty – but selling beef directly to family and friends might not be as cut-and-dried as it first seems.

PHOTO 2: Selling beef by the quarter, half or whole can be a great way to diversify a ranch business. But growing a direct-sales business might not be covered under your traditional ranch liability insurance policy. Photos by Monica Gokey.

Monica Gokey is a freelancer and livestock producer based in Idaho.

Insurance Mythbusters

Myth: We’ve sold beef to our neighbors for years. They would never sue us.

Fact: A health insurance company doesn’t need an injured person’s permission to sue; they have the prerogative to recoup the costs incurred covering medical illness or injury. If your neighbor’s sickness can be linked back to your beef or your ranch, you can expect to be on the hook.

Myth: I’m covered if someone gets hurt on the ranch. It says so in my ranch policy.

Fact: While production-related injuries are generally covered by your ranch’s general liability policy, an insurance company might draw the line if an injury occurs during a non-production-related ranch activity. Let’s say one of your beef customers comes to pick up a quarter, and they’re injured after tripping over a wayward pallet left out in the barn.

If you’ve traditionally been a cow-calf producer in the eyes of your insurance, your insurer could see this as a non-production-related injury. In other words, it’s an injury under the wing of your blossoming direct-sales business. Your ranch liability insurance might not have you covered here.

Myth: I talked about selling beef with my insurance agent. He/she said they would add it into my existing policy. I should be covered.

Fact: This kind of an add-on can be a no-brainer for insurance agents experienced in writing coverage policies for farm and ranch businesses. But if your agent is navigating unfamiliar territory, he or she may not know the lay of the land when it comes to covering beef sales.

You’re going to want to go through your policy with a fine-toothed comb (perhaps alongside your agent) to pinpoint exactly which situations are covered and how. And if there are any gaps, it’s up to you to bring them to your agent’s attention.