AS the debt crisis engulfing rural Australia continues to dominate the agri-political agenda, momentum is building behind a push to develop a sustainable national model for multi-peril crop insurance.
Stakeholders from state farming bodies as well as representatives from all major banks are meeting in Melbourne on Monday to chart a path forward on the issue of multi-peril insurance – a matter that has long dogged grains industry leaders in Australia.
The meeting comes after insurance company, Latevo, offered the first multi-peril crop insurance product to Australian farmers for the 2014 season.
The product was taken up by a limited number of farmers in every state, including two in Queensland.
The policy only relates to broadacre winter crops and covers 16 “perils” including frost, drought, hail, insect and pest.
But with large numbers of farmers now facing financial difficulties due to successive crop failures, calls for a more affordable and sustainable crop insurance scheme are once again building.
Far from a unique concept, multi-peril crop insurance is widely used by farmers in the United States, Canada and Europe where the cost of premiums is largely subsidised by their governments.
Previous proposals for similar systems of subsided insurance have been repeatedly refused by governments of both persuasions in Australia, leaving farmers to bear the full financial risk of planting crops.
It is a risk that Grain Producers Australia (GPA) chairman, Andrew Weidemann believes many farmers can no longer afford to take.
“They put millions of dollars out there every year on the basis of getting a return on that investment but they must ultimately rely on Mother Nature,” he said.
Among those at Monday’s meeting will be University of Southern Queensland (USQ) industry research fellow, John Rochecouste.
Mr Rochecouste is seeking financial backing from the grains industry for a research project that would evaluate the effectiveness of various multi-peril crop insurance schemes in Australia.
He said previous research had shown that insurance schemes similar to those in the US would not be affordable in Australia.
“We want to look at what options are viable in terms of protecting their (farmers) input costs such as fertiliser and seed,” he said.
“At the moment we have a lot of farmers carrying high levels of debt and what we want to try and avoid is a situation where they keep borrowing to buy stock.
“Then they not only loose the crop but all the inputs as well.
“At the moment we are just approaching the grains industry but we are also interested in potentially cotton, sugar and cattle.”
Mr Weidemann said more research into effective insurance models was needed but he said the GPA was looking for “cross commodity” support for any research proposals.
“Next week is just the first meeting and people are approaching this from all areas with an open mind,” he said.
“Let’s open the debate up and bring in other commodities and hopefully get a steering group formed to take the discussion forward.”
AgForce grains president, Wayne Newton, will also be at the meeting and said multi-peril crop insurance was an issue that had been on AgForce’s radar for some time.
“With the ever declining terms of trade and profitability in grain production we seem to be spending more and more to potentially not make any more money,” he said.
“We have got to be able to manage the risk and multi-peril crop insurance is the way forward.”
Mr Newton said the complexity of Queensland’s farming systems was limiting the widespread adoption of multi-peril insurance.
“There is a general disinterest from some of these new players at looking at our farming system in Queensland because of the complexity of it,” he said.
“They have much more defined cropping seasons in the south but we have a never enduing cropping cycle up here.
“We have also really struggled to provide some of the data that some of the companies are asking for.
“Some growers have it but others don’t so there are factors like that, that are limiting it at the moment.”
Condamine farmer, Rodney Hamilton, has been a driving force behind moves to bring multi-peril crop insurance to Australia and is one of only two farmers in Queensland to have taken out a policy to protect his 2014 wheat crop.
Mr Hamilton has 3500ha of winter crop planted this year and has paid Latevo $100,000 to cover the cost of getting the crop through to harvest, estimated to be $1.4 million.
He said the insurance providers had carried out a full audit on his business and used figures on previous yields to provide a risk assessment on his ability to grow winter crops.
“Then they give you an assessment of what your cost of production is in terms of how much it takes to grow 1ha,” he said.
“My estimate came in at $382.10/ha for wheat. Then the premium is roughly 7 per cent of your cost of production.
“So I paid about $100,000 to cover 3500ha of winter crop. If crop only returns me $900,000 because of lack of rain or whatever, they will pick up the $500,000 shortfall.”
A claim looks unlikely for Mr Hamilton this year who says he only needs to harvest “five bags” to cover the $1.4 million.
“Unless something goes drastically wrong I won’t be making a claim this year,” he said.
Mr Hamilton said the value of the crop insurance to his business had already been proven.
Faced with a $250,000 fertiliser bill at planting, Mr Hamilton was able to use the insurance to source crop credit.
“Because I’d such a bad run of setbacks we didn’t have the money for the fertiliser so the fellow that provided the fertiliser was able to take first position against the multi-peril insurance,” he said.
“Because I also felt secure with the multi-peril insurance I was able to forward sell $1.4 million worth of crop when wheat was a really good price.”
Mr Hamilton is now planning to build the premium into his cost of production every year.
“If you can keep getting multi-peril crop insurance every year it becomes a commercial thing that you can cover the cost of production,” he said.
“We lost millions in those couple of flood years and if I had that insurance then I would have at least got my costs back.”