Farmers pushing for crop insurance

Attempts to introduce crop insurance against a range of weather events have failed.
Attempts to introduce crop insurance against a range of weather events have failed. Photo: MICHELE MOSSOP
by Sophie Morris

Farmers are urging the federal government to work with insurance companies to help them protect their crops against drought, as part of an overhaul of farm support to encourage them to manage risk and prepare for tough times.

The calls for the government to help set up affordable crop insurance have originated in Western Australia, where farmers are bracing for their worst season in years, but are also being taken up by the National Farmers Federation.

WA Farmers Federation president Mike Norton said the need for so-called “multi-peril crop insurance" – insuring a crop against a range of weather events –had been raised at a series of growers’ meetings in the state in recent weeks.

While some insurance products were already available for fire and hail damage, these were expensive and did not cover crop loss or damage due to other extreme weather conditions, such as drought and frost.

He said governments in the United States subsidised crop insurance, which recompensed farmers for the cost of production and lost profits in the event of a failed season, but farmers here would be satisfied with a less generous scheme.

“What we’re pushing for is insurance just to cover the cost of production. That would give the banks the confidence to underwrite a farmer to plant a crop the following season," he said.

Under this model, farmers who had insured their crop could be reimbursed for the cost of planting and tending it if the season failed.

The National Farmers Federation is examining the idea and believes it could play a role in the federal government’s planned overhaul of its drought assistance policy and its bid to help farmers prepare for climate change.

The proposal also has the support of newly elected WA Nationals MP Tony Crook , who said governments needed to be involved in setting up commercially viable crop insurance that would shield farmers from extreme weather events.

Mr Crook said in August he would work to facilitate the introduction of such a scheme and that governments had a role in “encouraging commercial interests to act in an integrated manner to establish a practical risk management product". “All crop growers are exposed to climatic conditions and uncontrollable events such as frosts, diseases, hail, droughts and floods," he said.

“It is crucial to protect any professional crop grower from unforeseen catastrophic events such as frost or disease."

WA Agriculture Minister Terry Redman said he would back the emergence of a commercial crop insurance scheme but feared that taxpayer support for such a program could crowd out private enterprise.

“I support it as a commercial entity. It needs to stand up on commercial grounds. I don’t support putting taxpayer funds into underwriting either premiums or pay-outs," he said.

“If you were to go and support something with government funds, one issue is you block the private sector from getting into that space.

“There are issues of moral hazard, where people don’t take the level of risk assessment they should to their businesses."

Federal Agriculture Minister Joe Ludwig acknowledged that drought support needed to be improved and focused more on risk management.

But he said the federal government already offered alternatives to insurance against drought, such as farm management deposits, which helped farmers build financial reserves to deal with drought and other risks.

Insurance company CGU, which insures crops against hail and fire, said previous attempts to provide multi-peril crop insurance (MPCI) had failed because they did not have the full support of the farming community or the government of the day.

“While MPCI schemes have operated sustainably in other parts of the world, for example the US, they have typically involved a government subsidy," Mark Searles, CGU’s general manager of retail said.

“CGU has no current plans to offer MPCI cover."

The Australian Financial Review