Access to affordable, multi-peril crop insurance may help graingrowers better source finance for annual crops, according to Grain Producers SA chairman Garry Hansen.
GPSA recently attended a meeting in Melbourne, organised by Grain Producers Australia, with other grower groups from across Australia, to establish a viable, multi-peril crop insurance program.
They looked at the latest developments to protect farm working capital against drought, flood, frost and market risk.
In addition to the key producer groups, major bank and farm supplier representatives participated.
Mr Hansen said there could be many benefits from having access to multi-peril insurance products.
"With farming, the cost-of-production is getting higher and the prices we're getting for our grain are highly variable, as we've seen this year," he said.
"Some banks aren't prepared to put their toe in the water when it comes to farming.
"In the future, as more farmers lease country, and don't own land to borrow against, it will make accessing finance harder.
"A lot of farmers are using second and third-tier financing to put the crop in and it's extremely expensive.
"By having crop insurance, you can cover the cost of putting the crop in and the banks are likely to be more inclined to offer finance."
Mr Hansen said there was still plenty of work to do on the issue.
"We need to get the support of the big, multi-national companies that underwrite the smaller insurance companies," he said.
"If those larger companies won't accept the risk, the proposal won't get off the ground
"In the US, their crop insurance is underwritten by the government - that's not going to happen here.
"So we're going to have to develop a product where growers underwrite it themselves."
GPA chairman Andrew Weidemann said multi-peril insurance had failed to attract government support as a viable alternative to existing production risk strategies.
"Australian farmers now operate in the most volatile production and market environments with the lowest levels of government support in the OECD," he said.
"Notwithstanding this, government provides ad hoc drought and flood relief to farming businesses on the basis of subjective qualifications of exceptional circumstances.
"There must be, and is, a better way to provide a functional, objective and viable mitigation of normal production risk to improve the financial resilience of the agricultural sector."
Mr Weidemann said the Melbourne meeting was the first step taken to identify impediments to the introduction of nationwide, multi-peril crop insurance.
"Having a better understanding of systematic risk means we are ready to undertake a meaningful industry-wide approach to multi-peril insurance," he said
The meeting established the need for a greater understanding of requirements that reinsurers are looking for when developing insurance risk policies.
"Clearly, they have found the lack of quantity and quality of production data a barrier to establish multi-peril crop insurance products in the past - and it remains the single greatest impediment," Mr Weidemann said.
"Frankly, this issue can be solved quickly by the growers themselves being prepared to engage with reinsurers."
* Full report in Stock Journal, September 25, 2014 issue.
Paula Thompson
Stock Journal's markets editor.
Stock Journal's markets editor.
