A NEW DROUGHT insurance is the latest financial product to allow Australian farmers some means of managing climatic variability.
The ProCrop Crop Input Protection policy, offered by a northern Victorian business ProCrop Insurance, allows farmers to insure their cost of production against the threat of rainfall less than 50pc of the long-term average.
Brendan Kelly, managing director of Intell Insurance Brokers, Bendigo, which brokers the ProCrop product through an arrangement with ProCrop Insurance, said farmers were crying out for risk management products to protect them from poor seasonal conditions.
“It is only for the cost of production, but that will be a big help when compared to years such as last year, when people in many parts of Victoria went nowhere near covering those production costs.”
Mr Kelly said the ProCrop product varied from other weather insurance products on the market as it was for rainfall deficit only.
“It’s not quite accurate to call this a multi-peril insurance, at present we are only looking at reduced rainfall, but this is probably the major climatic cause of lost yield in Australia.”
The product will work using historical data and rainfall figures from the Bureau of Meteorology climate database, the Australian Data Archive for Meteorology (ADAM).
Mr Kelly said the BOM had data for five-kilometre squared grids, so farmers would give the insurers their GPS co-ordinates to get the official data.
The trigger point for payments will be below average rainfall for the critical spring period, from August 1 to October 31. Farmers need to register for the product by May 31.
Once that first trigger has been achieved, Mr Kelly said the second trigger is activated and measured as the difference between the agreed total cost of production and the total value of earnings received from the crop.
The cost of production for each crop will be individually agreed upon between the insurer and the grower.
The insurance will be available on wheat, barley oats and canola through Victoria and South Australia this season, with a view to expand the offerings to other states and other crops down the track.
Mr Kelly said premiums generally worked out at around $10 a hectare.
“It really is fairly cheap for the coverage it gives growers, if it was a product like herbicide there would be no problem in spending that much on the crop, we just need to change that mindset and get people thinking about risk management.
Mr Kelly said the grains industry was crying out for meaningful crop insurance products.
“The risk mitigation factor is huge, you can see the benefits in having insurance after a year like this where things started so well but finished so poorly.”
Farmers have had some issues with the product such as the fact it is based on gridded BOM figures rather than more in-depth local readings and that there is a cliff-face structure, with 51pc of spring rainfall meaning no payment, but Mr Kelly said overall they were pleased with the concept.
“There’s certainly an appetite for this sort of thing from growers.”
Source: The land