A small but increasing number of Australian farmers are insuring their crops against drought, and with concern growing about a predicted El Nino and the uncertainties of climate change, many believe this could be the way of the future.
When the winter rains failed to come last year, Victorian farmer Phil Koschitze was badly caught out.
“There was basically very small production around here … it was as bad as a drought gets for us,” he said.
But it was not a disaster, because the Warracknabeal grain grower had done something very few Australian farmers have ever done before.
He had insured against drought.
“I paid the premium and they topped my income back up to the agreed level and that allowed me to basically carry on for this year,” he said.
This type of insurance is rare in Australia but could soon be more common.
And with the growing concern about a predicted El Nino, and the longer-term uncertainties of climate change, many believe this could be the way of the future, with implications for Government-funded drought aid.
“Unfortunately many Australians, particularly in the cities, are becoming increasingly weary of drought relief,” National Farmers Federation (NFF) chief executive Simon Talbot said.
“This [insurance] gets a lot of farmers back on the front foot and creates better management through our farms.”
Up until recently, farmers in Australia could only insure against hail, fire or frost.
It was widely believed a broader, multi-peril type of insurance would be financially unviable without significant government subsidies, as happens in North America and Europe.
But after many of years of planning and improvements in climate prediction technology, four unsubsidised multi-peril crop insurance products have come onto the Australian market over the past two years.
The catch, of course, has been the cost.
Multi-peril insurance premiums up to $33,000
The first insurance company off the starting blocks, Latevo, charges a $5,000 upfront fee to audit farm finances.
“We will not insure dud farmers,” Latevo chief executive Andrew Trotter said.
“We are about insuring good farmers that mitigate the vast majority of the risk in their farm with their farm management and then we mitigate the catastrophic risk [of] the things that they can’t do themselves.”
Mr Koschitze is a Latevo client and he paid $33,000 in insurance premiums last year.
Given he was later hit by a one-in-20 year drought, he was understandably happy with the investment.
“I had to justify every grain I harvested,” he said.
Latevo made headlines last year when it paid out a record amount of nearly a million dollars to Queensland grain grower Alistair Mace.
“The industry was rightfully sceptical that our model could work. So by paying that claim out we’ve now passed that test and people realise that we’re real,” Mr Trotter said.
Another multi-peril product on the market is offered by the insurer Primacy.
It does not charge an upfront due diligence fee, but neither does it insure farmers in Queensland.
Primacy’s strategy manager Marcus Pearl said he was cautiously optimistic about the longer term future of multi-peril crop insurance in Australia.
“There are certainly enough people out there willing to buy this style of product to potentially make it economical,” he said.
“It is still early days, but the market is working it out.”
Drought insurance ‘vitally needed with climate change’
In last month’s agriculture white paper, the Federal Government allocated $30 million for farm insurance advice and risk assessment grants.
“I am happy we have money on the table to encourage people to this product, but it is not an ongoing thing,” Agriculture Minister Barnaby Joyce told Landline.
Mr Talbot said the NFF had lobbied for further government tax incentive schemes to ensure multi-peril insurance remained viable in the long term.
“It needs about 10,000 farmers to be on-board,” Mr Talbot said.
“We’re the only major agriculture economy in the world that doesn’t have this sort of insurance across our farmer base and it’s vitally needed with climate change.”
The relatively high premiums have been difficult for many farmers to accept.
Speaking to Landline after a recent Latevo seminar at Goodiwindi in southern Queensland, accountant Alinna Bourchier was not sure she would recommend the product to her clients just yet.
She said many farmers baulked at the $5,000 upfront due diligence fee.
“It’s a lot of upfront just for not necessarily 100 per cent certainty that they’re actually going to get a premium offer,” she said.
Despite the costs, Mr Kotschitze said he would take out a multi-peril insurance policy for a second year.
And he said the Federal Government should encourage more farmers to do the same.
“I am a prime example because I would have been at Centrelink’s door. I didn’t go anywhere near the joint because I didn’t need to,” he said.
“I would prefer to look after myself through insurance rather than rely on government assistance.”