MPCI rush to beat El Nino

16 Mar, 2015 03:00 AM
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Drought aid funding would be far more productive if redirected towards encouraging MPCI

AS farmers line up in increasing numbers to take out multi-peril crop insurance (MPCI), governments are being urged to adjust drought aid packages and tax laws to reward producers supporting the fledgling income protection concept in Australia.

Worried by the potential of an El Nino drought cycle on the horizon, croppers are putting up their hands to pay about $20 a hectare to guard their input costs against a partial or full crop failure.

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  • At least three insurance players, including German giant Allianz and the Swiss-owned CelsiusPro, have just entered the market, dramatically broadening traditionally basic crop insurance options against hail damage or fire to now cover yield returns against all natural perils - frost, mice, insects, dry weather and more.

    Latevo International, which began insuring just 29 farms last season, claims the boost in cropping confidence underpinning those who signed on in 2014 had even resulted in some looking to buy extra country next door this year.

    Latevo expects to cover about 300 graingrowers in 2015 and potentially about 3000 next year.

    The Australian-developed Latevo's coverage insures a farmer's inputs and associated costs (including wages and loan repayments) required to run a cropping business for a year.

    First, however it requires a deep due diligence check on the farm's past costs, yields and marketing strategies, and coverage is lower for farms with less productive agronomic strategies.

    Grazing industry coverage in pipeline

    Latevo claims farmers buying MPCI not only "sleep at night" because they have greater income certainty, their banks are happier to lend finance for additional crop care requirements and they are more confident about forward selling.

    Latevo, which has just paid eight claims ranging from about $70,000 to $940,000, expects to broaden its coverage to grazing industries "in a few years' time".

    But as the company this week kicked off a national series of information roadshows in South Australia, highlighting how MCPI offered graingrowers "an affordable way of making sure you don't go broke", chief executive Andrew Trotter warned time was already running out for Australia to understand and embrace significant broad-based crop protection strategies.

    "There's about $10 billion of risk to be mitigated every year, but the ag sector doesn't have 10 or 15 years to grow this insurance system from ground zero," he said.

    A changing climate outlook and agriculture's need for investment and confident marketing strategies suggested MCPI needed to be part of the whole farm sector's business strategy straight away.

    MPCI's drought aid link

    Mr Trotter told the recent Canberra agricultural Outlook 2015 conference federal government drought aid funding would be far more productive if redirected towards encouraging MPCI and promoting tax breaks for those who invested in proper insurance.

    He believed croppers would be just as productive as individual companies or research bodies if their insurance was entitled to something similar to the 150 per cent tax refund available for research and development spending.

    NSW recently confirmed it wanted to promote a supportive environment for MPCI as part of the State's drought business support package.

    Full details of the State government's potential grant offers to farmers paying a $5000 Latevo farm audit fee (or similar sign-on costs with other providers) are still to be released, but Mr Trotter said that sort of supporting "nudge" was badly needed nationally.

    It would give MPCI momentum at a farm level, which was "massively under-insured and unaware of the opportunities".

    He believed the federal government could also significantly help that momentum by buying five years of insurance protection cover for the emerging MPCI industry against a "catastrophic" season.

    In their current emerging state, insurers did not have enough policy backing for the industry to survive the long-term cost of a catastrophic season payout, but at a national level Canberra could buy insurance to cover for that possibility.

    Mr Trotter also argued drought concessional loans to farmers after crop failures would work better paid prior to a cropping season if there was a strong likelihood of a particularly dry year.

    Farmers could effectively be offered low interest loans if they did not risk planting a crop, thereby reducing the pressure on insurers in a season likely to be top heavy with claims from those who possibly should have never planted in the first place.

    Latevo's grower workshops continued in Victoria last week, will take place in Queensland this week and NSW and WA later in the month.

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    Andrew Marshall

    Andrew Marshall

    is the national agribusiness writer for Fairfax Agricultural Media
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    READER COMMENTS

    commerce
    16/03/2015 8:13:06 PM

    If Latevo will have 3000 clients next year why are we trying to subside them with stop losses. ie let industry handle this issue and stop politicising it as opportunity to raise profile.

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