In America, the government subsidises how much farmers pay to protect their earnings via the federal crop insurance program. This isn't the case in Australia, where every farmer has to decide for themselves the level of protection they need.
Why should farmers have crop insurance in Australia?
Having a relevant and extensive insurance policy makes it much easier to pick up the pieces.
Crop insurance exists to protect farmers when the unexpected happens. Just like many other types of insurance, in the best-case scenario, they'll never need to claim. However, when something goes wrong, having a relevant and extensive insurance policy makes it much easier to pick up the pieces and recover.
Risk management as a form of protection
For farmers, there are many 'unknowns' that can affect how profitable a season is, the yield they produce and the price they fetch.
As a result, farmers have to undertake on-farm risk management strategies that identify, assess and minimise potential disruption. They have to be proactive in protecting crops from the perils, even though some of them are impossible to plan for.
Crop insurance provides farmers peace of mind. Even when their best on-farm efforts fail, crop insurance covers lost income to ensure they can continue into another season.
What risks do Australian farmers face?
Mother nature is unpredictable, and Australia is no stranger to a range of weather patterns that can wreak havoc for farmers. The Bureau of Meteorology agree that for Australian farmers, weather and climate is one of the most difficult risks to manage. They also say that it affects almost all agricultural activities – so even changing focus doesn't save farmers from the weather.
From hail storms to drought, Australia sees such a variety, so it's hard to farmers to plan their on-farm risk management to protect against every possible peril.
Like any business, Australian farmers are subject to malicious acts. Crop damage, or problems with essential machinery or equipment can leave farmers unable to profit from the current season, and at risk of losing money altogether.
Pests and infestations
Certain pests can devastate a crop. Most farmers take all the precautions they can, such as chemical spraying or using insect nets as protection. However, sometimes, despite best efforts, pests and infestations do get through unexpectedly and seriously threaten the crop.
Even when things go well during production, farmers still have to transport their goods and hope for a high sale value. A lot of the time, variations in crop prices are influenced by global supply and demand, meaning Australian farmers themselves can do very little to control this.
Should a crop fail in another part of the world, demand may soar and prices increase with it. However, when other countries experience high yield, there is less demand from Australian farmers, which means market rates nosedive. Of course, this is highly variable according to crop and season, making it as difficult to plan for as the weather.
Modern farms rely on a range of equipment, from automated temperature controls in greenhouses to tractors and harvesting equipment. A problem with just one of these machines can cost a farmers thousands in replacements or ruined produce.
What are the effects of a bad season?
When risk becomes reality, it can make it heard for farmers to keep up with their financial commitments or push forward to plans for the new season. Farmers may find themselves:
- Unable to pay back loans – It's not always possible to make big investments from savings alone, so some farmers use loans to purchase expensive equipment. However, these loans must be repaid within the timeframe agreed and farmers may incur extra penalties if they miss payments.
- Unable to meet personal payments like mortgage – Farmers have largely the same expenses as everyone else. They still need to pay their mortgage, put fuel in their vehicles and feed their families. A bad season makes this much harder.
- Unable to invest in equipment, resources and stock for future seasons – Even if farmers have enough money to cover their personal commitments, such as their mortgage, they still need money to invest in the coming season. They may need to buy new crops or invest in new fertilisers or pesticides. If they didn't earn enough money in the previous season, they may have not the cash needed to do everything in their power to make the coming season as profitable as possible.
Crop insurance as a risk management tool
When things do go wrong, crop insurance is a powerful risk management for all types of farmers. Benefits of crop insurance include:
- Covers expenses in the bad years – When there's little profit made, crop insurance payments cover the essential expenses farmers still accrue, from mortgages to staff salaries. Most policies work on the basis of a predicted yield and/or market rates. If farmers don't get the crop volume or price they were expecting, the insurers step in and cover the difference.
- Enables farmers to reinvest and profit in following seasons – Farmers need to be able to buy new materials in order to recover the following season, from seeds to fertiliser or upgrading equipment, crop insurance payouts provide the funds they need even when they've little profit from the previous season.
- Makes farmers more appealing to banks and investors – Farms are businesses, and sometimes operate on bank loans or investments just like anyone else. However, a farm without crop insurance may appear more risky to potential investors, who are unsure how they'll recoup there losses if something goes wrong out of their control.
Our comprehensive insurance policies cover broadacre crops, horticulture and viticulture, forestry protection and more.
Crop insurance with Primacy
If you're a broker looking to add a niche market interest to your offering, check our broker information page to find out more about how we work. We offer a range of insurance policies to help farmers all over Australia find the protection they need.
For crop farmers, take a look at our comprehensive insurance policies covering broadacre crops, horticulture and viticulture, forestry protection and more.