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NSW study rules out government-backed farm income insurance

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A NSW government-funded study into farm risk management tools has concluded it is not financially viable to rely on public coffers to establish a farm income protection insurance market.

The study, conducted by the National Farmers’ Federation, suggests other insurance-related measures for consideration instead to help the agricultural sector with its risk mitigation strategies.

These include investing in weather data and technology to reduce basis risk, removing stamp duty on agricultural weather insurance to make products more affordable and developing a digital insurance platform to reduce transaction costs for farmers.

“Not unexpectedly, the research revealed there was unlikely to be one silver bullet to managing farm risk and the best results would be achieved by deploying a combination of tools and approaches,” the federation’s CEO Tony Mahar said.

“In charting a path for a national approach on farm-related risk management, reviewing the efficacy of existing initiatives, and ruling out actions not to take are equally important.

“To this end, the report into insurance rules out the viability of government financial support to establish an ongoing market for farm income protection insurance, noting that the cost of government support would significantly outweigh the benefits to farmers.”

Mr Mahar calls it “a disappointing finding for the industry” that government funding for such a scheme is not viable and that it “will need to be revisited over time as improved weather and production data allows the better characterisation of these aspects of agricultural risk”.

NSW Minister for Agriculture Adam Marshall has welcomed the completion of the Future-Proofing Farming report.

“Our primary producers have faced unprecedented volatility over the past few years, from devastating drought to bushfires and floods,” Mr Marshall said. “As a Government, we thought big and commissioned a $2 million report from the [National Farmers’ Federation] to explore how primary producers could be better protected from climatic events such as drought, through innovative tools such as on-farm income protection.

“The report emphasises the need for a national approach, so I have formally requested it be tabled and discussed at the next Agricultural Ministers’ meeting.”

Plans for the study were announced in 2019 when the state’s farmers were hit with a severe drought.

The study addressed six key themes: insurance, mutuals and co-operatives, education and awareness, hedging, off-farm income and policy.

In insurance, it was found almost all farms insure agricultural property and equipment, and some insure various aspects of agricultural production.

Key issues considered included what financial risk management insurance products are available, how widely used they are, whether they can be made more relevant and effective, and the potential barriers to implementation and uptake of new insurance products and solutions.

The study says there are major barriers to agricultural weather insurance uptake and that it is currently not worthwhile for most farmers. Government subsidies would likely be needed for there to be widespread uptake of agricultural weather insurance but this would come at a substantial cost.

The study says mutuals and co-operative structures have played a key role in most agricultural segments to help farmers manage risk globally.

However in Australia, use of these has been relatively low, other than a few high-profile examples.

It says the key perils to farmers in Australia are systemic, making diversification in a mutual portfolio challenging to achieve.

Click here for the report.