Business Clinic: How can I insure crop failure risk?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s experts can help. Here, Hannah Hubbard of insurance broker Farmers & Mercantile explains crop cover and crop shortfall cover.

Q. Last harvest my cereals yields suffered due to the extensive drought. Following the heavy rain in early June, I am concerned my yield is again going to be affected by the weather.

What can I do to insure my crops and protect myself from a potential loss of income?

A. Volatility in our weather and seasons is not just an issue that affects farms in the UK. Last summer’s four-month heatwave was recorded as one of the hottest and longest on record since 1948 across Europe.

See also: Business Clinic – how does averaging affect insurance claims?

Due to this intense period of heat, continental Europe suffered a reduction in yield on the 2018 harvest representing a loss of €3.3bn (£2.9bn), according to the EU’s Mars crop survey.

The picture for harvest 2019 doesn’t look much better, with large parts of Eastern Europe caught between two pressure currents causing temperatures of 45°C and fields of barley lying flat across the UK.

DEFRA has estimated that 80% of UK farms are only profitable because of their Basic Payment Scheme payments. With these due to be reduced by 40% over the coming years, it is really important that farms begin to look for other methods to stabilise their farming income.

For the past eight years, farms around the world have insured their crops with what is known as a parametric insurance product.

This modern approach uses a parameter, such as the weather, which is then correlated to the client’s damages or financial losses.

Rather than a historical approach of insuring an item for a cover, ie a shed for storm cover, parametric insurance is fairly new to the UK, especially in agricultural insurance.

Crop shortfall insurance is a parametric insurance product that protects oilseed rape, winter wheat, winter barley and spring barley from losses in yield caused by drought, wind, frost, hail, rain, flood, and excessive heat.

The product works by taking the average yield from the previous eight years for your region and would then pay out on up to 25% of your total sum insured when there has been a weather event to cause a variation from this average.

Using a simple algorithm, the product uses your cropping area, along with anticipated yield and forecasted price, and then compares this with independent data submitted by Defra.

The product then automatically pays out in October to December should your farming area have suffered a loss against the area average. 

Crop shortfall insurance products also cover for losses from plant diseases and pests in the same way.

Separately, hail cover is available on most combinable crops through a traditional farm policy, while crops in store, such as potatoes and grain, can be covered for storm damage, flood, fire and lightning through traditional insurance.

Yield and price volatility make it important to regularly review the sums insured.

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