Insurance could beat crop price risks

Robert Harris

FARMERS may have to adopt US-style insurance schemes to protect their incomes against more volatile crop prices and yields rather than relying on state funding.

A recent report released by the European Commission suggests price risks will rise as international trade agreements expose farmers to more competitive market forces.

Production will also become more volatile as new quality requirements are introduced.

According to the journal Agra Europe, the timing of the report – carried out by economists at Wageningen Agricultural University, Netherlands – is significant.

“It is well known in Brussels that there have to be at least two further reform programmes for the CAP before WTO compatibility can be achieved.

“The eventual elimination of market support and the subsidisation of production has to be an eventual target.”

This greater exposure to world prices will increase the risk of income loss, said the report.

“There may be a need for complementary measures that stabilise and safeguard farm incomes without interfering significantly with markets for agricultural products.

“One possible way to address income stabilisation would be to provide some form of insurance.”

This would be operated by the private sector, and would cover only accidental losses, not those caused by the farmer himself.

Insurance could be based on regional yields and/or price, although the latter would depend on reliable data to set an accurate target price.

One such scheme is already available in the UK.

Dalgety Protect, launched last May, underwrites a predetermined minimum income based on regional cereal yields and March futures prices.

Similar programmes have been operating for the past two decades in the US, where up to 80% of growers now insure $28bn worth of crops.

Dalgetys Gary Hutchings welcomed the report and the Commissions stance.

“Crop revenue insurance is a very cost-effective way of protecting incomes, particularly given the volatility of price following the Agenda 2000 reform.”

Typical premiums in the Dalgety scheme are about 2% of expected return on average, he said.

The NFU Mutual insurance company is more sceptical, however.

“We believe that the scheme could work, given substantial financial help as in the US, where the government is subsidising it to the tune of $1.4bn a year.”

See more