MPCI Back on the Agenda30-Jun-2014

THE production sector and Australia’s first major provider of multi-peril crop insurance (MPCI) have welcomed the acknowledgement that MPCI will play a large role in determining future federal government drought policy.

The government’s Agricultural Competitiveness Green Paper was released earlier in the week at the National Farmers’ Federation Congress, and MPCI was one of the major points of discussion.

Andrew Weidemann, chairman of Grain Producers Australia (GPA) said the issue of creating an effective insurance product for growers for climatic events like drought and frost was now in focus.

“Nationally, a group of state farmer organisations (SFOs) have set up the National Grains Working Party for multi-peril insurance and we’ll be working hard at conveying our views to government.”

He said initial meetings of the group had found two strong points that needed to be addressed.

First, he said producers still felt products on the market at present were too expensive for industry as a whole. To bring cost down, he said industry had to engage with the re-insurance sector to gain their confidence. Andrew Trotter, chief executive at Latevo International, which is the only company offering growers a MPCI product in Australia at present, was also pleased to see the topic in the headlines.

“I commend the government on the release of the green paper and bringing the issue to attention, and I look forward to further dialogue about the matter.”

However, he disagreed with Mr Weidemann’s thoughts that at present insurance was too expensive.

“Insurance is cheaper than debt – that’s an important point to consider.”

Mr Trotter said he had calculations to show that taking out insurance would be cheaper than self-insuring by putting money away for the bad years.

“We have a set of figures we show people and it is clear farmers are better off taking out insurance rather than utilising debt to self insure, but the thing is that the self-insurance money is not always accounted for, so they say the insurance is too dear.

“Our product is already standing on its own two feet, we already have claims coming in that are in the process of being paid out, so growers can see it is working.

“As a rough rule of thumb it costs less than $10 a tonne, which is much cheaper than various farm inputs used throughout the year.” He said the product had a particular fit with growers who had expanded in recent years and had low equity levels at present.

Mr Trotter said he would be pushing for government to play a role in getting more farmers to take out MPCI by providing tax incentives to participate.

“From where I sit, it seems logical. The hardest part with trying to change behaviour is to get things off the ground and it’s clearly been proven taxation has always been the recognised mode for changing behaviour,

“It is a proven mechanism, particularly among farmers, we saw what changes to depreciation did in terms of getting farmers to buy new machinery during the Rudd administration.”

Mr Trotter said he believed the idea was realistic as it did not require government funding.

“It will be a matter of them forgoing a small amount of revenue from tax receipts, but that is all.”

Mr Weidemann said he applauded Latevo for providing a commercial option for growers to take out MPCI but said he did not think it was a realistic option for all growers. “It is great to see Latevo involved and paying out some claims this year, and there product is sound and good value for some growers, but we need more than just one provider in the sector.

“We think there needs to be a critical mass in terms of different options and affordable premiums to get growers to engage.”
Mr Weidemann said he hoped government would also play a role in raising the profile of MPCI in this country.

“Their role is critical in providing certainty to reinsurers, and perhaps providing some sureties given our volatile climate that would help companies lower their premiums.”

Both Mr Weidemann and Mr Trotter said MPCI was a good way of focusing drought policy.

“We say it’s a hand-up, not a hand-out, MPCI is a critical way of allowing growers to drought proof their own business effectively,” Mr Trotter said.

They agreed Australian farmers had to take Australian MPCI on its merits and not compare it to the ‘Rolls Royce’ American model, which is heavily subsidised by the US government through the Farm Bill.

“That’s not realistic, it just won’t happen here,” Mr Weidemann said. “We’ve spoken to Argentine and Canadian farmers and we have more similarities with schemes operating in those two countries than the US.”

Farmonline

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