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Tribunal questions value of crop cover subsidies

Installing more weather stations in NSW would be of greater benefit to drought-hit farmers than offering subsidies for multi-peril crop insurance, a draft report has found.

The state’s Independent Pricing and Regulatory Tribunal (IPART) assessed five measures to help farmers under the State Government’s drought strategy.

They are a proposed subsidy for multi-peril crop cover premiums; installation of additional weather stations; the Farm Business Skills Professional Development Program; a proposal to waive stamp duty on multi-peril crop insurance premiums; and a proposed initiative to improve sharing of information with insurers.

The report says while multi-peril crop insurance can play an indirect role in increasing crop farmers’ self-reliance, it is unlikely to displace government assistance.

It says because droughts can be predicted months in advance and crop cover is offered on an annual basis, farmers and insurers can decide whether to use or offer a product in adverse conditions.

“In periods of very low soil moisture prior to cropping, insurers are unlikely to offer policies that cover drought, because the likelihood of paying out on the policies is too high.

“However, we consider that this can provide an important signal to crop farmers not to plant, because the likelihood of crop failure is high.”

IPART says farmers can self-insure by increasing production in good times.

It says there have been no studies linking crop insurance and increased productivity.

“Multi-peril crop insurance is a more suitable product for insuring against non-drought climatic events, particularly those that cannot be accurately forecast several months in advance.”

IPART says farmers would still rely on government drought assistance payments. And because most go to livestock farmers, governments would not reduce their assistance bills by offering crop cover premium subsidies.    

“Cropping farmers who are furthest away from best practice are the least likely to purchase multi-peril crop insurance, but the most likely to encounter financial difficulties during droughts.”

IPART Chairman Peter Boxall says none of the steps considered encourage greater take-up of multi-peril crop insurance.

“Of the five measures assessed, we have found the installation of additional weather stations, while unlikely to lead to a higher uptake of multi-peril crop insurance, is likely to deliver the largest net benefit per dollar,” he says.

Submissions on the draft IPART report can be made before August 15. The final report is due in October.