Crop insurance falters

12 Jul, 2007 07:00 PM

AUSTRALIA¹S closest thing to multi-peril crop insurance (MPCI) is in jeopardy after the Federal Government decision to axe tax breaks for all non-forestry managed investment schemes (MIS).

Australia is the only major agricultural country in the world which does not enjoy MPCI schemes.

While the concept of MCPI has yet to be supported by either state or federal governments, for the past few years the firm Australian Agricultural Contracts Ltd (AACL) in Perth has been running an innovative scheme which offers the best protection possible against crop failures.

The AACL co-production contracts for selected growers use investors¹ money to grow crops, a handy tool when climate change makes farming a much more risky business.

Growers are paid up front to plant a crop and receive a portion of any upside in prices, leaving money for farmers to invest elsewhere or expand operations. It also means farmers do not have to tie up assets with input costs.

Individual growers have received up to $2.5 million to plant a crop this year and while AACL has been hit by the dry in the north, the area only represented 10pc of the total program.

The contracted wheat, grown on farms around the state to reduce investor risk, is put into an investors¹ pool.

It is the investors¹ pool that bears the brunt of any crop failure or downgrades and there are plans to underwrite the pool to reduce the risk for investors, which includes some contract growers.

This year AACL contracted more than 100 WA farmers to grow 290,000t of wheat and 7000t of barley, a big step up from three years ago when a handful of farmers were contracted to grow 3000t of wheat.

The Federal Government announced in February that the Australian Tax Office would run a test case in the High Court to stop tax breaks for non-forestry MIS, and in the meantime, there would be no new non-forestry MIS from 2008.

AACL managing director Andrew McBain said the company invested $30m in WA to buy $65m worth of grain this year.

He said there was potentially $400m-$500m a year available to underwrite crops if AACL could gain an exemption from the government MIS ruling, with forestry already a precedent.

Despite the protective advantages of this form of share farming, Mr McBain¹s attempts to persuade Federal Treasury to give AACL an exemption had fallen on deaf ears.

This was despite support from state grower bodies and both sides of WA politics, which had called for the Federal Government to retain the co-production of grain within MIS under federal taxation law.

Mr McBain said there was no other access to capital for agriculture outside MIS.

He said the co-production contracts differed from other no-forestry MIS because they not replace other agriculture, did not compete for resources like water and land and did not oversupply the market.

³We are not moving farmers off the land we are backing the farmers and we have actually got huge political support in WA,² he said.

He said a major reason for the success of the contracts was that growers were carefully selected by AACL.

It planned to branch out into NSW, and possibly South Australia next year.



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