Scope of crop insurance scheme limited

29 Aug, 2001 10:00 PM
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WHEAT and barley could be the only grain crops insured under the proposed multi-peril crop insurance (MPCI) scheme if it gets off the ground.

The remaining broadacre crops will have to prove their worth, according to MPCI taskforce chairman Ross Bowe, who is leading the MPCI feasibility study.

Mr Bowe said it was obvious the taskforce would be looking at the major crops, wheat and barley, but MPCI cover for the rest would depend on the provision of relevant information on crop yields and production risks.

This was so the insurance industry had something to set its premiums by.

Mr Bowe wouldn't make any rash announcements about the scope of the insurance because it was too early in the study, but he said it would have to be privately run and therefore needed to be commercially viable.

"We will be looking at all options that are feasible for both the farming industry and the insurance industry," he said.

How commercial the scheme will be depends on the outcome of market research, contact with farmers and actuarial studies, according to Mr Bowe.

At this stage, the third week of operation, the ten-person taskforce is formulating guidelines for additional work that needs to be undertaken and possible models to be used.

One commercial entity that will be under the spotlight during the feasibility study is Macquarie Bank.

The taskforce will investigate the operation of a new insurance product for farmers, based on weather derivatives, launched by Macquarie Bank in mid-August, to see if it presents as a viable option to include in MPCI.

Essentially, the product offers farmers the opportunity to hedge weather outcomes through a swap or option.

It allows graingrowers to insure against various weather events, including lack of rain at seeding, harvest rain and frost.

However, a thorough understanding of financial risk management is necessary before full advantage of these risk management tools can be gained.

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