Preparing Your 2020 Insurance Risk Management Strategy

Even at the best of times, farming is a risky business with exposures in various areas including people, finance, markets, management, business environment and production. 2020 is shaping up to be a particularly uncertain year for producers, with risks compounded due to the potential impacts of COVID-19 on farming operations.

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Contact Steve Funk to gain a better understanding of how the program might work for your operation and whether you should reconsider enrolling in the program.

MNP has created the Farm Business Risk Management Overview documents linked in the resource section (above) to document the various perils covered by different types of farm insurance. Some of the risks that may be specifically caused or impacted by COVID-19 are mentioned below. AgriStability is the only insurance that covers all potential risks listed for the whole farm, regardless of whether that farm produces crops, livestock or a mix of both.

Risks that may be specifically caused or impacted by COVID-19

Livestock Production Loss / Crop Yield Loss (field perils)

If a reliable source of inputs cannot be maintained (for example, if suppliers went out of business or the supply chain was interrupted), there could be a significant impact to the production or productive capacities of farming operations.

Bad Debts Associated with Customer Bankruptcies

If customers were unable to pay for commodities delivered (for example, if they went out of business), there might be significant bad debt losses.

Price Loss

The recent drop in the Canadian dollar has created some optimism for increased world market prices in some cases; however, if export access to those world markets was somehow limited, prices would be negatively affected. For commodities that require further processing prior to eventual sale, loss of processing capacity would adversely impact the prices. There could also be reduction in overall consumer demand, especially in the wake of a period of hoarding or changes in consumer preferences as discretionary income levels drop due to mandatory workplace closures, both of which could happen worldwide and would negatively impact prices.

Increased Seed, Fertilizer and Chemical Costs

Any supply shortages (for example, if suppliers went out of business or supply chain was interrupted) could potentially cause prices to go up.

Increased Other Input Costs (e.g. feed, labour, electricity, etc.)

Any supply shortages (for example, if suppliers went out of business or supply chain was interrupted) could potentially cause prices to go up. Specifically, there might be issues with supply of seasonal farm labour, particularly foreign workers, which might put upward pressure on wages and contract labour costs.

The points above are in addition to any other risks that farms have always been subject to in the past – weather, disease, etc. Several adverse factors, COVID-19 related or otherwise, could combine in such a way to cause a significant drop in 2020 AgriStability margins relative to reference margins. It is also worthy to note, for farms that include a cropping component, many of these COVID-19 related issues might not be covered in the same way, or at all, by a separate crop or private insurance policies.

Preparing Your 2020 Insurance Risk Management Strategy

We are experiencing an unprecedented global health and economic crisis and it is difficult to predict what the short- and long-term implications will be on the agriculture sector. AgriStability is the best and most affordable insurance to deal with the potential fallout, so it should form the base of any farm’s 2020 insurance risk management strategy.

Producers should also consider supplementing AgriStability with other insurance risk management products as necessary to ensure exposure to losses is kept at a manageable level. Crop insurance, hail insurance, GARS, Just Solutions and Western Livestock Price Insurance Program (WLPIP) are other products that can be used with AgriStability to effectively limit exposure to losses.

New proposed AgriStability program rules for 2020 allow for effective doubling up of coverage from AgriStability and private insurance, which includes private hail insurance, GARS, Just Solutions, and WLPIP. Furthermore, experience has shown us that eligibility for government ad hoc payments made during times of crises has been tied to participation in the AgriStability program.

MNP has team members who specialize in AgriStability and the delivery of our Ag Risk Management Projector (ARMP), a visual tool that can help you make the best decisions on your insurance risk management strategy. Contact your local Business Advisor or Farm Management Consultant to enrol if you have never participated or previously opted out of the AgriStability program.