HERE’S a hypothetical for you. You’re a private business faced with a decision to invest capital that could have a return on investment of at least ten to one, along with solving a tricky, ongoing problem with some of your company’s customers.
The only issue is talking around a few recalcitrant board members who have an objection to investing in this particular space.
It’s a no-brainer isn’t it – you talk the relevant people around and get the project up and running.
This is a parallel representation of the dilemma currently facing the Federal Government on the seemingly endless debate on multi-peril crop insurance (MPCI) and highlights just how foolish not making a serious investment in the space, based on ideologies, is.
Despite the best attempts of many private businesses and the universal acknowledgement that Australia, of all places, needs a system to protect farmers against climatic variability, various MPCI schemes continue to splutter along, with only a tiny percentage of Aussie croppers taking out MPCI each year.
The Federal Government has talked up MPCI and sees it as a potential key plank in a reform to flawed drought relief system which too often sees risky behaviour rewarded.
However, in practice, various schools of thought held by key members of Government have stopped it from making vital transitional investments to lead farmers to seriously consider taking out MPCI.
The time has come to change that and for a serious Government investment in getting farmers to take out MPCI.
Like push-starting a car, the first 5 per cent of the project is going to take 95pc of the effort, once a critical mass of people are taking out policies there will be sufficient depth in the market in terms of both numbers and geographic spread for insurers to operate along normal commercial lines.
But to achieve this outcome the Government needs to be brave and shove aside the free market dogma so beloved by some of its members.
It has dabbled its toes in the water of encouraging people to take up MPCI via a rebate for the assessment process as farmers look to register for a particular scheme.
However, while credit goes to the government for trying to get the production sector on board, response has been lukewarm.
The government needs to take action which would act as a clear catalyst to improving participation in MPCI and that is going to take more than the small change currently on the table.
Various reviews into MPCI, such as the NSW Independent Pricing and Regulatory Tribunal (IPART) report that came out earlier in the year, have found that some form of government incentive is going to be required to get a vibrant MPCI sector up and running.
Public perception is against up-front subsidies, but industry analysts, such as the Australian Farm Institute’s Mick Keogh have suggested a scheme based on tax incentives could be the enticement needed to get growers to participate.
Already I can hear the moaning from the leafy suburbs of our capital cities, decrying any form of government intervention.
“Let market forces rule, you can’t interfere with the market,” they will say.
Well – why not? If a light touch of government assistance can act as the catalyst that leads farmers to participate in MPCI en masse, then surely that is what government must do.
Research from multiple sources suggests that a functional MPCI sector in Australia would conservatively add hundreds of millions of dollars each year to the cropping industry’s bottom line.
Just because it does not suit the economic beliefs of a certain few, who always manage to conveniently turn a blind eye when it comes to the liberal dollop of middle class welfare they are entitled to, is not a good reason not to pursue it.
Let’s not forget this does not need to be an ongoing investment by the Government.
The major hurdle to MPCI take-up is price, and the major reason prices are currently in excess of what the market is willing to pay is a lack of market depth and spread.
By encouraging growers across the country to take out MPCI, whoever the provider is, the costs will come down and allow the sector to run on normal commercial lines.
A working MPCI system will dramatically decrease the chatter surrounding drought policy, a perennial burden for the incumbent government of the day.
The rewards are clearly visible as is the mechanism to achieving the outcome. The only question is whether the Government has the courage to make it happen.