NSW Government response to IPART Report: Review of Multi-peril Crop Insurance Incentive Measures

The NSW Government welcomes the final IPART report: Review of multi-peril crop insurance incentive measures. The NSW Government is committed to supporting the farming sector to be more resilient and assist farmers in their ability to manage drought and other inherent risks in their industry.

The Government notes the findings that although multi-peril crop insurance may have an indirect effect on improving farmers’ self-reliance during drought, direct government subsidies for multi-peril insurance premiums would not represent good value for money for the taxpayer. In IPART’s view the market fundamentals for multi-peril insurance are already in place and they predict the market will develop with new and innovative products becoming available to farmers. The report finds no evidence of market failure to justify direct government intervention. The Government will therefore not be introducing a subsidy scheme for multi-peril crop insurance. However, the 2.5% stamp duty on multi-peril crop insurance products will be abolished from 1 January 2018, making them more affordable for farmers.

The Government supports the report’s recommendations about improving farm-level data collection and agrees that it would be advantageous for the Rural Assistance Authority to consolidate and publish aggregated data on exceptional circumstances and farm level financial information on instance of previous government support. The Government recognises such information could improve targeting of drought assistance and improve understanding amongst government, industry and the community about the profiles of business and regions that are at risk from drought. The Rural Assistance Authority will therefore investigate how to improve its data collection and allow stakeholders access to aggregated data.

The following is a full response to each of the report’s findings and recommendations:

IPART Report: Review of Multi-peril Crop Insurance Incentive Measures – findings and recommendations

Rec or Finding

Description

Response

Findings 1 - 8

IPART finds that:

  1. Multi-peril crop insurance could play an indirect role in increasing   crop farmers’ self-reliance during droughts.
  2. There is unlikely to be an under-provision of multi-peril crop   insurance as a result of a market failure.
  3. Total Government expenditure would be likely to increase as a result   of subsidising multi-peril crop insurance because the expenditure of the   subsidy would more than offset any savings in drought assistance.
  4. An upfront premium subsidy complies with the drought framework.
  5. A 5-year stamp duty waiver on insurance premiums does not comply with   the drought framework, because it would not be effective in achieving its   objectives.
  6. On balance, the NSW Farm Business Skills Professional Development   Program complies with the drought framework, noting a small ongoing overlap   between it and the Commonwealth Managing Farm Risk Program.
  7. The provision of additional weather stations complies with the drought   framework.
  8. Sharing information with insurers does not comply with the drought   framework because it would not be effective in achieving its objectives.

The NSW Government notes IPART’s work in assessing the current and proposed government measures against their Drought Evaluation Framework. The Government notes findings 6 and 7,  that two programs which comply with the Drought Evaluation Framework are already in place, specifically, the Farm Business Skills Professional Development Program and the provision of additional weather stations. The proposed stamp duty waiver (finding 5) was found not to comply with the Drought Evaluation Framework on the basis that its impact would be minimal. Nonetheless, the Government recognises that abolishing stamp duty provides a simple and cost-effective way to improve the affordability of MPCI products. Stamp duty for multi-peril insurance products will cease on 1 January 2018.

Rec
1 - 4

IPART recommends that if a temporary subsidy is introduced:

  1. It be temporary only, with the objective of assisting the   development of commercial multi-peril crop insurance market.
  2. The subsidy rate be applied to the premium payable, inclusive of stamp
  3. It be set at   the same percentage rate across different regions, regardless of the   different risks facing different regions.
  4. It be set at the same percentage rate for both single-year   and multi-year policies.

Supported in part.

The Government notes IPART’s recommendations. However, given findings 2 and 3 above, that there is no market failure and that NSW Government spending on drought support would increase rather than decrease, as well as the Report’s assessment that benefits of a subsidy scheme would be marginal and uncertain, the NSW Government will not be proceeding with a subsidy scheme for MPCI.

Rec 5

IPART also recommends that:

  1. The Rural Assistance Authority prospectively improves its data collection, and allow stakeholders to access the aggregated data.

Supported.

The Rural Assistance Authority will investigate how to improve its data collection and allow stakeholders access to aggregated data.