With the end of the financial year rapidly approaching, many farmers and their accountants will likely turn some of their attention to Australia’s Farm Management Deposit (FMD) scheme. In each of the last three years, the total funds held in FMDs increased by about one billion dollars during the April to June quarter. At the end of the March quarter the balance was sitting at $4.3 billion, so we should see the previous $5 billion record (June 2016) eclipsed this year. In Queensland, we should also surpass last year’s record and break through the $1 billion barrier for the first time.
Three positive changes that recognise the realities of modern farming were made to the scheme this financial year. From July 1, 2016, the FMD cap doubled from $400,000 to $800,000; the early access trigger during times of drought was re-established; and the law preventing FMDs being used as offset accounts against primary production business debt was removed. To date, only Rural Bank has offered an FMD offset product, but it is hoped that other lenders will soon follow.
With a realistic cap now in place, more farmers are realising that FMDs provide an opportunity for self-insurance, with the profits from a good year able to be spread across bad years.The only other viable way is through crop insurance that transfers risk to a commercial market.
Agricultural insurance has had a difficult time establishing itself in Australia, but this has not dampened its importance or necessity. Severe Tropical Cyclone Debbie, which caused hundreds of millions of dollars’ worth of damage and ongoing production losses, left farmers without any ability to recoup their losses and again exposed the gaping hole in Australia’s agricultural insurance market.
QFF continues to take a leading role researching agricultural insurance and understanding how it can be better used as a form of risk management for farm businesses, and is proud to be able to help facilitate the upcoming Rural Press Club event on July 5: ‘What is the Holy Grail of agricultural insurance?’.