Tag: dairy farm insurance

Insurance For Dairy Farm Sheds

Insurance for dairy farm sheds can be complex to arrange, so it’s important that each dairy farm is reviewed on an individual basis. Dairy milking sheds will differ from farm to farm and your farm insurance program needs to be tailored for your own farm insurance requirements.

A dairy shed is the key working asset for any dairy farm so it is vital that any farm insurance program is covering both the building and internal plant to it’s full replacement value.

Milking dairy cows on rotary dairy

What Are The Insurance Risks Of Dairy Farm Sheds

Dairy Shed

The cost to build a dairy can now exceed $2M depending on the size of the shed and milking plant.

When considering the sum insured of a dairy, it’s important to include;

  • Shed structure including any internal office/staff lunchroom fit out
  • Yard structure
  • Internal plant including any electronics, cup removers, milk meters etc.
  • Vats and compressor units
  • Silos and any feed crushing plants attached to the dairy
  • Removal of debris

Policy Wording

It’s important for farms to review how their dairy farm shed is insured within policy. Some farm insurance companies require the dairy shed and plant to be insured separately. For example, the shed to be insured as a “building” and plant to be insured as “contents or other property”. This can cause a problem as the reinstatement method may differ and leave the building insured for full replacement and the plant insured for indemnity cover. An indemnity payment on a claim would take into consideration the age of the plant and provide payment on the depreciated value rather than the full replacement cost.

Dairy Electronic Equipment Breakdown

Breakdown cover for electronic equipment should be considered under a dairy farm insurance policy. Computer ID systems, electronic cup removers and milk meters can be a significant cost to repair in the event of breakdown.

Dairy Farm Loss of Data

A number of larger dairy farms now rely on computer ID feeding, drafting and herd health systems. It’s important to consider how the farm is storing data and ensure that there is appropriate insurance in place to cover any restoration costs in the event of a claim.

Machinery Breakdown

Vat compressors, milk pumps and washdown pumps are common areas of breakdown for dairy farms and it’s important that these items are reviewed and cover is provided within a farm insurance policy.

Dairy Farm Business Interruption

A dairy is the key income generator for a dairy farm and it is important that any dairy farm insurance policy includes business interruption cover. A dairy farm cannot simply close, as there is a continued need for cows to be milked and continuation of the farm operation.  

Milk Cover

There are many risk exposures that can cause a loss of milk to a farm. It’s important that there is cover in the policy for loss of milk due to machinery breakdown, accidental damage and antibiotic contamination.

Couple milking dairy cows on rotary milking shed

Dairy Farm Insurance Claim Examples

Claim Example 1:

A contractor was engaged to undertake some welding repair activities on a rotary dairy. The welding on the dairy platform caused a power surge to the dairy cup removers. The damage and resulted in the replacement of 50 electronic cup removers at $1,500 per unit.

Total Claim Cost: $75,000

Farm Policy Section: Farm Property- Accidental Damage Cover

Claim Example 2:

A dairy farm incurred an unidentified power surge to the dairy shed which resulted in electronic breakdown to the dairy ID computer. The breakdown to the computer system also resulted in a loss of cow ID data and required re-entry and scanning of the herd into the new computer system.

Total Claim Cost: $25,000 for the ID system and computers & $5,000 for data restoration

Farm Policy Section: Electronic Equipment including restoration of data

Claim Example 3:

A farm dairy vat split and glycol leaked into the farm milk. The dairy vat had to be repaired and the farm also incurred a loss of the milk due to contamination.

Total Claim Cost $10,000 for the vat repair and $9,000 for the loss of milk

Farm Policy Section: Machinery breakdown including loss of milk

dairy cows walking to dairy shed for milking

How To Reduce The Risk of Dairy Sheds:

  • Standby back up power sources- fixed or tractor driven generators
  • Install power surge protectors to sensitive electronic equipment
  • Audible alarm systems for plate cooler and vat connections to prevent loss of milk
  • Install fire extinguishers and appropriate signage
  • Maintain cloud based backups of all cow record data
  • Implement hot works permits for any welding, cutting or grinding activities
  • Maintenance agreement for servicing the dairy plant
  • Development of a tailored Workplace Health and Safety Management System.

There are many risk considerations for dairy shed insurance. It’s important that the farm deals with an experienced farm insurance broker who has an in-depth knowledge of dairy farm operations.

Dairy Farm Insurance For Milk

Dairy Farm Insurance for milk is rarely reviewed or implemented in many dairy farm insurance programs. It’s important to consider how insurance relates to milk on your property, including the associated risks and the ways in which an insurance policy can provide cover for your farm.

It may seem to be a simple process to insure milk. Many farms may believe that their current farm insurance policy provides adequate cover. There are in fact multiple areas throughout a policy where milk can be insured for various events.

It is important that your insurer not only knows about the structural risks on the property, but also understands the operational risks of your dairy farm business.

See our article for dairy farm business interruption insurance

Dairy cows grazing on green grass in regional Australia ready for milking

Dairy Farm Insurance For Milk- Insurance Checklist

  • Milk contamination
  • Deterioration of milk in cold storage
  • Contamination to milk tankers or factory silos

Loss Of Farm Milk Due To Contamination

Loss of farm milk due to contamination is intended to cover the financial impact of a farm having to dispose of their milk due to contamination caused by antibiotics or chemicals. Insurers in the market provide a mixed variation of cover for contamination of milk. It should be noted that some insurers will not provide any cover at all. It would be recommended confirming f your current insurer provides cover for contamination of milk caused by antibiotics or chemicals.

Couple milking dairy cows on rotary dairy during early morning milking

Insurance For Deterioration of Milk in Dairy Vats

Deterioration of milk in cold storage is generally provided within a machinery breakdown cover. This is usually an optional extension which would provide cover for loss of milk in the event of breakdown. Cover is provided for loss of milk due to breakdown of plant, sudden or unforseen failure to the public power supply or contamination caused by accidental escape of refrigerant into the vat. Should these events occur, cover can be provided for loss of milk due to it being unsuitable for factory pick up. The limit of cover under the policy needs to be sufficient to cover the maximum value of milk in the vat at any one time- taking into account ‘skip a day pick-ups’ and seasonal pricing variations.

Dairy Farm Insurance Cover- Contamination To Milk Factory Tankers or Silos

Within a farm liability cover, some insurers will provide cover for the farm in the event of contamination to factory milk tankers or silos caused by milk contamination. This may be caused by the farms produce (milk) contaminating a factory milk tanker or silo from antibiotics or chemicals. Should a tanker pick up milk from your property and your milk contaminates the existing milk within the tanker or factory silo, this can lead to a potential liability claim, as your farm business has caused property damage to third party produce- being the factory owned milk.

Large Bega Milk Factory with milk tankers and factory silos storing and processing milk

Farm liability cover is not designed to provide cover for loss of earnings to the farm business. It is intended to provide cover if milk processor attempts to recover costs due to the loss of their milk/products. Not all farm insurers will provide this cover and some will have a limit on cover provided. It would be advisable to contact your insurer or farm insurance broker to confirm your level of cover.

As you can see, milk can be a complex risk to insure. However, with the correct insurance advice and adequate policy coverage, you can rest assured that you won’t be left crying over spilt milk.

Farm Business Interruption Insurance

Farm business interruption insurance cover is a vital component for any farm operation. While the importance of business interruption insurance for commercial business is well documented, it's less well recognised in the farming sector. However, it is just as important, if not more so, that farms have adequate business insurance interruption cover due to their increased external risk exposure.

Farm business interruption insurance cover is a vital component for any farm operation. While the importance of business interruption insurance for commercial business is well documented, it’s less well recognised in the farming sector. However, it is just as important, if not more so, that farms have adequate business insurance interruption cover due to their increased external risk exposure.

This article reviews the different farm insurance options that are available for agricultural operations.

Insurance To Suit Your Farm Business

Like all insurance policies, business interruption cover needs to suit your individual requirements, in particular your farm occupation.

Intensive farming operations such as poultry, eggs and piggeries require key infrastructure to ensure that the business can operate and process batches throughout the year.  Most pastoral operations don’t rely on key infrastructure, and therefore, any loss of farm infrastructure may not have a significant financial impact on the business. In these cases, the business may require an alternative solution to a gross profits interruption cover.

Farm Business Interruption Insurance For Intensive Farming- Gross Profits Insurance

In terms of poultry farms, a gross profits business interruption insurance cover is vital to ensure that in the event of insured loss or damage to property, expenses can continued to be paid. Should there be a loss to a single shed or multiple sheds, it will ensure that there is minimal financial impact to the farm until property is reinstated and bird batches can continue to operate.

The calculation of insuring intensive farming operations is no different to commercial businesses in that uninsured working expenses would be deducted from the annual turnover in order to derive an insurable gross profits figure. It’s also vital that it is understood how the farm is being paid under a processor contract, as these can differ in the market.

Example – Poultry Farm (12 months indemnity period)

Calculation for gross profits value:

Annual turnover                                                                                      $1,000,000
Less uninsured working expenses (e.g. gas*, power* and litter)     $170,000
Insurable gross profits                                                                       $830,000

* Always ensure that the fixed connections charges within power and gas costs are not deducted as uninsured working expenses, as these costs will still remain in the event of loss or damage to farm infrastructure.

Key Considerations for Farm Gross Profits Insurance:

  • Suitable for farms that are reliant on key infrastructure
  • Will cover the farms loss of gross profits
  • Uninsured expenses will differ depending on the farm occupation and farm input costs
  • Labour should be included within insurable gross profits to ensure employment costs are covered in the event of an insured loss
  • Underinsurance clauses apply (check your policy)
  • Consider full mortality livestock insurance extending to cover business interruption cover
Front of two green poultry shed with three silver grain silos with blue sky

Business Interruption Insurance For Pastoral Operations

Pastoral operations can be a little more complex, however they are certainly no more difficult to insure under a farm insurance policy. For example, if a pastoral operation was to lose a hay shed, it is more than likely that the farm would not incur any financial interruption to their livestock sales or production. Pastoral operations are usually more exposed to the risk of increased costs that the farm may incur in order to continue to grow and sell livestock. Therefore, a cover such as ‘Increased Cost of Working’ can be better suited to these types of operations.

See our article on livestock insurance

Birdseye view of sheep in yards being sorted for shearing

Business Interruption Insurance For Dairy Farms

Dairy farms can effectively be insured for either gross profits cover and/or ‘Increased Cost of Working’ cover. ‘Increased Cost of Working’ cover is well suited to dairy farms as they must continue to milk cows and cannot simply close their doors and receive payments for loss of gross profits. A continuation cover, such as ‘Increased Cost of Working’, is well suited to dairy farms as it covers additional costs that the farm may incur in order to continue to milk cows without disruption to animal lactation and calving patterns, which would ultimately have a long term impact on the farms production.

See our article on insurance cover for loss of milk

Milking cows on a rotary dairy

What Is Farm Business Interruption “Increased Cost of Working” Cover

‘Increased Cost of Working’ cover can not only be used in the event of insured loss or damage to property, but under some farm insurance policies, cover can also be provided for costs such as re-sowing of pasture in the event of grass fire. Other additional costs that may be considered under the policy for business continuation purposes may include, purchasing additional fodder to keep cattle fed while pastures are reinstated, additional labour costs that the farm incurs, and even transport or lease costs should cattle need to be agisted or milked on another property. 

‘Increased Cost of Working’ is an elective sum insured and will not generally incur any underinsurance clauses.  As a result, it can be difficult to calculate the most appropriate sum insured for a farm.

Considerations for calculating the sum insured should include:

  • Costs of re-sowing fire damaged pastures (including seed & labour)
  • Farm consultancy fees
  • Additional labour costs to feed or milk cattle
  • Fodder costs to feed livestock while pastures are reinstated and back in rotation
  • Any livestock transport or lease costs should cattle be required to be moved to an alternative farm or dairy

Feed costs can represent a large portion of the required sum insured for ‘Increased Cost of Working’ cover. This can be due to the timing of the loss and various seasonal conditions that may increase the length of time required to have pastures back in working rotation

Key Considerations of Farm Increased Cost of Working Insurance:

  • Elective sum insured without any underinsurance clauses
  • Used to cover costs the farm incurs to continue the farming business- not loss of income
  • Insurance cover for fire damaged pasture can be covered by some insurers
  • No economic limit in terms of dollars spent versus income returned
  • Can be a more cost effective premium than gross profits insurance

Business interruption insurance for agricultural risks can be complex to insure and will vary depending on the occupation and the individual farm activities. It is important that your insurance broker is experienced in agricultural risks and has an in-depth understanding of the farm to ensure adquite protection