Tag: livestock insurance

Livestock Insurance For Disease Outbreaks

Livestock Insurance for disease is an important aspect of any poultry, egg, pork, beef and dairy farm insurance program. In this article, we discuss how insuring livestock for disease outbreaks can be structured for each farm operation.

Full Mortality Livestock Insurance

Over the past 12 months there has been an increase in notifiable livestock diseases both locally and internationally. Outbreaks of African Swine Fever, Avian Influenza, Lumpy Skin Disease and Foot and Mouth have caused global concern for farms who are now looking for ways to manage this risk.

White chickens with red crests at indoor chicken farm

Packaged farm insurance policies can provide limited cover for livestock insurance under a defined/listed events policy. This cover may include fire, lightning strike, impact damage and malicious damage. 

However, it is important to note that there are additional risks in terms of livestock and business interruption losses that may not be covered under a packaged farm insurance policy.

Poultry Farm Livestock Insurance

Poultry Insurance For Meat Growers

In most poultry growing contracts, birds are placed and owned by the processor, however the farm can still be liable under the contract for livestock losses. Poultry farm liability insurance may cover losses where the farm has been negligent, however cover can be limited and will not cover any direct financial loss for the grower.

Should a disease outbreak occur on farm, not only would the grower lose the profits from the batch associated with the disease, but they may be further exposed to a loss of gross profits, should the farm be placed into quarantine and unable to process batches.

Although the birds are owned by the poultry processor, policies can still be structured to cover the loss of these birds on behalf of the processor and include loss of income cover for the grower including cleaning and disinfection costs.

On a larger scale, full mortality livestock insurance can also be facilitated for poultry processors providing protection for their supply chain and security for their contracted growers.

Egg Farm Insurance

Livestock insurance for egg farms needs to be structured differently to meat operations for two main reasons.

Firstly, there can be longer term financial exposure based on the ability to replace the flock.

Secondly, once birds are sourced and replaced, it can take a considerable period of time for the farm to reach the level of production prior to the loss.

eggs being packed into trays on a conveyor belt on an egg farm

Free range operations can also pose an increased risk due the potential of bird wildlife contaminating the farm location and this also highlights the importance of establishing improved approaches for managing bio-security.

Insurance For Poultry and Egg Farms

Important features of full mortality bird insurance for poultry and egg farms can include:

  • Machinery breakdown (cooling, heating, feed and water)
  • Heat stress due to external temperatures exceeding normal conditions
  • Illness/disease such as Avian Influenza and Newcastle Disease
  • Cover for gross profits (farm income)
  • Removal of debris
  • Cleaning and disinfection costs

Piggery Livestock Insurance

African Swine Fever (ASF) has caused significant disruption to the pork industry throughout Europe, Africa, China and more recently, outbreaks in PNG.

A group of pigs together on a farm

Depending on the size and production of the farm, there are many options when looking to structure insurance for pork producers. For example, some farms may only wish to cover their sows which can help reduce the cost but still provide protection in terms of loss of continued income.

There is a specific insurance policy wording available for ASF and FMD (Foot and Mouth Disease). The trigger for a claim is usually based on government order for slaughter of an infected premise. A livestock insurance policy can also be extended for losses resulting from named diseases before a government slaughter order is given.

Insurance For Pig Farms

Important features of a full mortality livestock insurance policy for pork producers can include:

  • Loss of animals due to fire
  • Disease such as African Swine Fever and Foot and Mouth Disease
  • Cover for loss of gross profits (farm income)
  • Removal of debris
  • Cleaning and disinfection costs

Beef Feedlot Insurance

Full mortality livestock insurance for beef feedlots is important to consider for several reasons. The introduction of external cattle for finishing purposes can increase the risk of disease being introduced within the feedlot. 

black Angus cattle eating hay in a feedlot

The 2001 Foot and Mouth Disease outbreak in the UK cost more than 8 billion pounds with over 6 million cattle and sheep destroyed.

The 2010-2011 outbreak in Korea cost more than $2.7B USD. According to the Australian Department of Agriculture, an outbreak would cost the industry over $16B AUD.

Cover for feedlots can be structured for each individual operation with various covers, excess levels and loss of income protection.

Full mortality livestock insurance for beef producers can provide greater financial security for feedlot operators, its lenders and stakeholders. The increased security can provide comfort for banks or agricultural investment funds and the ability for greater lending capacity for future expansion.

Insurance for Beef Farms

Important features of full mortality livestock insurance for feedlots can include:

  • Loss of animals due to fire and lightning strike
  • Disease such as Lumpy Skin, Foot and Mouth, Anthrax, Bluetongue and Brucellosis
  • Cover for loss of gross profits (farm income)
  • Removal of debris
  • Cleaning and disinfection costs

Emergency Animal Disease Response Agreement

The Emergency Animal Disease Response Agreement (EADRA) is a formal agreement between the government and industry bodies on how to manage cost and reasonability in the event of a livestock disease outbreak.

EADRA is a legal agreement that provides compensation to growers in the event of government directed slaughter due to specified disease outbreaks. These specific diseases are categorsed and the share from government and industry bodies is determined based on the disease category within the cost sharing agreement.

What Does Emergency Animal Disease Response Agreement Cover

EADRA provides growers compensation for slaughter of animals directed by government and can include:

  • Salaries and wages for staff engaged by a Party to assist with EADRP
  • Essential equipment required for the immediate servicing needs of the EADRP
  • Livestock destroyed for the purpose of eradication or prevention of spread

Valuation of Livestock

The valuation of livestock is determined “upon the basis of a sale at the place where the stock or property was when it was destroyed of where the stock was when it died of the disease, that is, farm gate value“

EADRA provides an allowance for a second valuation as a top up payment should the total value of livestock be greater on the restocking date. The request for a second valuation must be notified within 30 days of the property being eligible to be restocked.

How Can Livestock Insurance Help?

EADRA provides compensation in the event of a named disease outbreak. However, there are risk exposures for both growers and processors, as business interruption is excluded within the cost sharing agreement.

An All Risks Mortality Insurance Program can compliment the EADRA cost sharing agreement by providing.

  • Business interruption for loss of gross profits (due to quarantine of farm locations/ability to restock)
  • An insured agreed value of livestock in the event of a reduced “farm gate” value due to disease outbreak
  • Diseases not included within the EADRA
  • Death of livestock due to feed and or water contamination
  • Fire, lightning and flood
  • Heat stress
  • Feed or water mechanical breakdown

As dedicated Agri Insurance Brokers, we have access to overseas livestock insurance markets with significant capacity within the Australian market. We specialise in providing complex livestock insurance solutions for large farms, chicken processors, banks and agri investment funds.

Farm Livestock Insurance

Farm livestock insurance is often a cover that is either overlooked or not correctly set up in many farm insurance programs. Although it may seem like a simple cover to arrange, it can be far more complex and just as important to get right than any other fixed asset insurance.

Farm livestock insurance is often a cover that is either overlooked or not correctly set up in many farm insurance programs. Although it may seem like a simple cover to arrange, it can be far more complex and just as important to get right than any other fixed asset insurance.

Hereford livestock grazing on dry grass in rural Australia

Livestock Insurance Options

Options for livestock insurance include;

  • Farm Property Insurance- Defined Events such as fire, lightning strike, malicious damage etc. to livestock
  • Full Mortality Livestock Insurance– Defined Events plus illness/disease and accidental damage
  • Stud Stock Insurance- Individual insured animals for Defined Events, illness/disease and full loss of use

Unlike farm infrastructure, the problem with livestock is that potential market fluctuations need to be considered when reviewing the sum insured along with peak numbers during high risk periods.

Market Value Insurance

A “market value” livestock policy sounds like a good option as the basis of settlement is paid on the market value at the time of the loss, however there can be significant problems around this method of reinstatement. A “market value” policy will still require a total value to be declared at the commencement of the policy and it’s important the declared values factor in peak livestock numbers and values during the highest risk periods. Although a “market value” policy will provide cover for the value of the livestock immediately prior to the loss, the timing of the loss during the production cycle can impact the farms potential profit margin, for example;

Livestock Insured:

Insured value at policy renewal/inception in February

  • Insured Livestock- “Angus cows $1,000,000”
  • Total loss of livestock in December with an assessed market value of $1,500 per head= $750,000
  • Claim settlement based on market value at time of loss = $750,000
  • Estimated value of cattle at proposed sale date in January $2,000 per head= $1,000,000

Loss of livestock margin of $250,000

Birdseye view of Angus livestock feedlot

Agreed Value Insurance

An “agreed value” livestock cover can be provided by some farm insurers and on occasions has been seen to be written into some ISR policies. It can help to eliminate any potential market value disagreements, speed up the assessment and claim settlement. Another advantage of an agreed value policy is that profit margins can be protected should a loss occur 6 months prior to cattle being sold. The agreed value can be designed to provide protection of this profit gap, for example;

Insured value at policy renewal/inception in February

  • Insured Livestock- “500 head of Angus cows @ $2,000 per head” (budget price at time of sale)= $1,000,000
  • Total loss of livestock in December with an agreed value of $2,000 per head= $1,000,000
  • Estimated value of cattle at proposed sale date in January $2,000 per head= $1,000,000

Loss of livestock margin of $0

The risk of an agreed value policy would be that if there is any market increase after the policy inception the farm would potentially be at a financial loss vs the current market prices at the time of the loss.

A herd of Angus livestock in a paddock

Farm Business Interruption Insurance

With livestock insured, it is still vital for a farm to consider insuring Gross Profits insurance and Increased Cost of Working Cover for continuation expenses. Consider a fire loss to a high value Wagyu herd that has taken years to breed and build consumer demand. The “market value” on this herd could be hard to establish and there would be considerable costs and time involved until the herd could be rebuilt and the farm is back trading at the same level prior to the loss.

Some insurers may not provide an agreed value cover option on livestock and in these situations it is more important to consider a loss of gross profits cover to ensure livestock profit margins are protected along with continuation costs to help rebuild the herd.

With any agricultural business it’s important that you deal with an insurance broker who takes time to understand your farming business. Every farm will have a different livestock value chain and without knowledge on how each farm operates, the insurance policy will fail to provide adequate cover in the event of a loss.