A first of its kind insurance product has been lauded by industry for the benefits it could bring to farmers looking to protect themselves from Brexit market volatility.
Stable, the brainchild of Somerset farmer’s son and Nuffield scholar Richard Counsell offers index insurance to farmers and food companies across 15 countries and hundreds of diverse farm commodities from coffee to cow’s milk.
The risk management platform, which is the first service of its kind outside the USA, offers simple, affordable premiums for farmers and food businesses across all sectors to protect them from falling prices or rising costs.
Mr Counsell, who previously worked in software development in Chicago and was a finalist in FG’s parent company’s Agri-Innovation Den competition, told the platform’s launch in London on Tuesday (March 5): “Price volatility is a major risk to producers, but until now financial tools to deal with price risk have been designed for financiers, not farmers.
“I wanted to start again with a blank sheet of paper, and over the past three years we have worked with three universities and over 300 farmers to create a solution which is not only affordable and low-risk, but also as simple as insuring your car.”
The inspiration for the platform came from agricultural writer AG Street’s famous quote ‘Up corn, down horn’, with Mr Counsell realising if he could build an insurance platform that acted like a mixed farmer, the risk could be spread across lots of commodities.
This meant the premium payable by farmers would be affordable, without needing public subsidy.
In the UK, farmers can already insure the price of milk, oilseed rape, milling wheat, feed wheat and feed barley, as well as lamb, pork, diesel and AN fertiliser. The minimum size of policy is just 10t of crops, 1000kg of livestock or 10,000 litres of milk.
The ability to insure against increases in pig, poultry and dairy feed is set to be available shortly, as the team works towards the eventual goal of enabling farmers to protect their gross margin, i.e. wheat less fertiliser, or milk less feed.
Because the system uses an index price for any payouts, claims are paid automatically, keeping costs low and eliminating paperwork for farmers.
During his time in Defra, George Eustice, who stepped down as Farming Minister over Brexit last week, had looked into potential mechanisms for managing volatility and said insurance could offer a sensible solution for UK farmers.
He said: “Richard and his team have created the world’s largest virtual mixed farm using years and years of data to create a platform which farmers can insure the price of their milk in they same way they insure their tractors or their car.
“He understands that farmers do not want to speculate in the city, but want to insure the price of milk.
“What Stable has done is a remarkable idea, and by neutralising risk [for farmers] it has identified a way forward."
NFU deputy president Guy Smith said it was important farmers had as many tools available to them as possible in order to manage the growing threat of volatility.
“Farmers are having to face three points of volatility - weather, markets and politics - and the farmers of the future will be the ones who manage volatility the best,” said Mr Smith.
“We recognise that there is a role of data and market information, and we will push Government for that under the Agriculture Bill: There should be a role for policy in volatility mitigation and better data will help.
“Like with crop protection, it is important for farmers that they have as many tools available to them as possible to help them tackle the challenges they face.”
How does it work?
The UK platform utilises indexes from Defra and AHDB to calculate the premiums and claims payable. Businesses can get a free quote in two minutes by answering just three questions: How much to protect, for how long and from what price?
Stable is sold through partners that farmers already know and work with, such as insurers, cooperatives, industry suppliers and membership organisations. The company is registered with the FCA and is a Lloyd’s of London cover holder, which means all the policies are underwritten by global underwriters at Lloyd’s.
Here is an example case study...
In September 2017 an arable farm looked at the option of locking into a futures price for winter wheat of £146.90/t for September 2018 collection.
Rather than doing this, it insured the grain for a month (September 2018) with Stable, setting a floor price of £146.90/t in the policy.
This meant at harvest 2018, the farmer was able to take advantage of an improved wheat price, selling 250t of wheat for £181.70/t.
The insurance cost £9.76/t, but gave the farmer flexibility to take advantage of a £35/t uplift in the grain price without the risk of losing out if forced to sell at less than £146.90/t.
Further sector examples are available at www.stableprice.com