Responding to price volatility
In May 2016, the House of Lords published its farming volatility report “Responding to price volatility; creating a more resilient agricultural sector”.
Stable’s founder and Somerset farmer, Richard Counsell contributed to the report from an “insurtech” perspective. The views of many other leaders from the UK’s agriculture sector were also sought, alongside those from Canada, the United States and New Zealand.
The report’s conclusions were both fascinating and encouraging, particularly as it was published pre-Brexit.
Acknowledging that commodity price volatility is an inherent feature of the agricultural market, the report concludes that farming volatility is a serious global issue but that there is incompatibility between how the EU handles volatility and how other countries like the US and Canada do. Essentially, the report concludes that at the time of publishing there was no off the shelf solution available and that we have to solve the problem internally.
The report also suggested that subsidised insurance schemes should not replace the direct income support currently provided through the CAP, although post-Brexit, the future levels of income support are the source of much speculation.
The Stable team have worked tirelessly over the last three years on a technology-led solution to price volatility, to ensure family farms can plan and invest in the future with confidence. Solving this issue gets us out of bed in the morning (that and the children and animals). The report’s conclusions were a huge boost to the team and confirmed our belief that we were on the right track.
The report recommends the development of a range of financial instruments to help farmers manage risk, and to encourage governments across the EU to work pro-actively with the financial sector to develop more accessible, innovative and practical risk management tools. Although Stable is a farming industry led solution (as opposed to a Government led one), these recommendations mirrored our own plans to build a new solution from the ground up for farmers, rather than financiers.
Key conclusions in the 71 page report, from Stable’s perspective, were:
- Price volatility is a fact of agricultural life and farmers need to work out how best to manage it themselves (with help from the UK Government).
- The adverse effects of farming volatility at ground level are caused more by unanticipated volatility, as opposed to increased levels of it.
- Commodity price volatility can be positive as it sends out crucial market signals which go on to then inform production and investment decisions. It also incentivises farming efficiencies.
- Agricultural policy should focus on building the farming sector’s resilience to the impact of extreme natural disasters. Farmers should be encouraged to help themselves and not rely on outside support.
- New blood needs to come into farming which means the UK Government should seek ways to unblock the bottleneck caused by older farmers being unable or unwilling to exit the industry in order to let the new blood in.
- Methods used in Canada, the US and New Zealand to limit farming volatility are not seen as suitable for use in the UK, owing to fundamental differences between our farms and theirs (in terms of scale and environmental use of land). See blog on US style crop insurance.
- A futures market for dairy should continue to be explored as a step to expanding out to other commodities not supported by their own futures markets.
- The UK Government should promote the use of financial instruments designed to help farmers protect themselves from volatility and the UK Government should also help raise awareness of their availability among farms of all sizes and sectors.
- The UK Government should work with the financial sector to develop and promote more accessible and practical volatility risk management tools.
- The least subsidised sectors in agriculture appear to have better business skills. i.e. they have learnt to deal with issues themselves. The more supported sectors of agriculture need to be taught how to stand on their own two feet.
As farmers ourselves, we’re totally committed to delivering a solution to the problem of price and input cost volatility, so we can all plan and invest in a secure future for our farms and families. An idea that started life as a Nuffield Farming Scholarship and then contributed to a House of Lords report, is now nearing its UK launch and we couldn’t be more delighted to at last have a chance to make a real difference to British Farming.
If tackling volatility is of interest to you, then the full report is well worth a read. It can be found here: http://www.parliament.uk/price-volatility-agricultural-resilience
To find out how Stable is looking to address farm volatility through a new insurance tool for commodity prices and input costs, please call us on +44 (0) 203 934 6892 or email us at email@example.com