Letter from the Chairman - Frost Insurance

Download our Frost Briefing here

Dear Grower

NFU Sugar Beet Frost Insurance

It is apparent that there is still some confusion and misunderstanding surrounding the recently launched NFU Sugar beet frost insurance scheme. This letter aims to set out clearly the reasons behind the decision to set up this scheme, and to explain how it works and is paid for.

The insurance which has been introduced is designed to act as a safety net against significant losses to ensure that growers are not fully exposed to the risk of losses from frost damage to their crop.

The frost insurance applies automatically to all sugar beet contracted to British Sugar. The insurance premium will be invoiced by British Sugar on behalf of the NFU to growers based on their verified contracted tonnage each year the frost insurance operates. As the insurance covers the whole crop the cost of the frost insurance at 12.75p per tonne has been included as an additional cost in the price model and the 2013/14 beet price has therefore incorporated this new cost in the announced price for the 2013/14 campaign.

The History
Following the disastrous frosts during the 2010-11 campaign, when growers lost approximately 1M tonnes of beet, with no compensation, the NFU and British Sugar agreed to investigate ways of protecting growers from some of these losses, should something similar ever happen again. Growers made it very plain that this was essential if their faith in the crop was to be restored. We spent some months looking into the possible options, and an insurance scheme seemed the best bet. During November and December 2011, we held a series of open meetings around the beet growing regions, about which all growers were notified by written invitation. Several hundred growers attended, and at all the meetings frost insurance was discussed. There was a range of views expressed, but at the end of every meeting a clear majority of growers supported the NFU continuing to investigate the possibilities.

The Principles
The NFU’s Sugar Board, elected by the growers, then proceeded to agree the principles required if we were to establish a scheme. The over-riding one was that the costs of any scheme must be met by British Sugar. Growers feel strongly that long campaigns benefit British Sugar’s processing efficiency, but at the expense of increased risk to the growers. It is therefore right that British Sugar should cover the cost of ensuring that this risk is not unsupportable.

The Board also considered whether or not a scheme was actually necessary. Some growers lift and deliver their crop early in the season, so are not at risk. This is obviously not an option open to every single grower, as the factories cannot process the entire crop until February. Others harvest and clamp their beet before the worst of the winter weather sets in. The frost came so early and so severely in 2010 that even those growers who would normally plan to have all their beet in clamp well before Christmas were simply unable to do so. Ground conditions were so hard it was physically impossible to harvest beet. It should also be remembered that in extreme conditions, even beet in clamp is not immune from damage. Beet in clamp and in the field is equally covered under the scheme.

The Board adopted the principle which has governed sugar beet in the UK for many years: we operate as a group, gaining collective strength from this, and taking decisions which are in the interests of the group as a whole. On this basis, the Board decided to go ahead. The Board also took care to establish that the proposed scheme fell within the terms of the IPA. Clause 4 of the 2011 IPA authorises the NFU to act on growers’ behalf in this way, including the setting of levies after the announcement of the contract price.

How the cover operates
The way the policy operates is to ensure there is no requirement of ‘proof of frost damage’ at each farm, keeping the burden on farmers in such events to a minimum.

As it is an automatic trigger system, once a defined frost event has occurred it will cover any damage from subsequent losses. Therefore any later or continuing cold weather after that period will also count in the cover period; farmers will not need to prove the damage occurred in the trigger period. The farmer equally does not need to be concerned with proving where the loss occurred, such as in field, clamp or on a pad as the losses are assessed against final information on the delivered crop against the contracted tonnage (CTE/ICE).

The dates chosen in the policy were debated at significant length and also approved by the NFU Sugar board. The working group with the insurers went through 60 years of Met Office data to  ensure the trigger was appropriate to provide protection in years where there had been known problems from frost damage, not just from the more extreme 2010 experience. That analysis showed that the design of the trigger under the policy would have historically triggered the policy ten times in the last 62 years (1961, 1962, 1973, 1978, 1981, 1985, 1991, 1996, 2009, and 2010).

As with any insurance, the balance of the risk covered and the cost of the premium has had to be considered; however the NFU have taken great lengths to ensure that the premium cost and operation of the insurance, with minimum burden of proof on the farmer, is also balanced with the important primary objective of providing the protection farmers tasked us with finding, which is why the assessment of Met Office data was seen as a crucial step.

Payment
Under the terms of the IPA, the price of beet is fixed according to a formula. This formula starts with the cost of production. If a frost insurance scheme is compulsory for all growers, then it is obviously an unavoidable cost of production, and as such will be taken into account by the model. What this means in practice is that providing all growers pay the cost of the insurance in the first year, the beet price for subsequent years will be higher than it would otherwise have been, by an amount equal to the cost of the premium. This means that the 2013 beet price is approximately 12.75p per tonne higher than would have been the case without the frost insurance. By paying for the scheme in the first year, growers ensure that British Sugar will meet the cost in future. As the 2012 beet price had already been set, it was agreed that British Sugar would allow for the cost a year in arrears.

The NFU Sugar Board considered all this extremely carefully, and decided that on this basis we should proceed with the scheme. It was announced at Cereals, at the same time as the 2013 beet price. At the start of this campaign, the first covered by the insurance, growers have received policy documentation and an invoice. The invoice will be deducted from the grower’s beet account, as happens with seed if a grower does not pay for it in advance.

 

What happens next?
Growers do not need to do anything. Growers will have already received their insurance documentation in the post. They should not pay the invoice, as it will automatically be deducted from their beet account. The same system will apply in future years, but growers will know that their beet price includes enough additional money to cover the cost. In the event of a frost, growers will not need to make individual claims, as losses will be based on whether or not a grower has delivered the full tonnage he was contracted to grow. If he fails to meet his full contract, then subject to the terms of the scheme (excess and value paid out) he will automatically receive what he is due.

Yours sincerely

William Martin
Board Chairman, NFU Sugar


Last edited on: 09:09:2012

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