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Cows In Shed

Farming Life: The farm insurance implications of rising costs

By Richard Henderson
Head of Agriculture, AbbeyAutoline

The costs of running a farm in Northern Ireland continue to fluctuate with some volatility and as we embark on a new year, the time is right for farmers to review their current insurances for their farm business.

In terms of farm gate prices, 2021 saw great increases and food prices are moving up in the shops. It seems likely that lamb, beef and milk will all continue to hold in value in 2022 if not increase further.  

In more normal times famers would be on the ‘pig’s back’, but these returns must be considered against the rising costs of running a farm.

For example, last year a tonne of fertiliser could cost between £250 and £300. This year the price could be closer to £700. Farm Machinery costs are also continuing to rise with soaring costs for both new and second-hand tractors.

According to DAERA there have been increases in all input costs, especially energy, fertilisers, buildings and feed costs and these costs have continued to rise.

It is costs like these that can put a real squeeze on farm profits regardless of the prices being achieved for livestock and produce.

Another potential cost coming down the line very quickly for farmers is the changes to legislation regarding the use of rebated fuels (red diesel). From April 1, 2022 businesses in the construction and quarry industries will no longer be allowed to use red diesel.

Quarries are currently allowed to run their machinery on cheaper red diesel when producing aggregates and construction companies can also run on-site machinery on rebated fuel. This new legislation has the potential to further increase the costs of constructing or repairing farm buildings.  

The development with red diesel is set against a backdrop of increased material costs practically right across the construction industry.

In light of this rapidly changing landscape, now is a good time to review the sum insureds on your policy eg farm buildings. It is a message we have issued before, but it is vital farmers are aware of the potential financial impact of under-insurance. By taking action now, a farmer could prevent a shortfall in the event of a claim.

The sum insured for farm buildings represents the amount of money needed to clear the debris, in the event of the building suffering loss or damage, in addition to the cost of preparations and construction of a new building including fixtures and fittings.

If a farm building was insured this time last year for a sum of £200,000 but the cost of replacing it is  now £300,000 then the building is underinsured. The impact on a claim would mean it would potentially be reduced by 1/3. For example, on a £50,000 claim for fire damage, a payment of £33,333 would potentially be agreed. This is known as the principle of average in insurance. 

Some insurers allow a tolerance of 10-15% within the sum insured to cover inflation but with the rate costs are rising at the minute it is prudent to get a professional valuation of your buildings so that your insurance sums insured are based on the correct values.

It is understandable that farmers will want to keep control of the cost of their premiums, but it is worth noting that the additional cost of increasing sums insured can be very reasonable and as a broker we are very happy to quote different options for your needs.

By having your sum insured correctly reflecting the cost of your sheds, tools, general stock and livestock you are also buying the peace of mind that you would be fully insured during these turbulent times.

Our farm team can tailor a policy to suit your needs and with branches across Northern Ireland our people are never far away when you need us most.

To find out more about how the agricultural team at AbbeyAutoline can help you, click here Farm Insurance 

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