Supply chain disruption has sent wheat prices and agricultural operating costs soaring globally, inflating settlement sums and leaving many farmers inadequately insured.
Russia and Ukraine together account for 25-30% of global wheat production. Sanctions against Russia and the crippling of Ukraine’s agriculture industry have sent the price of wheat and various other commodities skyward and disrupted supplies in the global food production chain.
“Wheat stocks are worryingly low, and prices are surging,”
says Yvonne Aplin, Agricultural, Rural Industries & Estate Losses (ARIEL) Loss Adjuster for Crawford & Company, who warns the economic fallout is being felt by farmers and insurers around the world.
At the time of writing, UK wheat futures were trading around 35% higher than at the start of February, while Farmers Weekly warned the Ukraine war could trigger a double-digit fall in UK food output by 2023.
Russia is also a leading producer of ammonium nitrate, a key ingredient in fertilizer. Scarcity in supply has also caused nitrogen fertilizer prices to spike – putting further upward pressure on crop prices due to their close correlation.
Farmers around the world are also contending with pesticide and herbicide shortages. With general inflation at 40-year highs in the West, the cost of materials higher due to pandemic-related supply chain issues and fuel prices hitting new peaks, operating costs for farmers have rocketed.
This in turn is inflating claim settlements due to the increased value of farmers’ inputs and outputs. “Insurers’ exposures are rising by the day, so adjusters need to settle claims promptly,” Aplin says.
Rising prices are particularly affecting agricultural Business Interruption (BI), Produce and Deadstock coverages, though the inflation of commodity and materials prices more generally means other common coverages for farmers including property are also being affected.
Emerging protection gap
Equally troubling is the fact many farmers may now be significantly underinsured. Many ‘sell forward’ on their wheat stock, meaning prices agreed in the past may now fall well short of the produce’s real-world value – as do the insured values in their insurance policies.
If sums insured are not reviewed in line with the market dynamics, Aplin estimates many farmers may now be underinsured by a considerable amount in terms of their business insurance policies.
“It’s a challenging situation and a big concern,” she warns. “Farmers play such an important role in society and as adjusters we want to minimize the impact of losses on their business.”
Insurers are also likely to be increasing their reserves for agricultural risks and we would expect to see the market hardening.
“We urge farmers and their brokers to evaluate how the economic situation may affect their input costs and projected revenues to ensure they have adequate coverage for future protection,”
Aplin says. “Above all, we hope for a swift and peaceful resolution to the conflict in Ukraine. Our thoughts are with the people of Ukraine at this very difficult time.”