Insurance Post

Calming poultry farming

Though something of a volatile industry, a group of niche insurers and brokers are trying to help stabilise poultry production. Jeremy Golden lays down the particulars

The UK poultry livestock industry has been going through lean times in recent years, with the business environment set to get even tougher.

After all, it was only in February that the president of the National Farmers Union warned that poultry production was in danger of becoming a "niche activity" unless retailers and caterers paid more for their chicken.

According to the NFU, producers have been receiving less from buyers per kilo than for their cost of production. One of the main contributing factors to rising farming costs has been the doubling of grain prices, set to add an £80,000 burden per farm this year.

Although deals being secured with supermarkets by some of the biggest poultry processors have seen farm gate prices increase since that February warning, UK products are still losing out to cheap imports, despite the outbreak of avian flu in South-east Asia. Brazil appears to be filling the gap left by the European Union's ban on chicken exports from Thailand, for example.

Waste disposal

To make matters even more fraught, the NFU estimates that the industry is facing an extra £18m a year charge for waste disposal under the EU's animal by-products legislation, and £6m more for wages. While poultry production may be under severe pressure, however, the long-term outlook is not completely disheartening.

Poultry remains the UK's most popular meat - almost twice as much poultry as beef is eaten every year - and household consumption has continued to grow year on year, albeit showing a marginal growth rate for local produce. Statistics from the British Poultry Council show a slight increase in volume sales in 2003 for commercial broiler chicks originating from UK hatcheries and sold to UK end-users, representing 9.95 billion chicks in total.

A small group of niche insurers and brokers are also contributing to the stabilisation of this market. One such specialist, Powell Insurance Brokers, teamed up with Crowe Livestock in May to launch Poultry Elite, with Lloyd's insurer Catlin underwriting the policy. Poultry Elite claims to be the first composite product covering mortality, including death from disease, as well as property, liability and business interruption cover.

"Poultry has specific insurance problems and if not underwritten carefully can result in substantial losses," explains Roy Clamp, director of Powell Insurance Brokers. "For this reason, there are several insurers willing to cover general farming, such as beef or lamb, but the intensive nature of poultry means there is a limited market for this business. Our specialist scheme is customer-designed for this particular sector and many agricultural brokers approach us with their poultry risks because it is difficult to buy the cover required in the open market."

Insurance risks

So what are the key insurance risks associated with poultry farming?

Due to the complex mechanical procedures used for rearing, death following mechanical breakdown of equipment causes the highest proportion of losses.

The poultry stock has to be kept warm initially, but after the first two weeks or so the birds' body mass increases and they generate their own heat. At this point, therefore, the birds have to be kept cool by the use of fans. It takes approximately five weeks of development from day-old to fully-grown chicken that is bought in the shops.

"If there is an electrical failure and any of the fans fail towards the end of the growing cycle, you can lose the whole flock in 20 minutes," says Mr Clamp. "If it is a warm day, you can have a substantial loss - with, for example, up to 30,000 birds worth around £1.20 each."

Fire and property damage following a bad storm also brings a risk due to the non-standard construction of the buildings, which use timber and are heated for a period of time.

According to Andrew Wilson, claims manager at Crowe Livestock: "For Poultry Elite, our client base ranges from the large processors that insure their own farms with us, we also do schemes to include contract growers, and we insure small individual growers. The response across the board so far has been positive."

The NFU also offers comprehensive mortality, property and liability insurance to its members, which is marketed on a direct basis through agents, though the scheme does not presently include disease coverage.

Peter King, chief poultry adviser to the NFU, extols the "high standards of management practices that minimise risk for poultry and that are as high as any in agriculture; therefore, this reduces over-dependence on insurance".

Welfare legislation

High management standards can be attributed to factors including animal welfare legislation and the impact of the supermarkets that regularly inspect poultry sites that supply them. Furthermore, the reputable poultry processors now comply with the Assured Chicken Production Scheme, which sets down rigorous standards for the growing and care of poultry.

Rigorous quality control standards notwithstanding, the ever-looming threat of public food scares and the litigation-obsessed environment have made poultry growers more liability conscious. Consequently, most medium-to-large processors will have taken out product liability insurance including injury or damage caused by supply of the product, employers' liability and public liability.

The industry believes its long-term prosperity depends on getting the message across to consumers that poultry reared in the UK is of the highest quality, particularly in light of the outbreak of bird flu in South-east Asia. The availability of more specialised insurance products will no doubt provide a more secure base from which to win over and maintain customer loyalty.

POULTRY PRODUCTION IN UK

- Poultry sales are on the increase but imports are growing faster than demand for local produce.

- Avian flu has hit South-east Asian imports, but Brazilian chicken is filling the gap.

- UK poultry producers are suffering from high production costs due to spiralling feed costs and investment in meeting poultry welfare standards.

- Stringent financial penalties exist for non-compliance with waste disposal under the European Union's animal by-products legislation.

- Negative perceptions of production methods by consumers remain, but chicken-rearing management standards are now among the highest in UK agriculture.

MAIN INSURANCE RISKS FOR POULTRY PRODUCERS

- Death to livestock following mechanical breakdown of equipment causes the highest proportion of losses.

- Fire and property damage following severe storms due to the non-standard construction of the poultry houses - houses use timber and must be heated for a period in the first weeks of rearing.

STANDARD INSURANCE COVERAGE FOR POULTRY PRODUCERS

- Comprehensive mortality cover including death from disease (disease cover not provided by the National Farmers Union's scheme).

- Property

- Liability

- Business Interruption.

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