milk contamination 101
Milk contamination refers to a range of incidents that can cause milk stored on a dairy farm to become unusable or cause damage beyond the farm gate. These events can lead to significant financial losses and are treated differently by insurers, depending on the policy and provider.
What is Milk Contamination?
Milk contamination is an umbrella term which describes the following scenarios:
1. Antibiotics, cleaning agents or refrigerants contaminating milk
2. Milk within the vat becoming unviable due to dairy plant breakdown, causing rise in temperature
3. Milk becoming unviable due to failure of electricity supply - provided the failure is caused by breakdown of the electricity supplier’s system
Generally speaking, in all of the above scenarios a financial loss will be incurred as a result of having to ‘pull the plug’ and dump the contaminated milk.
In more serious cases, contaminated milk can also enter the factory’s tanker, leading to contamination of milk from other farms and further financial loss.
Is milk contamination covered by insurance?
Coverage for milk contamination varies significantly between insurers. Some offer full cover, others provide restricted cover, and some offer no cover at all.
Whilst insurers approach milk contamination in a myriad of ways, individual dairy farms should approach the topic of milk contamination by considering the following things.
Value your Milk
Milk is at the heart of your business. It’s your product and your main source of income; which makes protecting it from contamination an important decision.
When considering milk contamination cover:
Start by calculating the value of a full vat of milk at the worst-case time of year: typically when both production and milk price are at their highest. This figure becomes the basis for your sum insured considerations – you may decide not to insure this full amount but it is important for you to know the worst-case scenario and work from there.
Then, consider which scenarios you want to be protected against. Ideally, you would have a single cover that protects against all the common causes of contamination, but currently, this isn’t available. Instead, the scenarios must be considered individually.
Scenario 1: Antibiotics, cleaning agents or refrigerants contaminating milk
Some insurers will allow you to insure against the above scenario by taking an ‘own milk’ property cover under the farm property section of your policy. In addition, if you’ve taken machinery breakdown cover for dairy plant, this scenario is covered via an additional benefit.
Scenarios 2 & 3: Milk spoilage from dairy plant breakdown or electricity supply failure
Generally speaking, the only way to obtain cover for your own milk being lost due to breakdown or failure of electricity supply, is to insure your dairy plant and equipment for machinery breakdown. When this cover is taken, contamination caused by these scenarios is covered via an additional benefit.
Scenario 4: Contaminated milk enters milk tanker aka ‘milk tanker contamination’
Contaminated milk entering the factory tanker can result in serious third-party losses.
As mentioned above, scenarios 1 – 3 all lead to contamination of your own milk. However, like a motor vehicle has the potential to cause damage to a third party, the contaminated milk can also cause damage to a third party if it ends up in the factory’s tanker. The extent of damage will depend on how much milk the tanker is carrying when it arrives on farm.
The cover for such a scenario is dealt with under the liability section of a farm insurance policy. Coverage for tanker contamination varies amongst insurers from full cover, restricted cover or no cover at all.
Importantly it is not just the value of the milk that the factory will look to recover. Additional costs – such as transport, testing and dumping of the milk - may also be demanded. If you have no or restricted cover, you may mean find yourself uninsured in this situation.
Do you need Milk Contamination Cover?
Whether or not you choose to insure against milk contamination, given all of the variables discussed above, the decision should always involve a detailed discussion with your insurance broker. Each scenario brings different risks, and understanding how these are treated under your specific policies is essential.
Protecting your milk is a key part of protecting your business, and clarity on this topic is a key part of smart risk management on any modern dairy farm.
To help you get started, we’ve created a practical Milk Contamination Checklist. It includes prompts to calculate your sum insured and questions to help assess the quality of your current cover.
Click here to download a copy of the checklist.
Important notice – Woodleigh Fields Pty Ltd T/As Dairy Protect ABN 32 063 888 308
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