Farming without drought relief: Time to revisit an income equalisation deposit scheme?

In a recent report to government, an Income Equalisation Deposit (IED) Scheme for commercial farmers and crop insurance for small scale farmers have been recommended as risk management strategies. An IED has been considered in the past in South Africa but rejected largely due to tax implications. Conditions have now changed as various countries (Australia, Canada and USA) strongly promote such a scheme as a risk management strategy while the South African crop insurance program has failed to attract farmers. A main criticism of an IED in the past was that if it is used in conjunction with the In/Out farmer’ tax provision, that farmers can obtain tax benefits if they destabilise their incomes. This can be avoided by adopting a tax rule that farmers may only invest the positive difference between their current taxable income and their moving average taxable income in an IED. It is further recommended that the Land Bank deposit scheme (Income Tax Paragraph 13A) be abolished and be replaced by an IED that covers both livestock, crops and horticulture