The summer drought 2018 has once again made it clear that financial damages caused by extreme weather events have increased in recent years. This threatens the livelihood of horticultural companies. Therefore, the Risk Equalization Reserve was reviewed as a valuable instrument in risk management by the Central Horticultural Association. By specialist editor Lorenz Wieland.
Risk Equalization Reserve as autonomous reserve
The Central Horticultural Association (ZVG) explains that political help is provided to businesses who suffer from extreme weather events such as drought or late frosts. However, the differences, depending on the situation and between the federal states, were significant for the companies involved.
By forming the Risk Equalization Reserve on a legal basis on national level, the companies could autonomously build a financial reserve for emergencies. “With the Income Equalization Deposit, we would have an instrument that strengthens self-help without overburdening the general public.” Jürgen Mertz, ZVG President, says.
Calculation on model farms of various horticultural divisions
The mechanism of such a risk-bearing instrument has been calculated by the Horticulture Management Consulting Company (GUB), commissioned by the ZVG, on model companies of the various horticultural divisions. These calculations show that the tax-free Risk Equalization Reserve can be an effective tool for minimizing risk in horticultural companies.
“The Risk Equalization Reserve is intended to provide an opportunity to form tax-deductible reserves that may be used to settle claims in the event of damage.” Jürgen Forster, GUB-CEO, explains. Accordingly, 50.000€ are to be added to the reserve each year, but no more than 20% of the revenue of the previous year.
Tax-free use of the Risk Equalization Reserve in the event of damage
“At the same time, an account must be set up with a credit institution on which 30% of the reserve – up to a maximum of 15.000€ per year – has to be deposited. In the event of damage, the reserve can be released tax-free and the corresponding amount of money can be used to settle the claim.” Forster tells.
According to Forster, the tax-privileged provision of reserves is intended to compensate for horticultural damage as a result of natural damage (climate change) and quarantine damage. Since the companies can be very individually affected no general disaster is needed to use the reserve tax-free.
Politics has to create opportunities for the Risk Equalization Reserve
The ZVG urges politicians to create the possibility for the Risk Equalization Reserve in tax legislation. “This results in a far greater degree of security and reliability than any new redefined aid in the event of a crisis can provide, which are often the subject of considerable controversy.” stresses ZVG President Mertz.