The government is looking to create a compulsory insurance scheme worth £80m to cover farmers against animal disease, following the recent outbreak of foot and mouth disease.

Farmers may be forced to buy an average of £500 statutory cover in the future after it was revealed that 90% of UK farmers had no relevant insurance.

A government industry group was set up by the Ministry of Agriculture, Fisheries and Food (Maff) a few months ago to look at how farmers can manage the economic consequences of disease control.

Amy Ross, press officer of the National Farmers' Union (NFU), said: "When swine fever broke out last year it highlighted that the impact of consequential financial losses can be disastrous."

She added that the committee was now considering two options – either a levy-based fund or an insurance scheme paid for by farmers.

This would prevent the Treasury from having to pay out emergency grants, such as the previous £4bn to help farmers.

But Tim Price, spokesman of the NFU, has indicated that "a very huge sum of money" will be needed to finance the fund.

And he believes all the UK's 157,000 farmers, who would have to pay the levy if it is approved, will be "badly affected" by movement restrictions.

"The last major outbreak of foot and mouth disease was over in 1967," he said. "In that time memories have faded and farmers are going through the worst income crisis in 50 years. They want to reduce their costs wherever possible."

About 10% of farmers currently have livestock cover for foot and mouth disease, compared to more than 50% 30 years ago.

But the Agricultural Insurances Underwriting Agency (AIUA) has warned that the 12,000 who have taken out cover may still not be protected.

David Murray Wells, farmer and marketing executive of the AIUA, said: "Farmers will need movement restriction cover to get compensation, but none have it."

He estimated the potential cost to the insurance industry would be £100m if every insured farmer's livestock got the disease.

"I am outraged by the government's proposal," he said. "Many farmers are operating at a loss in any event. They will make an even greater loss if they have a levy put on them. This could be the final nail in the coffin.

"This is another attack from the government on the whole of the countryside."

On average, farmers pay £1,000 for motor insurance for vehicles such as tractors and an additional £1,000 for a farm policy, which covers buildings, crops and livestock.

At the moment the government pays for the cost of the animal if it dies of foot and mouth disease.

In addition, the AIUA pays out an extra 25% if the farmer is insured.

The government is still in talks with the NFU about the compulsory scheme.