Options for Insuring Australian Agriculture

ABARES - Marco Hatt, Edwina Heyhoe and Linden Whittle

Type: Research Paper, PDF
Knowledge level: Intermediate

Farm Table says:

Australian farmers must constantly manage the risks of changing global market settings and volatile domestic growing conditions.This report looks at insurance as one of those methods?

This report was prepared for the Climate Change Division of the Department of Agriculture, Fisheries and Forestry in September 2012

The purpose of this report is to identify and evaluate options for insuring Australian farmers against extreme climatic events, specifically multi peril crop insurance (MPCI), mutual funds, weather derivatives, yield index, and area yield insurance.

It looks at the subject of adapting to increased climate variability.  It claims that Australian farmers will be required to to adopt new ways of thinking about risk management. Australian Government policy focuses on creating an environment of self-reliance and encourages farmers to adopt better risk management practices.

This paper does not analyse the full range of risk management options available to farmers. Instead it focuses on the potential role of insurance and related products in risk management.

This paper surveys the literature on agricultural insurance, and makes conclusions in the context of current policy in Australia.

The literature review is supplemented by ABARES estimates of insurance premiums for major crop types.

The key points were:

  • recent studies into demand have found that appetite for insurance products by Australian farmers is generally fairly low
  • the economic case for government subsidisation of premiums or underwriting of risk is not strong
  • further investigation is warranted into the role of government in the compilation and provision of information to improve shire-level yield or weather station data, or in supporting research and development of crop simulation models

In conclusion the report states that while there is evidence to suggest that there is no economic case for government subsidisation of agricultural insurance premiums and, to a lesser extent, support reinsurance, government intervention may be justified on other grounds. There may be a case for government intervention that addresses market failures by, for example, providing additional data or assisting in the development of new index-based insurance tools. More research is required to make a clear recommendation.

2012 - Australia - ABARES - Marco Hatt, Edwina Heyhoe and Linden Whittle
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