Reducing the risk of yield losses

Few Aussie farmers take up protection against yield losses - only 1% in 2015 - despite the huge risk of growing a crop each year. Also few are the companies in Australia that offer multi-peril crop insurance (MPCI) cover.
 
To make the fledgling industry sustainable for years to come, the risk needs to be spread across the regions. An agribusiness expert explains how.
 
Jay Horton, an agribusiness consultant with Strategis Partners and a research fellow at the Business School of the University of Sydney, said that given the low number of farmers taking up MPCI, there needs to be a new approach to spread the risk, ABC reported.
 
“Australia is one of the riskiest agricultural countries in the world in terms of agricultural production; second to Uruguay,” he said. “We have to be very good at risk management in all of its forms and we could do better.”
 
“We should understand that farm production risk is not just the farmer’s problem, it’s a supply chain problem, a systemic problem. If the farmers don’t do well, the input suppliers don’t do well, the buyers of grain and livestock also don’t do well.”
 
To reduce the risk faced by Aussie farmers, Horton also proposed that banks waive interest on a loan and farm landlords reduce the rent for a year, in addition to an insurance policy and risk management.
 
Horton said objective information could be gathered using big data, from weather stations, markets, and on-farm operations about prices, soil fertility, and moisture.
 
“Insurance reduces the likelihood that the company will have to raise costly external capital at the wrong time,” he told ABC.
Fewer than the companies in Australia that offer MPCI are those that offer the alternative, index insurance, ABC said.
 
While MPCI is taken out at the beginning of the season, and covers the loss of revenue or yield from a poor season; index insurance is taken out later, and covers for single events that may downgrade the quality of the yield.


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