“It’s a world first,” said Russell Mehmet (pictured above).
Mehmet is an account director for global brokerage WTW. He was referring to a parametric insurance offering for sugarcane growers developed in partnership with the CSIRO and funded by the Great Barrier Reef Foundation.
In Dubai, where another United Nations Climate Conference unfolds to stakeholder accusations of a cop-out, this parametric proposition could significantly help farmers’ businesses and be a game changer for the Great Barrier Reef.
Mehmet credited agricultural scientist Dr Peter Thorburn as “the prime mover” and “the brains behind the whole thing.”
“We provided the insurance piece but it’s his great invention,” he said. “We had to do the marketing for the insurance companies but he understood the financial perspective and used his knowledge of all that agronomy around sugarcane to get that across in the terms the insurers were looking for with loss ratios and all that sort of thing.”
The proposition was based around solving critical agricultural and environmental issues.
Farmers are currently struggling, said Mehmet, with increasing fertiliser costs. Meanwhile the Great Barrier Reef faces possible extinction caused in part, say scientists, by pollution from the farmers’ fertiliser run off reducing water quality.
There are also the climate warning impacts of nitrous oxide gas that is produced when this fertiliser dissolves in water. Scientists, said Mehmet, have found that this gas is 300 times more potent at warming the atmosphere than carbon dioxide.
Nitrogen risk insurance, launched for the 2022 harvesting season, could be a solution for these contrasting challenges.
“The recent doubling of the nitrogen fertiliser price, and an expectation this will remain high for the foreseeable future, results in a need for farmers to look at alternative risk transfer solutions,” said Mehmet.
He said the financial benefit to sugarcane farmers from reducing the amount of fertiliser they buy - based on current prices and a 20kg/ha reduction across 150,000 hectares of sugarcane - would be about $4 million.
He said this parametric offering covers sugarcane farmers for yield variations and doesn’t need expensive on-farm loss adjustment.
“This means farmers can apply lower levels of nitrogen fertiliser knowing that a reduced yield will be covered,” said Mehmet.
He said the Great Barrier Reef Foundation would “love to see 50% of the eligible farmers in the Great Barrier Reef region” take up this parametric offering. That means about 1,000 Queensland farmers out of about 2,000, he said, who have sugarcane farms between Mackay and to the north of Cairns.
In total, this vast farming areas covers 300,000 hectares.
“The average reduction by 20 kilograms of fertiliser per hectare at 50% take up would be a total of three million kilograms,” said Mehmet.
IB asked Mehmet if this sort of nitrogen reduction, that sounds so significant, could be a game changer for the Reef’s future?
The WTW broker said the Great Barrier Reef Foundation would agree with that.
“Yes, it is [a game change],” he said. “If you look at those bigger numbers there’s no question that a reduction by that amount would be a dramatic difference.”
For example, he said, it would help stop the spread of the crown-of-thorns starfish.
“They thrive off the nitrogen that flows in and they eat the Great Barrier Reef, they feed off the polyps,” said Mehmet.
So far, only a small number of farmers have signed up for the parametric coverage - Mehmet said spreading the word is very difficult.
“The uptake’s the challenge because of education, awareness and getting the confidence of farmers,” he said.
Mehmet said one issue is getting farmers used to the idea of using this sort of parametric offering.
“They can do each paddock, they don’t have to do the whole farm, that’s one of the good things about it,” he said.
The entire process of signing up and submitting a claim is online.
“For each paddock, a farmer would just click in online and pay the premium that way, it’s quite straightforward,” said Mehmet.
The WTW account director told Insurance Business that this parametric project needs government support to spread the word to more farmers. He recently appeared at a Queensland parliamentary inquiry into the financial impact of climate change on the state’s agricultural sector.
The Queensland government wants to reduce the damaging environmental impacts of nitrogen fertiliser.
Mehmet said about 20% of the nitrogen fertiliser applied by sugarcane farmers ends up polluting waterways, which amounts to about 600,000kgs of fertiliser each year. He said the CSIRO has estimated how much it would cost the government, through education campaigns and incentives, to stop farmers using that amount. The calculation reached $90 million.
Mehmet said if 1,000 farmers paid an average premium of $49 per hectare for a 20kg/ha reduction in their fertiliser use, the total cost of the parametric coverages would be $7.35 million.
He expected most farmers to be happy paying this level of premium, particularly when they’d also significantly reduce their fertiliser costs.
Mehmet is hoping the government sees the financial and environmental wisdom of supporting this parametric offering rather than the very expensive alternative.
“It’s an opportunity for science, insurance and industry to come together,” he said. “If government came in and could support that process of just getting it out there, that’d be a phenomenal advantage.”
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