Unlike other countries, including the United States, Australia does not provide subsidized insurance against drought. A newly released study, commissioned by the state of New South Wales after three years of drought across the nation’s East Coast, rejected any change in policy, says Reuters.
The bulk of government drought aid — 80 percent — goes to livestock producers, said the report, and there is no drought coverage offered by insurers. The report was skeptical that insurers would offer drought policies if severe dry weather was expected. Drought aid is provided now through concessional loans and farm household support payments, said Reuters.
Droughts are a routine risk on the world’s driest continent, but Australia is a global agricultural power, especially in wheat, sugar and beef. Farmers told Reuters that the absence of drought insurance was an obstacle to financing for larger production. Other methods of risk management are very expensive, said Andrew Weidemann, a grain farmer in the state of Victoria.
A 2012 report by the Australian Bureau of Agricultural and Resource Economics and Sciences said climate change would require producers to consider new ways of managing risk. Demand for crop insurance is low and without significant government support, premiums would be high. “The economic case for government subsidization of premiums or underwriting of risk is not strong,” said ABARES.
A follow-on report by the National Rural Advisory Council said alternatives to multi-peril crop insurance, which includes drought coverage, such as index-based policies were available “and there is potential for these products to develop further. Governments have a role in assisting Australian agricultural industries to increase their self-sufficiency and to better manage weather-related risk to production. Governments also have a role in supporting data collection and management. This can increase access to user-friendly climate data that can assist farmers to make better risk managment decisions,” said NRAC, part of the national Department of Agriculture and Water Resources.