Australian agriculture must get good at risk management

How can farmers improve their risk management?
Posted on March 28, 2017 in Farm & Crop

Australia's agriculture sector is thriving, with The Australian reporting that last year saw record wool, sheep and cattle prices, as well as an exceptional crop yield. Yet despite the prosperity farmers are experiencing, they are exposed to high levels of risk, leading authorities to stress the importance of having adequate crop or farmers insurance to protect their livelihood. 

The agriculture sector needs to spread the risk across the supply chain.

High risk for Australia agriculture

Of all the industries is Australia, agriculture is particularly vulnerable to environmental factors. However, according to ABC News, a concerningly large portion of Australian farmers do not have the insurance they need. As Strategis Partners' Agribusiness Consultant Jay Horton explains, this is a big problem in a country so dependent on agriculture for its economic competitiveness. Without a way to manage risk, farmers could find themselves sustaining massive loss from disasters such as failed crops. 

"Australia is one of the riskiest agricultural country in the world in terms of agricultural production; second to Uruguay. We have to be very good at risk management in all of its forms and we could do better," he told ABC News.

Mr Horton believes that in order to combat this risk, the entire agriculture sector needs to be involved in shouldering the burden, not just the farmers themselves. 

"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," he explains.

By working together, agriculture businesses can manage risk more easily.By working together, agriculture businesses can manage risk more easily.

Safeguarding the future

One example of this industry-wide collaboration would be businesses across the supply chain making allowances for one another when things don't go to plan.

"What if the input suppliers were to say to the farmer customers 'No need to pay in full for the seed we supplied you this year. Or the buyers of crops could say, 'You weren't able to supply the target volume, we will give you an income to cover this year's costs anyway," suggests Mr Horton.

Nevertheless, risk spreading does not mitigate the need for a comprehensive insurance policy, yet this is a product that is not always understood by farmers. To ensure they are fully covered, farmers should look for a policy created specifically for the agriculture sector, which provides cover against the unique risks they face in Australia.

For more information about the specialist crop insurance and farmers insurance we offer, contact your local MGA office.