This is the aim of a NESP Tropical Water Quality Hub project that brings together researchers from CSIRO, James Cook and Central Queensland Universities. The team are working with insurance companies and cane growers to determine whether the risk of reduced yield following a change in management practice – such as reducing nitrogen – can be managed through insurance. The project team’s work to date is generating much interest, being invited to present at two recent Australasian Agricultural and Resource Economics Society (AARES) workshops (in Adelaide and Brisbane) on managing risk in agriculture and deep engagement with Willis Towers Watson (WTW) in Australia and London.
The project has global relevance, especially with environmental managers tackling similar issues around improving water quality from farming lands to protect marine and freshwater ecosystems.
The project has identified three key aspects underpinning the feasibility of an insurance product:
(1) quantifying the risk of yield loss, which is the basis of the price of an insurance product;
(2) identifying the change in yield (if any) caused by the management practice change from other variability, for example that caused by inter-annual climate variability; and
(3) overcoming moral hazards associated with the insurance arrangement.
The project team has developed a methodology for quantifying risk of yield loss for the major soils in the Wet Tropics region based on simulating factors that influence yield variation, and are in the process of taking this information to farmers in these regions to ground-truth these simulations with their experience. They are working closely with five large farmers to assess methods for identifying the change in yield.
The team’s next steps will include testing a dummy insurance product through experimental economics workshops with farmers. The project will deliver the final results in December 2019.