Key risks for Australian macadamia growers and potential insurance options to manage financial losses

Key risks for Australian macadamia growers and potential insurance options to manage financial losses

The Australian Macadamia industry has a farm gate of ~ 280 million dollars and is the world’s leading producer macadamia kernels, accounting for 30% of global supply (AMS, 2017). However, the macadamia industry faces major challenges from extreme climate and weather events, which are projected to increase in the future under climate change. In 2017 extreme climate events, such as cyclone, drought and extreme rainfall were attributed to yield losses by many macadamia growing growers (ABC report, 2017). While the industry and farmers can adapt and manage some climate variability some losses from extreme climate events are inevitable. For losses that cannot be avoided, then risk-transfer options, such as insurance, are often the best option.

This report explores the potential for the development of weather-index policies to address climate risks. Using information from farmer surveys the report identifies the key risks to Macadamia growers and outlines prototype index insurance products that have been developed to manage the financial consequences of climate risks.

Based on preliminary surveys of Macadamia growers there is the potential to manage yield losses in the following ways:

 Drought index insurance to manage low rainfall losses for Macadamia growers in Bundaberg, Kempsey and Marburg.
 Remote sensing index insurance to manage hail (and other risks) losses for Macadamia growers in Bangalow, Byron Bay and Lismore.
 Remote sensing index insurance to manage pest and disease losses for Macadamia growers in Wollongbar and Nashua respectively.
 Excess rainfall and heat were also identified as important risks for which index insurance options could be developed.

Based on survey findings three prototype insurance products were developed for the macadamia industry:

 Drought index insurance: rainfall deficit (e.g. below 100 mm) for the critical period between April to September rainfall below 100 mm from.
 Excess rainfall index insurance: Excessive rainfall (e.g. below 100 mm), especially during harvesting periods, between October to March.
Heat day index insurance: Extreme temperatures >36 °C for more than 2 days in a year.

Indexed based insurance worked examples were also developed for growers to better appreciate the insurance mechanisms.

Large parts of the agricultural sector are unaware of the potential benefits of agricultural insurance and its use as a risk management tool. Therefore, there is a need to educate farmers about the value of insurance, through shed meetings, workshops and one on one facilitated meetings.

This project is funded by the Queensland Government’s Drought and Climate Adaption Program (DCAP) that aims to improve drought preparedness and resilience for Queensland producers.