Agribusiness

Agricultural risk prevention better than cure: AFI

Grain Central, April 23, 2019

RISING and broadening risk in Australian agriculture could be better managed with a focus on prevention rather than cure, according to an Australian Farm Institute (AFI) report.

(Photo: BOM)

Entitled Australian agriculture: an increasingly risky business, it has recommended a cost/benefit analysis on the redirection of government funding away from risk consequences, and into commercial risk-mitigation products farmers can use.

If market incentives are required, the report calls on government to focus on both supply and demand stimulus, rather than demand only in times of distress.

“Emerging institutional factors, such as community-trust issues related to animal welfare and potential glyphosate regulation, have created the greatest uncertainty and increased risk for producers, and indeed the entire agricultural value chain,” executive director Richard Heath said.

Richard Heath

“These risks are unlikely to diminish, as they are the product of an increasingly active and engaged consumer base.”

The report points to income-protection insurance and weather-derivative products as tools which could be used to mitigate risk, including climate change, in the continued absence of government support.

“While there is no quick-fix for these issues, industry bodies and advocacy groups should coordinate to monitor sector-specific and cross-sectoral institutional risks, and proactively develop effective responses to avert the potential hazards.”

Mr Heath said good farm business-practice had been effective in driving a strong and resilient farm-sector economy, which has continued to grow in the face of significant risk.

However, the report identified multiple risks specific to industry or location, where more tailored risk-mitigation tools could form an important part of the farm business-management toolbox.

Behavioural economics

Rural Bank Analyst and report co-author Michael Curtis cited insurance and weather-derivative products as effective and cost-efficient methods that could practically eliminate some risks on Australian farms.

“Unfortunately for Australia’s farmers, in many cases where these risk-management products are available, they remain underutilised, or in market failure,” Mr Curtis said.

“If behavioural economics filters were applied that addressed perceptions of cost related to risk appetite in developing these risk-managements products, farmers would be far more likely adopt these products.”

NFF call

In the lead-up to the federal election next month, the National Farmers’ Federation has called for government commitment to a cohesive all-of-agriculture strategy.

However, the report’s authors note that a lack of significant government support, and a limited range of commercial risk-mitigation products, continues to threaten Australian agriculture’s profitability and international competitiveness.

“There is no room for complacency as the sector squares up to some significant new challenges and an accelerating pace of changing risk exposure,” Mr Heath said.

Source: AFI

 

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