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Theme 2: Economic systems, climate finance (insurance) and climate risk

Scientists working in this program conduct projects related to integrating climate models to economic and financial systems. The RPT conducts research into:

  • developing highly efficient targeted insurance programs by better appreciating climate risks, aligning with the producers’ needs and local and global re/insurance markets
  • developing bio-economic and hydro-economic models (farm and system level) to assess the economic impacts of agricultural and water management interventions, adaptation/mitigation strategies and policies
  • assessing economic value of improved climate risk management strategies through the application of seasonal climate forecasts for key agricultural industries, and
  • developing of user-friendly decision/discussion support tools for improved capacity and decision-making.


Project Leader: Professor Shahbaz Mushtaq

Research Team : Dr Jarrod Kath | Dr Duc-Anh An-Vo | Dr Louis Kouadio | Dr Kathryn Reardon-Smith | Torben Marcussen | Dr Thanh Mai

Over the past decade, weather index insurance has emerged as an important and viable alternative to the ‘traditional’ insurances available for producers. Index insurance has several benefits over indemnity insurance because it does not require expensive on-ground assessments and limits moral hazard resulting from information asymmetries or the false reporting of losses. Index insurance offers an efficient and cost-effective way for farmers to transfer climate risks.

Important advances have been made on the design of insurance products that can meet the needs of the agricultural industry and protect farmers against the unpredictable effects of an increasingly volatile climate, including floods, droughts, excessive heat, and cyclones.

Project Leader: Professor Shahbaz Mushtaq

Research Team : Dr Jarrod Kath | Professor Geoff Cockfield

Research Partner: National Farmers' Federation

Research Collaborators: Willis Towers Watson | Department of Agriculture and Fisheries, Queensland

Agricultural groups across Australia are in a position to use their size and scale of membership base as a way of providing more cost-effective financial risk management options to growers. Mechanisms, such as cooperatives and particularly mutuals, can be used to pool risk common to growers. Such arrangements can facilitate efficient risk-sharing among growers by aggregating low value, high-frequency losses and funding these from a dedicated pool of shared capital, meaning that external insurer capital would only be used - and paid for - to protect against accumulation of smaller losses or one-off large losses in excess of the group's risk appetite.

The project aims to address the following key questions related to mutuals and co-operatives:the prevalence of farmer mutuals and co-operatives in Australia and in other major developed countries;

  • their key benefits, including value and impact, and limitations in assisting farmers to manage financial risk, including their size and the services they offer;
  • barriers to improving or expanding their service offering; and
  • make recommendations to reduce or remove those barriers.

Project Leader: Professor Shahbaz Mushtaq

Research Team: Dr Jarrod Kath | Professor Geoff Cockfield | Anu Shantharaju

Research Partner: National Farmers' Federation

Research Collaborators: CelsiusPro | Department of Agriculture and Fisheries, Queensland

Farming is a risky business. The uncertainties inherent in weather, yields and prices, global markets, and other factors that impact farming can cause wide swings in farm income. Managing price risk and market risks, refers to uncertainty about the prices that producers will receive for commodities or the prices they must pay for inputs, is an option. However, risk mitigation markets are generally understood to be underutilised in agriculture in Australia, and globally. The aims of this project are to:

  • identify and describe the range of Forward Contracts, Futures, Options, Swap Markets, and associated products currently and potentially available to Australian farmers used to manage price-risk;
  • measure the extent of their use by Australian farmers;
  • identify viable options for improving and/or expanding use of these tools;
  • identify barriers to their uptake and/or improvement/expansion; and
  • make recommendations regarding ways to reduce or remove these barriers.