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How parametric insurance turned a seven-figure loss into a minor setback using Dry Season Weather Certificates.

In 2019, A farm in northwestern NSW faced the harsh realities of farming in Australia under extreme weather conditions. With the threat of a 100% crop failure looming due to the 2019 drought after an already dry 2018 season, the farm’s future was at risk. However, a strategic decision to use dry-season weather certificates turned what could have been a devastating year into a manageable setback. This case study explores the transformative impact of weather certificates on this NSW farm, highlighting a smart approach to risk management.


“2019 using a weather certificate was absolutely invaluable… 100% crop failure with a seven-figure loss turned into to a minor loss.”

Australian Dust Storm
2019 Drought (Moree)

The Challenge: An extended period of drought


The Farm had already secured a $300'000 payout from their 2018 dry season weather certificate, which covered their input costs and put them in a good spot moving into 2019 despite the dry conditions.


The 2019 season began with less-than-promising conditions coming off a dry finish and mediocre yield in 2018. The farm's broadacre production was particularly vulnerable to insufficient rainfall due to low subsoil moisture, with an unwavering dry forecast, the farmer needed to once again look at something that would offer him financial protection should it continue to stay dry.


The Solution: a Catastrophic Dry Season Weather Certificate


Understanding the critical need to balance financial and production risks, the farm's management team turned to another dry season weather certificate. This Certificate was designed to account for financial losses caused by catastrophic drought conditions. By entering into a contract that hedged against catastrophic yield loss, the farm was able to secure a financial safety net with the following parameters:


Risk Period: 29th of May to 31st of October 2019

Maximum Payout: $1,000,000

Strike: 118mm (The certificate begins paying every mm below this threshold)

Payout Per mm below 118mm: $16,500


Premium: $116,696 (11.7%)


The Outcome


As the season progressed, the feared worst-case scenario unfolded with the farm nearing 100% crop failure.


Only 13mms of rain was recorded over the risk period. A max payout of $1'000'000 was transfered 20 days after the risk period end, which covered the majority of their losses.

This intervention transformed a potential financial disaster into a minor loss. Moreover, the farmer's innovative use of weather certificates not only saved the farm from a dire financial strain but also impressed the local bank, which supported the farm with refinancing options due to the proactive risk management steps taken.


Impact on the Farm's Operations


The use of weather certificates has since become a cornerstone of this farm’s risk management strategy.


In 2021, the farm received a $116'000 payout to cover quality downgrades due to a wet harvest using a wet harvest weather certificate.


By effectively mitigating the financial impact of the dry season and other production & weather risks, the farm maintained its operational stability and continued to support its community and workforce. This strategic approach has also paved the way for exploring additional agricultural innovations and sustainability practices.


Conclusion


The success story of this NSW farm serves as a powerful example of how modern financial tools like weather certificates can provide a lifeline to farms grappling with the challenges posed by climate variability. This case study underscores the importance of adaptive risk management strategies in ensuring the resilience and sustainability of agricultural operations.


Engage with us


Book a consultation below if you're interested in learning how weather certificates can curb your income volatility and effectively manage production risks against unpredictable weather conditions.


Let us help you turn your weather risks into manageable challenges.




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