Rural Affairs
Issue No. 7 - October/November 2002
Managing Drought
by Chris Heinjus
Managing the risk of a drought is potentially one of the most challenging tasks facing a rural enterprise. This is topical, since many primary producers are currently facing yet another seasonal challenge to their businesses. The current seasonal outlook remains poor and the dry spring experienced across Australia is starting to bite. Dry conditions are spreading like a cancer with each day without rainfall.
Farm businesses are directly exposed to weather. A poor season leads to reduced yields and a reduction in income. Livestock feed runs out and the farmer has to then either buy fodder in to feed animals or sell stock into a depressed market. Grain prices often increase as a result of supply and demand market forces. Ultimately farmers will tighten the belt and tough it out and some will not survive. Spending on luxuries ceases. Rural-based businesses experience falling sales and this ultimately flows onto the overall health of the economy. To a certain degree we are all still reliant on the fortunes and mis-fortunes of the rural sector.
In a drought, exposed soil is subject to wind erosion and later water erosion, droughts often finish with a big rainfall event. The environmental costs alone are massive.
Apart from the direct economic and environmental costs of drought there is also a social cost. Increased stress puts pressure on families and rural communities.
Predicting trouble
The trouble with managing this sort of risk is that you cannot predict the timing or severity of the adverse weather event. With other unpredictable events like storm damage, theft or accident, public liability, insurance forms a key part of the business risk management strategy. “Drought Insurance” however, is not available in Australia. Internationally various forms of drought insurance exist. In addition to this, governments are increasingly wary of funding drought relief. Ultimately the management of this risk comes back to the p...
