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the australian farmer
Innovations for a climate resilient sustainable agricultural sector Opportunities are emerging that will allow producers to build enterprise resilience through new climate risk transfer (insurance) products and income diversification (carbon and biodiversity credit) schemes. There is significant potential for these to help to smooth the year-to-year income variability linked to climate-related risk and to lead to both healthier agricultural landscapes and a more resilient and sustainable agricultural sector.
ates synergies that benefit farmers’ incomes. A key component of this innovative solution is the opportunity to exchange environmental/biodivers- ity credits to cover crop risk premiums that protect farmer losses from climate disasters. Depending on the size of relative proportion of land dedicated to crop production and the area dedicated to earn- ing carbon/biodiversity credits, producers could choose to cover different types and magnitudes of risk (e.g. drought, flood, and/or partial to total crop loss). Sold carbon credit units could allow farmers to purchase a range of agricultural insurance types, such as multi-peril insurance cover, yield cover, income protection, and index-based insurance. Of these, index-based insurance may be the most vi- able option. Index insurance pays the holder of the insurance contract when a certain value on an in- dex (e.g. a percentile of rainfall) is realized (Kath et al. 2018). Index-based insurance is generally cheap- er than either yield- or revenue-based insurance because it does not require expensive on-ground assessments and limits moral hazard resulting from information asymmetries or false reporting of loss- es. The potentially cheaper premiums and reduced moral hazard risks mean that index-based insur- ance schemes may be relatively easily integrated with our proposed ‘carbon for insurance’ frame- work, especially in developing countries where
Climate change, and as a result increasing climate variability, is a multidimensional problem impacting social, economic, and environmental values. Prac- tical and affordable adaptation solutions are urgently needed to help farmers cope with the impacts of in- creasing climate variability through the adoption of management practices that reduce climate-related (including financial) risk (Mushtaq et al. 2018). These include both diversifications of income streams to help smooth income variability and ecosystem-based adaptation measures that buffer agricultural systems from the impacts of climate extremes. Here, an innovative property management solu- tion is presented that allows producers to dedicate areas of land, which may be less profitable and sub- ject to higher agricultural drought risk, to generate revenue from carbon sequestration and environ- mental/biodiversity credits. The approach would see producers dedicate marginal agricultural areas (e.g., areas that are opportunistically cropped) to more drought-resilient productive uses (e.g. plant- ing of shelter belts), while also creating environ- mentally beneficial revenue-raising options. Rev- enue generated through the conversion of marginal land could in turn support drought risk adaptation to protect against financial losses due to climate ex- tremes. This approach minimises conflict between agricultural and environmental outcomes and cre-
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