An Australian government commissioned report on Tuesday rejected drought insurance for farmers as uneconomical, dashing landowner hopes of a change in government policy which could help boost output to meet Asia's fast-growing food market.
Australian is one of the world's largest exporters of wheat, beef and sugar, despite farmers regularly battling droughts. But unlike nearly all its major agricultural competitors, Australia provides no subsidies for drought insurance.
Farmers say the absence of such insurance undermines their capacity to invest in increasing production and meet the growing food demand from Asia's middle class.
"It is vitally important that we have a way of offsetting the risk of drought," said Andrew Weidemann, a grain farmer in Victoria.
"There are an enormous number of farmers that are on a knife-edge with debt so they are forced into a position to look at some risk mitigation and the only thing available to them is these type of mediums and they are very expensive."
After nearly three years of drought across Australia's east coast that drove many farmers to the brink of bankruptcy, the NSW state government commissioned the report to investigate the feasibility of following the likes of the United States which provides agricultural insurance subsidies.
The report was the first time Australian policymakers had considered a change in policy and spurred hope from insurers such as Allianz SE and Swiss Re AG, which see Australia as a new and lucrative agricultural market.
But it rejected a change in policy, saying it was unlikely to displace current government assistance, such as concessional loans and farm household support payments during droughts.
It said it came to its conclusion because 80 percent of government aid after a drought goes to livestock producers for whom there was no insurance product on the market and that insurers were unlikely to offer it if drought was expected.
Insurers rejected the report, insisting that drought insurance for livestock producers could be produced.
"We don't withdraw home contents insurance when the threat of cyclones change because of a La Nina or an El Nino (weather phenomena)," said Nicholas Scofield, spokesman for Allianz.