How to Reduce Drought Risk

Australia is no stranger to drought. With 2018 being the third hottest year on record, droughts were even more prevalent than usual. In fact, the whole of NSW being declared in drought during the latter half of 2018, making it one of the more significant droughts in Australia’s history.

Not only is this damaging for the population, farming and livestock, drought is also among the costliest perils globally. With a combined global damage cost of more than USD27 billion in 2018, in Australia alone, we incurred a billion-dollar economic loss due to drought, with most of the losses experienced almost entirely in the agricultural sector. It goes without saying that this catastrophe severely impacted the farming community, who experienced a 20 per cent decline in year-to-year crop production.
 
Australia’s attitude to crop insurance has always been at odds with the rest of the world, with no subsidised premiums. However, small steps are being considered to change this, for example, by allowing insurance premiums to be exempt from tax. We also hope that the AUD2 billion relief package put aside for farmers in 2018 may cause a rethink in the way we support our farmers in the months and years that follow continuous low rainfall.
 
Impact on your business
 
It’s important to come up with a plan to ensure your business can survive a drought. You should find out if they are in a drought prone area, and put measures in place to protect your assets, such as crop insurance and business continuity plans.
 
What you should do to prepare
 
For businesses who rely upon the land, preparing for drought is essential and can significantly help in reducing the damage that occurs when drought strikes. The following pointers can begin to help in minimising the damage:

• Check local authority drought planning guidelines and management strategies. Local council and the SES are great places to start.
• Proactively gather rainfall records so you know how much water is coming in.
• Have a business continuity plan in place to allow you to continue to operate during a drought. This will help you to identify risks and to have a plan in place for dealing with them if the time comes, as well as making quick decisions.
• For farms, there are several soil and water-conserving practices that can be put into place such as crop rotation and erosion control structures.
• Finally, understanding that Australia is a very dry and hot country, therefore keeping the possibility of drought front of mind when making financial and business decisions from year to year.

• Identify risks and reduce the frequency and impact of a loss
• Accurately quantify your risks
• Ensure your tangible assets are valued correctly
• Find the appropriate insurance cover for your property and business interruption
• Devise a business continuity plan to ensure you can get your business running and generating revenue as quickly as possible.

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