Wheat Area-Yield Insurance Effectiveness: Simulating Rates in Australian Reality

Agribusiness inherently encounters various risks. These include risks arising from producer behavior to those resulting from changing weather conditions. Rising scrutiny and deliberation on climate change/severity forecasts a progressively important need for yield risk mitigation tools. Such tools include financial markets and insurance schemes, with insurance taking the predominant role with regard to yield risk. Area Yield Insurance is one of several crop insurance schemes available in the US. AYI differentiates itself by releasing indemnities on an aggregate rather then individual level, thus reducing administrative costs and the impact of both moral hazard and adverse selection. As is the case with many forms of yield insurance, AYI requires excessive subsidization in its current form. This study primarily addresses effectiveness and benefits offered to Australian producers through AYI, as well viability and risk diversification opportunities