Integrating rainfall index-based insurance with optimal crop management strategies can reduce financial risks for Australian dryland cotton farmers

Abstract

Drought undermines the financial sustainability of farmers. While farmers have adopted various strategies to mitigate some drought impacts, they remain exposed to substantial drought risk. Insurance could be useful in managing climatic risks and for encouraging farmers to take sensible risks (e.g., changing their sowing date to increase yield), but it can be costly. Here, we tested whether the integration of a change in sowing date with rainfall index-based insurance could improve farmer profitability and income stability. We used the Agricultural Production Systems Simulator (APSIM)-Cotton model to simulate cotton lint yields for various sowing dates, taking into account different management strategies, across three dry-land cotton research farm sites – Dalby, Goondiwindi, and Theodore – from 1940 to 2022. We designed the index-based insurance payout when the average rainfall received during the growing season falls below a predefined level, such as the 5th, 10th, or 20th percentile of rainfall. Our study, which involved 3.9 million cotton lint simulations and 3,000 rainfall index-based insurance products, showed that combining a shift in sowing date with insurance can lead to an income improvement of up to 21.5% at some study sites. Additionally, in drought years, the income improvement for farmers who combined optimal sowing dates with rainfall index-based insurance was up to 48.0%. The framework developed in this study could aid in devising financial strategies to enhance farming resilience during climate extremes.