Combating the rising tide of Asian extreme weather losses

03 January 2019

Earlier this year Swiss Re published figures showing that economic losses from natural and man-made disasters in 2017 totalled USD 337 billion. This was almost double the losses from 2016 and the second highest on record. It also found that insured catastrophe losses were USD 144 billion, the highest ever recorded.

The statistics make uncomfortable reading for the food and agriculture sector and are supported by another report, published this year, by the Food and Agriculture Organisation (FAO) of the United Nations.

Between 2005 and 2015 it found that natural disasters cost the agriculture sectors of developing countries USD 96 billion in damaged or lost crop and livestock production. Half of that damage occurred in Asia, leaving behind a bill of USD 48 billion.

MORE RESILIENCE REQUIRED

The hugely detrimental impact of natural catastrophe events demands a better risk management response from individual producers, commercial companies, industry bodies and governments alike.

FAO Director-General José Graziano da Silva has emphasised the need to embed risk management and reduction strategies into the global agriculture sector if it is to be sustainable.

He said: “Building a more holistic and ambitious disaster-resilience framework for agriculture is crucial to ensuring sustainable development — which is a cornerstone for peace and the basis for adaptation to climate change.”

In 2018, Asia has borne the brunt of natural catastrophe events. Super Typhoon Mangkhut battered the Philippines with winds of 125mph and gusts of over 200mph. Japan has similarly been buffeted by multiple typhoons after the largest flood in a generation in June. So just how can food and agriculture producers protect their livelihoods in the face of such an extreme onslaught?

RISK MITIGATION IN PRACTICE

The first step is to assess, identify and mitigate risks. For farmers, this means exploring, for example, if different crops and/or varieties could offer more resilience to changing weather patterns. Could they diversify their range of crops? Could they improve storage facilities?

Improved weather mapping and forecasting has increased the accuracy of warnings, giving more advanced notification of approaching storms. Farmers can use this to their advantage by harvesting crops early.

The use of such tactics will not be appropriate for all crops and will depend on how far through the growing cycle they are, but if farmers have developed plans that enable them to harvest at short notice, it will allow them to avoid the total losses that are impossible for so many to absorb.

Similarly, the correct placement and fortification of animal shelters can provide the protection needed to save herds and minimise losses from extreme weather events, whether built independently or through community and/or cooperative programmes.

Mother Nature draws no distinction between onshore and offshore farming, and aquaculture producers also need to improve their resilience to high winds, rough seas and storm surges.

Whether building fish cages to more stringent specifications, or ensuring they are mobile and can be towed out of the path of incoming storms, there are several risk management strategies that can be used.

Again, these will depend on the size of the storm and the amount of advance notice farmers have, as well as their readiness to deploy such tactics at a moment’s notice.

Some aquaculture producers use submergible cages, lowering them into the depths and allowing the storm to pass overhead. The effectiveness of this tactic is again determined by the ferocity of the weather it is trying to outmanoeuvre.

The point is that there are a wide range of risk management and mitigation strategies to consider and that they can be employed both to the benefit of independent producers and to cover whole groups through government-backed or cooperative initiatives. Advances in weather prediction afford the cost benefit analysis more realistic to spend money to mitigate, pre-catastrophe.

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ENGAGING WITH PRODUCERS

Unfortunately, organising and implementing such cooperative initiatives can be difficult from an administrative and engagement point of view; and there remains very low levels of understanding at the producer level in many parts of Asia about the availability of risk management and insurance solutions to the problems they face.

JLT Speciality has established expertise on effective and practical risk management measures and can arrange insurance that provides a financial backstop for producers against losses from natural catastrophes.

Insurance is readily available to cover the cost of replanting a lost crop or replacing livestock. Farmers can insure the profit they would have made from lost stock and/or the ongoing business interruption losses suffered as a result of a natural catastrophe.

Such insurance policies are available for individual producers, but a more effective route to market is often through government-back schemes and cooperatives. Being involved with such programmes gives individual producers access to practical guidance in managing their business and enables them to benefit from the economies generated by pooling their risk with others.

For the insurance industry, such programmes help to create consistent and improve operating standards.

They also provide access to a bigger number of producers, making it possible to offer wider cover at more keenly priced rates.

In addition, the insurance industry is working with other financial institutions that provide loans to food and agricultural producers, seeking to assist them in adopting more robust risk management and mitigation strategies that will safeguard their businesses and protect the investments made.

LOCAL LOSSES HAVE GLOBAL IMPACT

It is also important to recognise that the impact of natural catastrophe losses is not restricted to local producers. These producers serve global markets and can lead to food shortages around the world as supply chains are increasingly global and interconnected.

Some countries such as China, have gone so far as to buy large swathes of land in overseas territories to produce food for its domestic market. The result is that lost production in these areas has the potential to interrupt food supplies to the most populous country in the world.

The widespread impact of extreme weather events on the food and agriculture sector means this is an issue that affects everyone. Taking a collaborative approach to mitigating losses is the only way to make sure the increasing frequency and severity of natural catastrophes does not take food from all our tables.

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For more information please contact Simon Lusher, Head of Food & Agri on +44 (0)20 7459 5550.

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