Insurance Needs for Olive Growers Change with Climate

The cost of covering olive groves is rising as climate change makes Europe increasingly hot and dry. Farmers can adopt some technology to help.
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By Ofeoritse Daibo
Nov. 20, 2023 18:56 UTC

As the nature of threats fac­ing olive farm­ers changes, so is the insur­ance indus­try that under­writes the risk posed by those haz­ards.

In the past, the main risks for olive farm­ing was not cli­matic, but more dis­eases (includ­ing par­a­sites), price volatil­ity and fraud (involv­ing the re-assign­ing of olive loca­tions),” an agri­cul­tural insur­ance insider told Olive Oil Times.

More recently, sev­eral European insur­ers have been work­ing to ele­vate the impor­tance of cli­mate-related changes through­out their under­writ­ing and invest­ment port­fo­lios.

See Also:Rising Prices, New Technology Attract Private Equity Interest in Olive Oil

This move has become more per­ti­nent, espe­cially in the agri­cul­tural sec­tor, which is increas­ingly plagued by the chang­ing cli­mate and extreme weather events.

According to research from Olive Oil Times, global olive oil pro­duc­tion is set to decline for a sec­ond straight year in the 2023/24 crop year, falling to 2.4 mil­lion tons, largely due to drought in the Mediterranean basin.

As a result, European insur­ance under­writ­ers are issu­ing poli­cies that com­bine pro­tec­tion against dis­ease with that of drought.

REVO Insurance, the first Italian oper­a­tor spe­cial­iz­ing in para­met­ric risks and spe­cialty lines, announced plans in October to extend its range of prod­ucts for the agri­cul­tural sec­tor with cov­er­age specif­i­cally designed for Italian olive oil pro­duc­ers.

The Italian olive sec­tor, worth €1.4 bil­lion in 2022, suf­fered a sharp fall in national pro­duc­tion, down by 37 per­cent or 121,000 tons, due to drought, heat and olive fruit fly,” accord­ing to a nation­wide sur­vey con­ducted by the Umbria Chamber of Commerce.

Despite the move to raise the impor­tance of cli­mate-related insur­ance in Europe, there is still a gap. According to European Central Bank data, only a quar­ter of the losses from cli­mate-related dis­as­ters are cov­ered. Greater cov­er­age could reduce the eco­nomic dam­age that results from them.”

Part of the rea­son for this gap is the high cost of insur­ance cov­er­age. In Spain, the world’s largest olive oil pro­ducer, an inves­ti­ga­tion by Agropopular found that only 4.5 per­cent of the country’s olive grove sur­face area is insured.

In the olive sec­tor, although it is pos­si­ble to insure for drought, it is a very high risk, so there is a high price, and usu­ally there are high deductibles and stop losses,” an insur­ance under­writer at an Italian firm told Olive Oil Times. For new olive groves, it would be nec­es­sary to pro­vide both irri­ga­tion cov­er­age and cov­er­age against drought.”

Even when insur­ance cov­er­age is afford­able, farm­ers may under­es­ti­mate the like­li­hood and impact of cat­a­stro­phes.

Alternatively, farm­ers could turn to new tech­nol­ogy to improve yields. Farmers need improved agro­nomic tech­niques, new olive oil vari­eties and deci­sion-mak­ing sup­port,” the under­writer said.

For exam­ple, olive oil yields can fluc­tu­ate sig­nif­i­cantly due to their depen­dence on suf­fi­cient pre­cip­i­ta­tion at spe­cific moments in fruit devel­op­ment; one option to hedge the yield risk in cul­ti­va­tion could be satel­lite-based weather index insur­ance, accord­ing to research pub­lished in the Australian Journal of Agricultural and Resource Economics.

In Spain and Italy, olive farm­ers are already using satel­lite images to safe­guard olive oil pro­duc­tion by track­ing where their land is the dri­est and using pre­ci­sion irri­ga­tion.

Ultimately, farm­ers need to set a bal­ance between tech­nol­ogy and insur­ance to tackle the issue because, mov­ing for­ward, cli­mate-related dis­as­ters could raise insur­ance prices.

In France, pre­mi­ums would rise by 130 to 200 per­cent by 2060 to cover these losses, accord­ing to the cen­tral bank. In terms of insur­ance prices, that is an increase of between 2.8 and 3.7 per­cent per annum, a sig­nif­i­cant rise in a low-mar­gin busi­ness.


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