Beyond the premium: Index-based insurance for sustainable agricultural supply chain management Open Access

Drought represents a critical global sustainability challenge (Ali and Gölgeci, 2021). As reflected in the United Nations sustainable development goals (UN SDGs) ^[1], drought exacerbates food security issues and intensifies water scarcity (Dickinson, 2024; UN, 2015). Drought also impedes economic growth, increasing poverty and hastening land degradation (UN, 2015). Climate change is increasing the frequency and severity of drought, which has now grown to the point where an urgent global response is required [United Nations Convention to Combat Desertification (UNCCD), 2025]. While complete drought prevention remains impossible (Borisova et al., 2025; Lin, 2011), strategies to build resilience in supply chains can mitigate some of the subsequent impacts (Abdi et al., 2022; Wang et al., 2021).

Innovative approaches, like adaptive risk management, are essential for mitigating drought-related disruptions (Linnenluecke et al., 2012). Adaptive risk management involves anticipating climate-related risks and developing flexible response strategies. These strategies are effective when embedded within broader resilience frameworks that span multiple levels of the supply chain (e.g., farm-level practices, distribution and retail). Adaptation measures, such as diversified sourcing, water-efficient technologies and forward contracting, can safeguard food security, economic stability and the sustainability of resources (Tomek and Peterson, 2001; Williams et al., 2015a; Williams et al., 2015b). Moreover, resilience-building efforts must be systemic and collaborative, since isolated actions by individual actors can lead to trade-offs that undermine overall supply chain robustness (Bubicz et al., 2019).

Climate risk insurance is an example of one such supply-chain resilience measure (Farmers for Climate Action, 2024; Hohl et al., 2021). Unlike traditional insurance models, which rely on direct damage assessments, innovative mechanisms such as index-based climate risk insurance (also known as weather derivatives) provide payouts based on indicators, like rainfall levels or temperature, rather than direct loss assessments (Abdi et al., 2022; Tsegai and Kaushik, 2019). Index-based insurance products are a form of parametric insurance, meaning that compensation is triggered automatically when a pre-defined index threshold is reached, ensuring quicker relief and reduced administrative costs. This can enhance financial stability for farms by supporting supply chain resilience, helping agricultural communities better prepare for future droughts (Brockett et al., 2005; Kron et al., 2016; Lin, 2011).

Farmers are subject to seasonal weather variations, making planting and investment decisions based on historical patterns, intuition and short-term forecasts (Maertens et al., 2014; Tomek and Peterson, 2001). Rather than formal risk-protection mechanisms, many farmers take their chances on favourable conditions rather than paying insurance premiums, especially when profit margins are tight (Cabeza-Ramírez et al., 2024; Findlater et al., 2019). When drought hits, rather than hedging their bets with insurance, farmers often turn to government relief programmes, lobbying for subsidies, grants or emergency funding to cover their losses (Ashenden and Lowe, 2025). This reactive approach raises concerns about long-term supply chain resilience, as it may discourage proactive risk management and, instead, simply shift financial risk onto governments and taxpayers (Asghari et al., 2021).

Despite the increasing availability of climate risk insurance, there is limited research on how farmers and other stakeholders measure its value (Adeyinka et al., 2022; Agudo-Domínguez et al., 2022; Hohl et al., 2021). Few studies explore the factors that prompt farms to buy insurance or the impact of index-based insurance options on the sustainability of agricultural supply chains (Williams and Travis, 2019). While sustainability encompasses a range of environmental, social and economic concerns, this study focuses on climate change adaptation as an increasingly urgent aspect of sustainable agricultural practice. Index-based agricultural insurance may help reduce financial losses and enhance stability; however, take-up remains low, threatening the resilience of agricultural supply chains.

This special issue addresses the challenge of measuring sustainability supply chain performance in ways that deliver value to stakeholders. Supply chains face diverse sustainability risks spanning environmental (e.g., soil degradation and water scarcity), social (e.g., labour conditions and community welfare) and economic (e.g., price volatility and market access) dimensions. This study focuses specifically on climate-related risks, particularly drought, as an increasingly urgent component of agricultural sustainability, while recognizing that the measurement principles developed have broader applicability to other risk types. In agricultural supply chains, where extreme weather events create substantial risks, this challenge becomes acute. Current approaches to measuring supply chain performance often overlook how climate risk management tools contribute to sustainability outcomes. Tools like index-based agricultural insurance remain under-researched (Adeyinka et al., 2022) despite their relevance for building measurable resilience. Further scholarship is essential, as measurement frameworks enable supply chains to assess, adapt to and withstand climate shocks while creating value for multiple stakeholders across the supply chain. This study, therefore, asks: How can we measure the impact of index-based insurance to effectively capture farm-level outcomes that promote sustainability in agricultural supply chains?

This paper answers this question through the results of a three-year inductive study of Australian farms. During the course of this study, we examined the effectiveness of index-based insurance products in enhancing agricultural supply chain resilience. The unit of analysis is the supply chain, with farm-level adoption and the use of index-based agricultural insurance serving as an empirical focal point. This framing allowed us to examine how individual adoption decisions interact with upstream and downstream actors within the supply chain.

Data were collected through a combination of semi-structured interviews with industry stakeholders and surveys of individual farmers. We also analysed insurance policies to develop a conceptual framework for measuring the effectiveness of index-based insurance as a strategy for building resilience within agricultural supply chains. Thus, we were not only able to gather insights into the farmers’ perceptions of index-based climate risk insurance, but we were also able to identify some of the barriers to appropriately measuring product costs and payouts. These findings have several potential consequences for climate resilience in agricultural supply chains.

This paper contributes to measuring sustainability supply chain performance by developing a framework that integrates climate risk management into supply chain performance assessment. The research demonstrates how index-based insurance creates measurable value for direct stakeholders such as farmers, insurers and supply chain partners, as well as indirect stakeholders including policymakers and communities dependent on food security. While existing studies often examine efficiency or sustainability metrics in isolation, our framework shows that incorporating climate risk measures enhances the value of supply chain performance assessments for multiple stakeholder groups. Theoretically, the paper advances supply chain management and sustainability measurement scholarship by framing resilience as a measurable dimension of sustainability performance. This provides practitioners with approaches to assess and strengthen supply chain robustness in the face of climate uncertainty.

The remainder of this paper is organized as follows. Section 2 reviews the relevant literature. Section 3 outlines our research methods. Section 4 presents our findings and emerging framework. Section 5 discusses our integrated measurement framework, while Section 6 outlines the key theoretical contributions we offer and some future research directions. Section 7 concludes the paper.

Sustainability encompasses economic, environmental and social dimensions (Hutchins and Sutherland, 2008; Vallance et al., 2011). Within agricultural supply chains, environmental sustainability involves practices that minimize ecological impacts and mitigate climate change (Maestrini et al., 2017; Roy et al., 2025), while social sustainability addresses farmer welfare and the distribution of equitable benefits (Despoudi et al., 2021). The analysis focuses on climate-related hazards as a strategic entry point for examining systemic vulnerabilities and developing measurement approaches for agricultural supply chains, acknowledging that this only represents one critical aspect of comprehensive sustainability measurement (Castellani and Vigano, 2015; Food and Agriculture Organization of the United Nations, 2023).

Prior work establishes that sustainability performance measurement requires increased attention to the relational and transformational aspects of sustainable development across supply networks (e.g., Maestrini et al., 2017; Schaltegger et al., 2022). For example, Beske-Janssen et al. (2015) show that while economic and environmental metrics have become well-established, social performance remains underrepresented and poorly defined. They highlight the proliferation of tools such as life cycle assessment, environmental management systems and balanced scorecards, yet note that many studies lack clarity on what constitutes sustainability and how it should be measured. Importantly, they call for more “holistic”, multi-dimensional and future-oriented approaches that can identify trade-offs and enable triple-win outcomes across the economic, environmental and social domains (Beske-Janssen et al., 2015, p. 668). This call is echoed and expanded by Schaltegger et al. (2022), who argue that measuring the sustainability performance of supply chains is fundamentally a meso-level issue that can facilitate sustainability transformations (also see Bui et al., 2021; Chauhan et al., 2022; Wieland, 2021).

This relational view recognizes empirical work that illustrates the critical role of supply chains in shaping sustainability impacts (e.g., see Bradley et al., 2013; Taplin, 2014). Khan et al. (2021) reinforce this perspective by identifying the drivers and barriers to sustainability practices within the supply chains identified across the literature. These authors emphasize the dominance of firm-level studies and suggest that performance measurement within supply chains must evolve beyond compliance and efficiency to support strategic planning, stakeholder engagement and innovation, particularly related to sustainability. Accordingly, Wieland (2021) argues that performance measurement in the context of supply chain sustainability is a tool not just for control but for navigating complexity and enabling systemic change. Most work to date has focused on technology enablers of transformation. For example, Pournader et al. (2020) examine blockchain applications in supply chain logistics and transport, illustrating how digital infrastructure can enhance sustainability performance measurement by decentralizing trust, automating smart contracts and improving data integrity.

However, despite the increasing availability of index-based insurance products to enhance sustainability within supply chains, there is limited empirical evidence on how farmers evaluate their benefits, the factors influencing adoption and whether these products effectively mitigate financial losses and stabilize supply chains (Adeyinka et al., 2022; Leblois et al., 2020; Williams and Travis, 2019). Previous research has focused primarily on the technical aspects of index design and pricing, with less attention given to comprehensive frameworks for measuring effectiveness (Maina et al., 2024; U.N. Food and Agriculture Organization, 2011; Varsei et al., 2014). From a supply chain perspective, more tools are needed to efficiently organize and build resilience across supply chains, particularly in the context of managing climate risk (Hohl et al., 2021; Tadesse et al., 2015; Zhao et al., 2020). While some studies have examined farmer perceptions, this is limited to specific geographic regions and such articles tend not to touch on measurement issues (Cabeza-Ramírez et al., 2024; Valenzuela-Mahecha et al., 2022).

As shown in Figure 1, index-based agricultural insurance operates at the farm level, which is the critical fulcrum of the supply chain. However, its protective effects extend bilaterally: upstream by ensuring farms can maintain relationships with input suppliers through financial stability, and downstream by providing buyers with greater supply certainty. This positioning reflects the reality that farm-level risk management serves as a mechanism for broader supply chain resilience.

Building resilience requires consideration of the broader supply chain landscape, in which farms are a focal point, acting as primary producers and forming the key fulcrum upon which the entire supply chain depends. Surrounding them in the supply chain are a range of upstream and downstream organizations (Arandara et al., 2019; Kumar and Sahoo, 2025). Upstream, the farm relies on input suppliers for resources and key services, while downstream, it connects with buyers, including wholesalers and retailers who on-sell to consumers. Surrounding this core structure are risk mitigation mechanisms, including our focus on index-based insurance, as well as the broader enabling environment (e.g., government organizations and NGOs).

However, much of the research on the relationship between risk management and the outcomes for agricultural businesses does not focus on the lived experiences of farmers or the downstream impacts on supply chain continuity and resilience (Afshar et al., 2021; Mihaylov and Zurbruegg, 2021). When evaluating risk transfer mechanisms, scholars have traditionally emphasized financial metrics such as loss ratios, the affordability of premiums and the soundness of the actuarial logic as it applies to farmers (Tomek and Peterson, 2001). Similarly, traditional metrics focus on uptake rates, loss ratios and payout frequencies (Hutchins and Sutherland, 2008). However, while these indicators provide important insights into programme sustainability from an insurer’s perspective, they offer a limited understanding of how insurance affects supply chain dynamics (Nunes et al., 2020). There is a pressing need for more comprehensive measurement frameworks that assess not only uptake and payout adequacy, but also how well these products contribute to long-term risk management, adaptive capacity and the equitable distribution of benefits across the supply chain (Lin et al., 2023; Nguyen et al., 2025). Measuring the effectiveness of risk transfer mechanisms may require a multidimensional approach that not only considers financial outcomes but also behavioural shifts in risk management and overall supply chain stability (Fu et al., 2018).

The gap in this existing literature lies in the lack of integrated frameworks that connect the performance of index-based insurance with broader supply chain outcomes. Addressing this gap requires a supply chain management perspective, where farm-level risk transfer mechanisms are understood as integral to system-wide resilience. Our study, therefore, positions index-based agricultural insurance not only as a financial product but as a supply chain management tool, directly linking risk management practices at the farm to resilience, continuity and sustainability across the entire chain. As Ali and Gölgeci (2021) note, the relationship between risk management tools and supply chain resilience in agricultural contexts remains underexplored, particularly in terms of how these mechanisms might contribute to long-term sustainability goals.

The agricultural sector faces significant challenges from climate change, making risk management critical for supply chain resilience (Ali and Gölgeci, 2021; Lin, 2011). Pottinger (2020) notes that production risks are perceived as the most significant factor facing agricultural businesses. Climate-related risks, especially drought, represent a systemic threat to agricultural supply chains, affecting entire production regions simultaneously (Mahul and Stutley, 2010).

In response to this, agricultural risk management has evolved to include contractual agreements, cooperative arrangements, off-farm income diversification, government measures and self-insurance [Lin, 2011; National Rural Advisory Council (NRAC), 2012]. The effectiveness of these strategies varies with climatic, economic and social contexts (Ivanov and Atanasov, 2023), but all have important implications for sustainability measurement (Tomek and Peterson, 2001). Importantly, the literature demonstrates that traditional economic metrics fail to capture the multidimensional elements of building resilience in agricultural systems (Zavala-Alcívar et al., 2020).

A range of insurance products is available to manage these risks, each with distinct characteristics. Named-peril insurance (NPI) covers specific risks such as hail or fire. Multi-peril crop insurance (MPCI) covers a wider range of risks but often requires government subsidization because of the re-insurance risk of having highly correlated losses across regions. More recently, index-based insurance has emerged as a parametric insurance product, where payouts are triggered by measurable indices (e.g., rainfall levels or temperatures) rather than observed farm-level losses.

Risk management theory explains how farmers evaluate climate-related threats based on risk assessment, preferences and perceived costs and benefits (Wang et al., 2021). Their decisions are influenced by their risk perceptions, resource constraints, any information asymmetries and past experiences (Duong et al., 2019; Karakayaci et al., 2019). Risk perceptions shaped by experience, knowledge and social influences are, for example, complicated in cases like drought, where there is a gradual onset and uncertain duration, relative to sudden perils like fire, which are far less gradual and, in many cases, resolve over shorter durations (Balezentis et al., 2023; Kaczała, 2019).

Measuring the (perceived) value of index-based agricultural insurance requires frameworks that quantify how farmers assess whether a benefit outweighs a cost. This includes metrics for risk perception, cost-benefit assessment and information accessibility. Farmer-centred measurement should prioritize transparency and alternative comparisons, directly impacting decision-making and effectiveness evaluation (Quiggin, 1993). Traditional insurance products illustrate these measurement challenges. NPI covers specific risks, allowing accurate pricing without extensive government support (Antón et al., 2013; Schnitkey et al., 2003; Valenzuela-Mahecha et al., 2022), whereas MPCI struggles without government subsidization due to correlated risks across large areas, increasing the potential for catastrophic losses (Barnett, 2014).

Despite reducing information asymmetries, index-based products face basis risk when payouts do not correlate with actual losses (Bielza Díaz-Caneja et al., 2008; Díaz-Caneja and Garrido, 2009). Nevertheless, they have gained traction in countries less reliant on subsidized schemes (Hatt et al., 2012). These products include yield index insurance (Pottinger, 2020), area yield insurance (Carter et al., 2014) and weather derivatives (NRAC, 2012). As climate change intensifies, understanding the trade-offs between insurance options will likely become even more important for farmers. Integrating index-based insurance into supply chain management increasingly requires a focus on long-term sustainability.

The concept of supply chain resilience has become increasingly important in agricultural contexts, particularly as climate change intensifies the frequency and severity of extreme weather events (Wang et al., 2021). Resilience refers to the ability of supply chains to prepare for, respond to and recover from disruptions while maintaining continuity of operations. Contemporary resilience scholarship increasingly emphasizes regenerative capacity as a core element of supply chain resilience, focusing on mechanisms that restore productive relationships, capital flows and operational equilibrium following disruptions (Ponomarov and Holcomb, 2009). Index-based insurance can function as a regenerative mechanism by enabling rapid restoration of financial capacity and preventing cascading failures across supply chain networks. In agricultural supply chains, resilience is also closely linked to sustainability concerns, as both concepts address the long-term viability of production systems in the face of environmental, economic and social challenges (Linnenluecke et al., 2012).

Agricultural supply chains possess distinct characteristics that influence their resilience dynamics. The biological nature of production creates inherent vulnerabilities to climate variations, pest outbreaks and disease (Stone and Rahimifard, 2018). Seasonal production cycles also limit flexibility in responding to disruptions, as adjustments often must wait until the next growing season. Geographic concentration of production can also expose entire supply networks to local climate events, creating systemic risks that cascade through the downstream processing, distribution and retail segments of the agricultural supply chain (Zhao et al., 2017).

Nevertheless, it is worth highlighting that risk propagation in agricultural supply chains manifests differently across upstream and downstream tiers, creating distinct measurement challenges for risk transfer mechanisms. Upstream risks, such as input supply disruptions or supplier financial instability, directly threaten production capacity (Wagner and Bode, 2008), while downstream risks, including demand volatility, buyer defaults or reputational damage from supply chain incidents, affect market access and revenue realization (Craighead et al., 2007). These risk types are interconnected: upstream failures (e.g., poor labour conditions at input suppliers) can trigger downstream consequences (e.g., consumer boycotts), demonstrating how localized disruptions propagate through supply chain networks (Ambulkar et al., 2015). For index-based insurance to effectively support supply chain resilience, measurement frameworks must account for these differentiated risks and their transmission mechanisms. Weather-related disruptions at the farm level exemplify this dynamic, simultaneously affecting upstream relationships with input suppliers and downstream commitments to buyers, requiring insurance products that recognize the farm’s pivotal position in risk propagation pathways.

These unique vulnerabilities have prompted scholars to integrate the concepts of resilience and sustainability into agricultural supply chain management, leading to growing interest in risk transfer mechanisms that address both immediate financial concerns and longer-term sustainability goals (Fu et al., 2018). Index-based agricultural insurance represents one such mechanism, potentially offering a tool that not only provides financial protection against climate risks but also encourages sustainable farming practices (Williams and Travis, 2019).

Given the above considerations, measuring the effectiveness of index-based agricultural insurance requires a multidimensional approach (Kron et al., 2016). As summarized in Table 1, both risk management theory (Wang et al., 2021) and supply chain resilience theory (Ponomarov and Holcomb, 2009) provide insights into how and when farmers decide to invest in index-based agricultural insurance. By combining these theoretical perspectives, scholars can easily assert that farmers (and other stakeholders) are more likely to support index-based insurance if they not only accept the risks posed by climate change but also wish to ensure the resilience of agricultural supply chains in the face of these risks (see also Cabeza-Ramírez et al., 2024).

However, we do not yet know if these theories present an accurate picture. For example, in a study of farmers in Spain, Cabeza-Ramírez et al. (2024, p. 14) find that belief in climate change does not have a significant direct effect on the reasons for or against adopting index-based agricultural insurance. Rather, what prompted uptake was positive attitudes towards the products offered and normative pressure from opinion leaders (mainly other farmers). Yet, these studies do not explain the implications for supply chains, nor do they examine how to measure the effectiveness of index-based agricultural insurance with supply chain resilience in mind.

This inquiry is particularly relevant in the context of evolving supply chain measurement needs. A decade ago, researchers emphasized the principles of elimination, substitution, redesign and efficiency in supply chain measurement (Schaltegger and Burritt, 2014). Today, additional considerations include adapting to extreme weather events, developing resilience and creating value for multiple stakeholders through improved measurement systems. Our study contributes to this evolution by examining how measurement frameworks can add value to agricultural supply chains, which are commonly facing climate-related disruptions.

It is worth noting that traditional indemnity-based agricultural insurance provides coverage based on actual losses sustained by individual farms. Under this model, insurers assess physical damage to crops, verify yield losses against historical baselines and calculate payouts based on documented losses. This approach requires extensive on-site inspections, claims adjustments and individual farm monitoring – creating information-intensive measurement requirements that can delay payouts and increase administrative costs (Mahul and Stutley, 2010).

Building on the theoretical foundations established in Table 1 and addressing gaps in the existing literature on agricultural insurance measurement (Fu et al., 2018; Hohl et al., 2021), Table 2 synthesizes how measurement requirements and potential sustainability value differ systematically across traditional indemnity and index-based insurance approaches. While traditional literature emphasizes financial metrics such as loss ratios and premium affordability (Tomek and Peterson, 2001), a supply chain management perspective suggests that index-based mechanisms create distinct measurement opportunities across multiple dimensions. This conceptual framework guided our empirical investigation.

To investigate the effectiveness of index-based agricultural insurance in managing climate-related risks within the Australian agricultural supply chain, we used an embedded case study approach (Scholz and Tietje, 2002; Yin, 2018). This methodology is particularly well-suited for examining complex sustainability challenges in coupled human-environment systems where the phenomenon requires integration of multiple perspectives and both quantitative and qualitative evidence (Scholz and Tietje, 2002). Case study research is appropriate for supply chain management inquiry that seeks to enhance theory from underexplored phenomena (Barratt et al., 2011).

In our embedded case study design, the Australian agricultural supply chain facing climate-related drought risk serves as the overall unit of analysis, with individual farms representing embedded sub-units where insurance adoption decisions occur (Scholz and Tietje, 2002). This multi-level structure allows us to examine how farm-level risk management choices propagate through supply chain relationships to shape systemic resilience. The case is further faceted through multiple stakeholder perspectives, including farmers, insurers, policymakers and downstream supply chain partners, each providing insights into different dimensions of the sustainability challenge. Specifically, we examine how index-based agricultural insurance addresses drought and weather-related production risks, in contrast to traditional indemnity-based insurance that covers similar climate-related perils. This embedded structure enables comprehension of the case holistically while maintaining analytical depth at multiple levels (Scholz and Tietje, 2002).

Given the lack of prior research and the complexity and context-dependent nature of climate risk management in agricultural supply chains, this study began inductively. As Edmondson and McManus (2007) argue, inductive methods are particularly suited for exploring nuanced, context-specific phenomena, such as the decision-making processes and behaviours involved in adopting risk management tools like index-based agricultural insurance. The case study approach provides a deeper understanding of subjective factors influencing adoption and the relationship between farmers’ decisions and supply chain resilience, all of which are complex factors difficult to capture through quantitative methods alone.

The three-year research period (2022–2024) was essential for several reasons aligned with transdisciplinary sustainability research principles (Scholz et al., 2006). Firstly, the extended timeframe allowed observation of insurance adoption patterns across multiple growing seasons and climate events, providing insights into how risk management decisions evolve with experience. As shown in Figure 2, we engaged in informal meetings with potential interview participants in Year 1, gaining trust and relevant context (e.g., references to relevant industry reports) to support data collection in Year 2. Year 3 was dedicated to furthering the etic (outside) perspective to generate the emerging framework. The sustained engagement in Years 1 and 2 was necessary to build trust relationships with study participants, a prerequisite for gathering in-depth data on sensitive business decisions. This duration also enabled the integration of scientific understanding with practical farmer knowledge, policy objectives and industry operational realities, which are core to the embedded case study methodology (Scholz and Tietje, 2002).

Data were collected through a combination of semi-structured interviews (n = 10), survey responses (n = 22) and document analysis of insurance products and industry reports. Participants included farmers, insurance providers, policymakers and downstream supply chain actors, selected using purposive sampling to capture perspectives from key stakeholder groups across the embedded units.

To enhance validity, triangulation was achieved by cross-referencing findings across interviews, survey data and documents (Yin, 2018). The combination of methods supports data richness, methodological rigour and construct validity. Consistent with Tsang (2014), the study does not claim statistical generalizability; instead, it aims for analytical generalizability by linking findings to established SCM constructs in risk management and resilience. This approach contributes insights into how insurance mechanisms can mitigate supply chain vulnerabilities in climate-exposed industries, with lessons applicable to other sectors facing similar sustainability challenges.

Australia provides an appropriate context due to its exposure to recurring drought, sophisticated agricultural industry with varying insurance adoption levels, limited government subsidization of agricultural insurance and growing policy focus on climate adaptation. These characteristics make it an informative case for examining how measurement frameworks can add value to supply chain resilience and sustainability performance.

We applied a mixed-methods approach following a convergent parallel design, where quantitative and qualitative data were collected concurrently, analysed separately and then integrated during interpretation. This approach allows triangulation of findings across data sources, enhancing the validity and richness of conclusions.

While situated in the Australian agricultural sector, the findings are designed to support analytical generalization rather than sector-specific prescriptions. Following Tsang (2014), we position the case as an empirical context through which broader supply chain management constructs, particularly climate risk management and resilience, can be explained. By examining mechanisms through which index-based agricultural insurance shapes resilience at both farm and supply chain levels, the study generates insights relevant to other climate-exposed industries, such as forestry, fisheries and energy. This aligns with Barratt et al. (2011), who emphasize the role of case-based research in building SCM theory in domains where empirical understanding remains underdeveloped.

Data were collected as part of a government-funded project focused on enhancing resilience in the agricultural sector.

Semi-structured interviews: Semi-structured interviews were conducted with 10 representatives from five segments across the agricultural risk management landscape:

1. Insurance providers: Two participants from South Australia and one from New South Wales.

2. Weather derivatives industry: One participant from New South Wales.

3. Government representatives: One participant from South Australia.

4. Farming organizations: One participant from Victoria and two from New South Wales.

5. Crop farmers: Two participants from South Australia.

The semi-structured format provided flexibility to explore particular themes while allowing participants to express perspectives with minimal researcher influence. All interviews were recorded with permission and transcribed for analysis. The primary purpose was to understand firsthand experiences with agricultural insurance, perceptions of index-based products and barriers to adoption.

Online survey: An online survey comprising 19 questions related to Australian farmers’ experiences with crop insurance ( Appendix 2) supplemented the interview data. The survey was administered through Qualtrics® from September 2022 to February 2023, distributed in collaboration with ten grower groups to their farmer networks: National (Agrifutures Australia; Melons Australia; Grain Producers Australia); New South Wales (Women in Farming); South Australia (MacKillop Farm Management Group); Western Australia (Merredin and Districts Farm Improvement Group; South East Premium Wheat Growers Association; Stirlings to Coast Farmers; Toodyay Agricultural Alliance; WA Citrus).

Twenty-two responses were received, primarily from South Australia (13), with additional responses from New South Wales (2), Western Australia (2), Queensland (3) and two participants who did not report their state. Respondents represented diverse crop types, including coarse grains (9), grain legumes (9), oilseeds (8), sugarcane (1), fruit (3), grapes (1) and nuts (1). The survey instrument was developed iteratively, informed by preliminary interviews and literature on risk perceptions, agricultural decision-making and climate adaptation, with emphasis on measuring perception, trust, affordability and awareness.

Document analysis of nine agricultural insurance policies identified the presence or absence of climate-based incentives influencing farmer behaviour ( Appendix 3). The research team also conducted a comparative analysis of traditional named-peril crop insurance and weather derivatives, examining costs, benefits and suitability for drought risk management.

For qualitative data from interviews and open-ended survey responses, we used thematic analysis to identify key patterns and insights. The analysis process involved familiarization with data, initial coding, development of themes, review and refinement of themes, definition and naming of themes and integration into a coherent narrative.

Quantitative data from the survey and document analysis were analysed using descriptive statistics to identify patterns in insurance usage, risk perceptions and barriers to adoption. Results from both qualitative and quantitative analyses were cross-referenced against the literature provided in Section 2 and integrated to develop a comprehensive understanding of index-based insurance effectiveness and its role in supporting agricultural supply chain resilience and sustainability.

To expose systemic weakness in risk mitigation capacity, we first examined what farmers perceive as the main risks to their livelihood. As shown in Table 3, fire emerged as the most significant concern, with 42.9% of survey respondents citing it as their primary concern. Hail was the second most commonly perceived threat (21.4%), with flood risk mentioned by 14.3% of respondents.

These perceptions likely influence the types of insurance products farmers seek, with products covering fire and hail being particularly relevant. The focus on these acute perils rather than slower-onset risks like drought may reflect how risk perception is influenced by the visibility and immediacy of impacts. From a supply chain perspective, this suggests that farmers are prioritizing risks that create immediate, visible disruptions rather than systemic risks such as drought. This misalignment highlights how individual risk perceptions can weaken collective resilience by leaving supply chains exposed to cascading vulnerabilities.

The survey revealed that two-thirds of participating farmers were using crop insurance to mitigate production risks. Among those with insurance, the majority were covered by fire and hail insurance, aligning with their risk perceptions. Single peril weather insurance was the second most common product, followed by MPCI.

Experience with insurance claims was widespread among insured farmers, with 58% having made more than one claim, 25% having made one claim and only 17% never having made a claim. This high claim rate underscores the importance of insurance as a risk management tool in Australian agriculture.

However, a significant portion of survey participants (33.4%) had no crop insurance at the time of the survey. This finding aligns with a recent National Farmers Federation (2022) study, which concluded that approximately 46% of farmers are uninsured. Interview participants from various stakeholder groups confirmed that insurance usage is not widespread, particularly in some crop sectors.

For farmers without insurance, the primary barriers were premium costs (45%), lack of suitable products (44%) and inadequate payouts (11%), as shown in Table 4. These barriers extend beyond individual financial considerations: they expose constraints on the supply chain’s risk mitigation capacity. In essence, effective mitigation requires mechanisms that balance cost-efficiency with resilience. If premiums are perceived as unaffordable, the supply chain as a whole remains vulnerable to climate shocks, with potential downstream effects on processors and buyers who depend on stable farm output.

Interview data provided deeper insights into these barriers, particularly concerning premium affordability:

Interview data also revealed that some insurance products require investments in expensive technologies, further reducing their affordability:

Each farmer’s willingness to pay for insurance varied considerably, with survey responses ranging from as little as 0.2% to as much as 20% of average revenue. This variation suggests significant differences in how farmers value insurance protection, which may reflect differences in risk perception, financial capacity or experience with insurance products.

To better understand the relative advantages of different risk management tools, through document analysis, we compared traditional named-peril insurance with weather derivatives for the same period and type of cover, using a canola crop case study in Streaky Bay, South Australia (see Table 5).

For a 517-hectare canola crop with an estimated yield of 0.68 t/ha valued at $800 per tonne, the authors obtained quotes for both traditional insurance and a weather derivative:

a. Traditional fire and hail insurance:

• Premium: $2,649.53.

• Sum insured: $281,248.00.

• Coverage: Fire and hail damage.

• Premium as a percentage of the insured sum: 0.94%.

b. Weather derivative (dry season weather certificate):

• Premium: $13,653.00 to $22,755.00 (depending on loading factor).

• Maximum payout: $150,000.00 to $250,000.00.

• Coverage: Insufficient rainfall (below 53 mm during April–June).

• Payment structure: $6,250.00 for every mm below the threshold.

This comparison reveals fundamental differences between the two products. The traditional insurance has a substantially lower premium but covers different risks (fire and hail) compared to the weather derivative (insufficient rainfall). The traditional policy only pays out in the event of crop damage from the specific named perils, while the weather derivative pays based on rainfall levels regardless of crop damage.

The weather derivative offers greater flexibility, with adjustable premiums and payouts based on loading factors (see Table 6). If rainfall falls below the threshold, the farmer receives payment even without crop damage, potentially offsetting or exceeding the premium cost. However, this flexibility comes with complexity, requiring greater understanding from farmers to use the coverage effectively.

Australian crop farmers are increasingly adopting self-mitigation strategies to reduce their vulnerability to climate risks. These strategies include diversifying management practices, implementing technological solutions and enhancing knowledge through peer-to-peer learning.

From a supply chain management perspective, such practices can be viewed as operational adaptations that enhance the chain’s ability to absorb and adjust to disruptions. While these strategies occur at the farm level, their effects cascade across the supply chain by influencing production stability, quality and continuity.

Interview participants described various approaches farmers use to self-mitigate risk:

Another representative attributed the increase in self-mitigation to climate variability:

Specific self-mitigation strategies mentioned included moisture conservation techniques, diversification of production, crop rotation and soil health management, technology adoption for climate monitoring and physical protection measures (e.g., hail nets).

These self-mitigation strategies may influence farmers’ perceived need for insurance. As one survey respondent noted:

However, interview participants also noted the limitations of self-mitigation, particularly in the face of increasing climate uncertainty:

The data show a limited uptake of weather derivatives among Australian crop farmers, with only 13.6% of survey respondents having used these products. Most of these users had purchased derivatives via the open market rather than over-the-counter, with products covering either precipitation or frost.

The primary reason for not using weather derivatives was a lack of awareness, with 69% of respondents reporting not knowing what a weather derivative is (see Table 7). Among those aware of but not using weather derivatives, cost (16%) and lack of suitable solutions (15%) were the main barriers.

These behavioural barriers reflect capability gaps in knowledge transfer and relational trust – both of which are critical for building resilience. Limited awareness illustrates information asymmetry between insurers and farmers, which weakens the absorptive capacity of the supply chain. Similarly, distrust in product suitability reflects a breakdown in collaborative risk sharing, undermining the relational capital needed to support adaptive resilience. These findings highlight that farmer behaviour is not just an individual choice, but a determinant of how effectively risk-transfer mechanisms diffuse across supply chains, influencing stability and continuity.

This finding highlights a significant knowledge gap in the Australian agricultural sector. While alternatives to traditional crop insurance exist, they are not being used to their full potential due to limited awareness and understanding among farmers.

Document analysis of nine agricultural insurance policy documents revealed a notable absence of climate-related incentives aimed at encouraging sustainable farming practices. None of the analysed documents contained explicit incentives, and only one made reference to good management practices:

This clause represents a contractual obligation rather than an incentive, requiring farmers to follow good practices to maintain coverage rather than offering benefits for adopting sustainable methods.

Survey results confirmed this finding, with only one farmer out of 22 participants aware of any climate-related incentives in their insurance contract (specifically, strikes and thresholds for payouts). Good management or active risk mitigation are not currently factored into premium calculations, which are instead based on cover chosen, crop value and individual insurance histories.

Limited farmer awareness and understanding of available insurance products, particularly weather derivatives, emerged as a significant barrier to adoption. As one industry representative stated:

This knowledge gap extends to understanding the value proposition of insurance relative to its cost:

Data show several other challenges in the Australian agricultural insurance market that affect the adoption and effectiveness of risk management tools at the supply chain level.

Market viability: Questions about the commercial viability of agricultural insurance in Australia emerged from our research. Industry participants cited lack of scale and government support as factors driving high premiums, while farmers and grower representatives questioned whether the cost-benefit ratio justified participation. Survey results indicated that one-third of crop farmers did not have any form of insurance, with 45% of those farmers citing high premiums as the reason for avoiding insurance. That said, no farmer was able to provide a specific example of a quote they had personally received that was unaffordable, suggesting that high premium perceptions may act as a disincentive for farmers to seek quotes or further additional information.

The disconnect between perceptions of affordability and actual quoted premiums suggests potential information asymmetries or differences in how stakeholders measure and evaluate the value of insurance protection. These asymmetries weaken supply chain visibility and create misaligned incentives that compromise system-level resilience. When upstream actors perceive risk-transfer mechanisms as inaccessible, the downstream continuity of supply is threatened, creating vulnerabilities across the chain.

Collaboration and trust: A recurring theme in interviews with grower group representatives was the lack of collaboration and trust between agricultural organizations and the insurance industry:

This adversarial relationship hinders cooperation that could lead to more effective risk management solutions:

Bridging this gap would require improved communication and alignment of interests between farmers and insurance providers.

Supply chain integration: Interview participants identified value chain approaches as a potential mechanism for connecting sustainable farming practices with consumer demand and fair pricing throughout the supply chain:

This perspective highlights the potential for integrating insurance incentives with broader sustainability initiatives across the agricultural supply chain.

Integrating these perspectives with the literature provided in Section 2, we develop a framework to help us understand the effectiveness of index-based agricultural insurance in enhancing farmer resilience and supply chain stability (Figure 3). The framework identifies four interconnected regenerative mechanisms through which insurance restores supply chain balance after disruption. Financial regeneration occurs through premium-to-payout flows that restore operating capital. Operational regeneration maintains production continuity and resource allocation capacity. Behavioural regeneration enables adaptive learning and risk management evolution. Relational regeneration preserves supply chain coordination and stakeholder relationships during and after climate events. Together, these mechanisms create measurable value by enabling the supply chain to return to productive equilibrium rather than experiencing cascading failures.

By examining these mechanisms together, this study offers a new, integrated framework that provides a nuanced approach to understanding the role of index-based agricultural insurance in sustainable supply chain management.

This research advances supply chain measurement by proposing an integrated framework (see Figure 3) that transforms how the effectiveness of risk management mechanisms is evaluated. This framework represents a conceptual evolution from traditional measurement approaches that have predominantly focused on isolated financial metrics (Tomek and Peterson, 2001) towards a more holistic understanding that captures interdependencies across multiple dimensions of supply chain performance.

Unlike conventional measurement approaches that evaluate insurance effectiveness primarily through actuarial metrics like premium costs and payout frequencies, the framework offered in Figure 3 recognizes that measurement must span financial, operational, behavioural and supply chain dimensions simultaneously to create a comprehensive picture of value. This shift in measurement philosophy aligns with broader evolutions in supply chain measurement literature, where scholars have increasingly called for frameworks that account for the complex interplay between economic, environmental and social factors (Hutchins and Sutherland, 2008; Vallance et al., 2011).

The framework’s transformative power lies in integrating metrics across dimensions, revealing synergies invisible to isolated approaches. For instance, analysing premium affordability alongside risk perception metrics exposes gaps between actual and perceived value, while combining production stability measures with relationship quality indicators demonstrates how farm resilience contributes to system-level stability (Zhao et al., 2017).

The framework provided in Figure 3 also addresses a crucial evolution in supply chain measurement identified by Schaltegger and Burritt (2014): the shift from efficiency-focused metrics towards measurement approaches that enhance adaptability and resilience. By incorporating metrics that capture not only static financial outcomes but also dynamic capabilities like information seeking and technology adoption, the emerging framework offered in this study enables measurement of critical resilience attributes such as the ability to anticipate, adapt to and recover from disruptions.

Compared to existing measurement approaches for agricultural risk management that focus primarily on insurance uptake rates or loss ratios, the integrated framework provided above offers a more nuanced understanding of effectiveness. For instance, while conventional measurements might consider an insurance product successful based on enrolment numbers alone, the approach provided in this paper reveals that true effectiveness depends on how the insurance mechanism influences farm-level decisions, supply chain relationships and systemic resilience. This represents a significant advancement from the one-dimensional measurements criticized by Fu et al. (2018) as inadequate for capturing the complex interactions between risk transfer mechanisms and broader supply chain dynamics.

The value this transformed measurement approach adds to agricultural supply chains is threefold. Firstly, it creates visibility across dimensions, revealing connections between financial decisions, operational practices, behavioural responses and supply chain outcomes that would remain hidden under conventional measurement systems. Secondly, it enables more accurate identification of both barriers and enablers, providing a diagnostic tool for pinpointing where interventions would be most effective. Thirdly, it creates a foundation for designing more holistic incentive structures that align risk management with sustainability objectives. This addresses the significant gap already identified between current insurance designs and the potential for driving positive change throughout supply chains.

Beyond its evaluative function, this research suggests that measurement itself can serve as a driver of supply chain resilience and sustainability when appropriately designed and implemented. As Schaltegger and Burritt (2014) note, measurement frameworks can create value by improving information flows, aligning stakeholder incentives and identifying redesign opportunities in response to emerging challenges. The emerging framework offered in Figure 3 builds on this understanding by highlighting specific pathways through which enhanced measurement can strengthen agricultural supply chains facing increasing climate uncertainty.

In the financial dimension, improved measurement enables better alignment between premium structures and the actual value provided by insurance products. The findings of this study indicate that current measurement approaches often fail to capture the regenerative value created when insurance rapidly restores financial capacity after drought events. By providing timely capital injection, index-based insurance creates regenerative dynamics that prevent farm-level disruptions from cascading into supply chain failures. More sophisticated measurement that accounts for both direct financial impacts and the regenerative capacity to restore supply chain relationships and maintain downstream commitments could help address the perception barrier that premiums are not even close to being affordable, as one grower expressed.

In the operational dimension, measurement can drive sustainability by creating visibility into how insurance influences farming practices. As one industry representative noted:

This perspective highlights how measurement can create feedback loops that incentivize adaptive practices, thereby enhancing both farm-level resilience and supply chain sustainability.

The behavioural dimension offers particularly valuable insights for driving system transformation. The emerging framework’s emphasis on measuring risk perceptions and information-seeking behaviours addresses what Cabeza-Ramírez et al. (2024) identify as critical factors influencing insurance adoption. By measuring these elements, stakeholders can develop more effective education and communication strategies that address knowledge gaps and build trust – key barriers identified in this research.

In the supply chain dimension, measurement facilitates collaboration by creating a shared understanding of interdependencies and mutual benefits. As one government representative from Agrifutures noted:

However, this collaborative potential was not always realized. As a representative from Melons Australia illustrates, where supply chain interdependencies fail to generate mutual benefits:

This perspective highlights how measurement can make visible the sustainability contributions of farmers, potentially enabling value capture through improved supply chain coordination.

By integrating these dimensions, the emerging framework offered in this study enables a more dynamic understanding of how risk management mechanisms interact with broader supply chain objectives. As climate change intensifies the frequency and severity of disruptions, this integrated approach becomes increasingly critical for identifying interventions that enhance both immediate resilience (to droughts, for example) and long-term sustainability (Ali and Gölgeci, 2021). Rather than treating measurement as a passive record-keeping exercise, this study positions it as an active force for system transformation, revealing barriers, highlighting opportunities and creating accountability for stakeholders throughout the agricultural supply chain.

It is also worth noting that the protective effects of index-based insurance manifest differently across supply chain tiers, requiring differentiated measurement approaches. Upstream, insurance stabilizes farm relationships with input suppliers by ensuring payment capacity during weather disruptions, requiring measurement of financial continuity indicators such as credit ratings and supplier retention rates (Wagner and Bode, 2008). Downstream, insurance provides buyers with supply certainty by reducing the probability of harvest failures that cascade through distribution networks, necessitating measurement of delivery reliability and contract fulfilment rates (Craighead et al., 2007). These measurement requirements reflect how weather-related disruptions at the farm level propagate bidirectionally where upstream failures to purchase inputs compound production risks, while downstream supply shortages create reputational and financial risks for buyers (Ambulkar et al., 2015). Our findings demonstrate this dynamic, with one financial institution noting how insured farms secure preferential lending terms, and buyers expressing concern about supply continuity during drought events.

The measurement principles identified in this study, namely, multidimensional assessment, differentiated upstream/downstream impacts and stakeholder-specific value creation, extend beyond weather-related production risks to other supply chain sustainability challenges. Future insurance products addressing labour compliance issues upstream or food safety incidents downstream would similarly require measurement frameworks tailored to the specific transmission mechanisms of each risk type. For example, reputational insurance for social compliance failures would necessitate measuring upstream labour audit indicators and downstream brand value impacts, while parametric coverage for environmental degradation (such as soil quality decline) would require tracking agronomic indicators upstream and product quality/certification metrics downstream. As demonstrated through our climate risk case, effective measurement frameworks must capture how localized disruptions propagate through supply chain relationships, creating differentiated value for actors at different tiers.

Importantly, these benefits extend beyond supply chain performance to societal outcomes. A more resilient agricultural supply chain reduces systemic vulnerabilities that threaten national food security, while collaborative approaches to risk management can support farmer well-being by distributing financial and operational risks more equitably. In this way, effective measurement and insurance adoption can be understood not only as business tools but as mechanisms for safeguarding public welfare.

This research contributes to the literature on sustainable supply chain measurement in three significant ways. Firstly, this study provides a multidimensional framework for assessing the effectiveness of index-based agricultural insurance that extends beyond traditional financial metrics to consider operations, behaviours and supply chains. This integrated approach addresses the limitations of existing evaluation approaches that fail to capture the complex interactions between risk transfer mechanisms and broader supply chain dynamics. This contribution also specifically advances accounting and sustainability performance measurement literature (Schaltegger and Burritt, 2014; Beske-Janssen et al., 2015) by demonstrating that measurement frameworks add value through three mechanisms: improving information transparency across supply chain tiers, aligning incentives between risk management and sustainability objectives and enabling identification of intervention points for resilience building. Unlike traditional accounting approaches that measure outcomes retrospectively, our framework positions measurement as a prospective tool for value creation.

Secondly, the findings enhance understanding of the barriers to the adoption of innovative risk management tools in agricultural supply chains. By identifying specific knowledge, trust and financial barriers, this study provides insights into why theoretically beneficial insurance products may fail to achieve significant market penetration despite increasing climate risks. These insights contribute to the literature on the implementation challenges of sustainability-oriented innovations in supply chains.

Thirdly, the research advances theoretical understanding of the relationship between risk management mechanisms and sustainability objectives in agricultural supply chains. By highlighting the absence of sustainability incentives in current insurance products and proposing pathways for integration, this study contributes to emerging discussions on how financial instruments can drive transformational change towards more sustainable and resilient production systems.

Building on earlier work in supply chain measurement (Schaltegger and Burritt, 2014), this research shows how measurement approaches have evolved to address new challenges. While the principles of efficiency and redesign remain relevant, the emerging framework emphasizes that additional value created through measurement enhances resilience, particularly in response to climate-related disruptions. This evolution represents an important advancement in how this study conceptualizes the value-adding role of sustainability measurement in supply chains.

The findings of this study have several important implications for practitioners. These centre on guidance for making index-based agricultural insurance a more effective tool for supply chain resilience and sustainability. More specifically, as summarized in Table 8, the research has implications for insurance providers, farmers and grower organizations, policymakers and supply chain partners (buyers, retailers and consumers).

For insurance providers, priorities include product education (given 69% farmer unawareness), incentive-based design addressing climate gaps, collaborative development to build trust, simplified offerings to reduce complexity and regional customization to overcome one-size-fits-all limitations. For farmers and grower organizations, collective bargaining represents a promising direction, as suggested by interview participants. Knowledge building should be a priority, with farmers actively seeking to understand the full range of risk management options available. Data collection and sharing could enhance the prevalence of using index-based products while potentially reducing costs through improved risk assessment and market making. In addition, integrated risk management approaches can recognize the complementary roles of different protection mechanisms rather than treating insurance and self-mitigation as competing alternatives.

For policymakers, investment in information infrastructure (e.g., improved localized climate risk data) could also support more effective index design by improving data quality, accessibility and relevance. Clear regulatory frameworks for index-based products would provide certainty for both insurance providers and farmers, potentially encouraging greater market development. For example, through the introduction of targeted subsidies or incentives linked to sustainable practices. This can potentially be part of a broader programme for public investment in financial literacy and risk management education, addressing some of the knowledge gaps identified in this research as fundamental adoption barriers.

For supply chain partners beyond the farm level, a value chain approach to risk management would build traceability and accountability systems that reward sustainable practices in contracts. This would connect consumer interest in sustainable products with risk management mechanisms that support the farmers producing those products. End users (such as supermarkets) can also integrate insurance mechanisms into broader ESG commitments. This can promote and further reinforce long-term relationships between supply chain participants, enhancing stability and potentially facilitating greater product access, delivered via more resilient supply chains. Finally, a more collaborative risk management could promote value chain collaborations that return sustainability premiums to farmers.

This study also opens several promising avenues for future academic research. Firstly, the multidimensional framework developed here could be operationalized through data-driven approaches to risk management and sustainable supply chain management. For example, integrating high-frequency weather data, satellite imagery and farm-level performance metrics would allow scholars to examine how real-time information flows can strengthen both insurance design and supply chain resilience.

Secondly, the findings highlight the need for further exploration of farmer behaviour and decision-making under climate risk. While this study identified knowledge gaps, trust deficits and cost perceptions as barriers, future work could draw on behavioural economics or social psychology to deepen understanding of how farmers evaluate risk-transfer mechanisms and how peer networks and social norms shape adoption.

Thirdly, this research highlights opportunities for innovation in insurance product design. Future studies might examine how sustainability-linked incentives, digital platforms or parametric insurance models can be incorporated into product offerings to align more closely with resilience and sustainability objectives. Comparative studies across regions and commodities would also enable insights into how contextual factors shape adoption and effectiveness.

By pursuing these directions, future research can further refine the theoretical understanding of how measurement frameworks function not only as evaluative tools but also as drivers of transformation in agricultural supply chains.

This study investigated the effectiveness of index-based agricultural insurance in enhancing farmer resilience and supply chain stability within the Australian agricultural context. Through a mixed-methods approach combining semi-structured interviews, survey data and document analysis, this study developed insights into the current state of agricultural insurance, barriers to the adoption of index-based products and potential pathways for improvement.

The findings reveal that despite the theoretical advantages of index-based agricultural insurance, adoption remains limited in Australia due to several interconnected factors: limited awareness and understanding of these products, perceived high costs relative to benefits, lack of trust between farmers and insurance providers and reliance on alternative risk management strategies.

The data show a notable absence of climate-related incentives in current agricultural insurance policies, contrasting with emerging trends in agricultural lending where banks are beginning to incorporate environmental considerations into their lending criteria. This gap represents a significant opportunity for innovation in the insurance sector, where integrating sustainability objectives into premium calculations and policy design could create shared value for insurers, farmers and broader society.

Comparative analysis of traditional insurance versus weather derivatives highlighted important trade-offs between simplicity and specificity, and between costs and coverage, that influence farmer decision-making. While traditional fire and hail insurance is well-established and relatively affordable, it does not address drought risk. Weather derivatives offer more targeted protection against insufficient rainfall but come with higher premiums and greater product complexity.

The research makes three primary contributions to the literature on sustainable supply chain measurement. Firstly, this study developed a multidimensional framework for assessing the effectiveness of index-based agricultural insurance that considers financial, operational, behavioural and supply chain dimensions. Secondly, this study provides empirical evidence on the specific barriers that limit the adoption of index-based products in Australia, highlighting the importance of knowledge, trust and perceived value in farmer decision-making. Thirdly, the research identifies potential pathways for integrating sustainability objectives into agricultural insurance, including premium adjustments based on sustainable practices, technology-linked coverage options and collective purchasing schemes.

From a measurement perspective, both the data and the emerging framework show that effective assessment can add value throughout the supply chain by improving information flows, aligning incentives and supporting better risk management decisions. This advances the understanding of measurement as not merely evaluative but as a driver of value creation and resilience in supply chains facing climate challenges.

While situated in Australian agriculture, the measurement framework and value-creation mechanisms identified here extend beyond this specific context. The core transferable insight is that multidimensional measurement frameworks spanning financial, operational, behavioural and supply chain dimensions reveal value-creation opportunities invisible to single-dimension metrics, whether the focal risk is climatic (drought and floods), social (labour compliance), environmental (pollution and deforestation) or reputational (food safety scandals). Context-specific elements, such as the 69% awareness gap, premium affordability perceptions and regulatory environment, will vary across industries and geographies. Nevertheless, this research demonstrates how measurement itself creates value by making visible the systemic impacts of risk-transfer mechanisms across diverse supply chain contexts, directly addressing this special issue’s theme of adding value through sustainability performance measurement.

As climate change intensifies the frequency and severity of drought events, effective risk management tools become increasingly critical for agricultural resilience and sustainability. Index-based agricultural insurance offers promising theoretical advantages but faces significant practical challenges in implementation. By addressing these challenges through collaborative, integrated approaches that consider multiple dimensions of effectiveness, stakeholders can develop more robust risk management solutions that contribute to both immediate financial resilience and longer-term sustainability goals.

This research suggests that the path forward lies not in choosing between insurance and self-mitigation, or between resilience and sustainability, but in developing integrated approaches that leverage the complementary strengths of different risk management strategies while aligning incentives across the agricultural supply chain. By advancing understanding of how index-based agricultural insurance can effectively contribute to both farmer resilience and supply chain sustainability, this research takes a step towards more climate-resilient agricultural systems that can continue to provide food security in an increasingly uncertain world.

Beyond direct supply chain participants, this research demonstrates value creation for indirect stakeholders often overlooked in sustainability performance measurement. Effective insurance measurement reduces systemic vulnerabilities threatening national food security (creating value for consumers and policymakers), distributes climate risk more equitably (supporting rural community welfare) and reduces reliance on government disaster relief (protecting taxpayer resources). By positioning measurement as a tool for multi-stakeholder value creation, this research responds directly to the special issue’s call for measurement approaches that add value across the full stakeholder ecosystem.

Finally, the findings point to several important directions for future research. Further work could explore how data-driven approaches, such as the use of satellite monitoring, predictive analytics and real-time farm-level data, can enhance measurement and insurance design. Scholars might also examine farmer behaviour more deeply, using behavioural economics or social psychology to understand how risk perceptions, peer influences and social norms affect adoption. Finally, future research could investigate innovative insurance product designs, such as sustainability-linked incentives or digital delivery platforms, and test their potential to align resilience, sustainability and market uptake across diverse agricultural contexts.

The authors gratefully acknowledge constructive feedback from the special issue editors, Stefan Schaltegger and Roger Burritt, and from two anonymous reviewers, on earlier versions of this paper. Authors also thank Jean Canil and Jonathan Barratt for their guidance, as well as Stephen Lee and his team at the SA Drought Hub for their support. Natasha Mackintosh provided excellent research assistance. Any and all errors remain our own.

The study was approved by the Human Research Ethics Committee at the former University of Adelaide (now Adelaide University), approval number H-2022–164.

Semi-structured interviews with:

Crop farmers

• What insurance do you have?

• Have you used your insurance (i.e. claimed on your insurance)?

• Farming background, uninsurable risks and other risk management tools.

• What are the major risks affecting your farm’s production and income?

• What measures do you take to prevent uninsurable losses such as drought and/or flood?

• Have you ever used weather derivatives? Why/why not?

• Do you see a need for MPCI in Australia?

• Have you seen an increase in the need for insurance given climate change?

• Has your farm been impacted by climate change?

• Are you satisfied with the insurance policies on offer? Why/why not?

• Are you aware if you can undertake better, more climate-friendly practices, and if yes, how could your insurance help with that? Lower premiums/rebates?

Grower groups

• Tell us about your organization.

• What do you believe are the biggest problems faced by Australian crop farmers at the moment?

• Do you have any recommendations as to how you believe a new insurance product could be structured or what it could include to benefit farmers?

• How do you think we can improve the insurance that is on offer?

• How have farmers independently mitigated their risks?

• Do farmers use insurance?

Insurance providers

• What are premiums for insurance based on (e.g., farm location, type of crop, farm yield history and good farming practices)?

• What percentage of the insured crop do premiums range from?

• What types of agricultural insurance do you offer?

• What positive behaviours might your crop insurance policies incentivise?

• What negative behaviours might your crop insurance policies incentivise?

Government

• What support does the Australian Government provide for agricultural insurance?

• What is the Australian Government view of MPCI?