Aon-owned White Rock Insurance has secured a 10-year grain production risk contract with listed agribusiness GrainCorp, whose earnings have been hit by drought.

GrainCorp will pay less than $10 million a year for the derivative instrument, to reduce the volatility of winter production in eastern states, which are enduring a prolonged dry spell.

The contract will start next financial year, and White Rock will pay GrainCorp a fixed $15 per tonne up to a maximum $80 million a year if the harvest falls below 15.3 million tonnes.

Aon will receive a maximum $70 million a year should crop output exceed 19.3 million tonnes.

“The contract will have several benefits for GrainCorp and its shareholders, including a reduction in cashflow volatility, particularly in periods of severe drought,” the agribusiness says.

The drought has severely affected the country’s largest bulk grain-holder.

Last month it reported that first-half net profit fell to $59 million from $36 million a year earlier. In the year to last September 30, net profit declined 43.7% to $70.5 million.

GrainCorp CEO Mark Palmquist expects the drought conditions to persist this financial year, bringing “a considerable decline in grain production in eastern Australia”.

“It is anticipated that production will again be skewed to Victoria and southern NSW, with deficits in northern NSW and Queensland,” he said.