This report analyzes the agricultural risk management system in Australia, applying a holistic approach that considers the interactions between all sources of risk, farmers. strategies and policies. The policy analysis is structured around three layers of risk that require a differentiated policy response: normal (frequent) risks that should be retained by the farmer, marketable intermediate risks that can be transferred through market tools, and catastrophic risk that requires government assistance. The main focus of risk management policy in Australia is drought risk and this paper assesses the objective and instruments of the country.s national drought policy framework.