Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon

Contents:

Author Info

  • Antoine Leblois

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Philippe Quirion

    ()
    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech)

  • Benjamin Sultan

    (LOCEAN - Laboratoire d'Océanographie et du Climat : Expérimentations et Approches Numériques - Institut de recherche pour le développement [IRD] - INSU - CNRS : UMR7159 - Université Pierre et Marie Curie (UPMC) - Paris VI - Muséum National d'Histoire Naturelle (MNHN))

Abstract

In the Sudano-sahelian zone, which includes Northern Cameroon, the inter-annual variability of the rainy season is high and irrigation is scarce. As a conse- quence, bad rainy seasons have a detrimental impact on crop yield. In this paper, we assess the risk mitigation capacity of weather index-based insurance for cotton farmers. We compare the ability of various indices, mainly based on daily rainfall, to increase the expected utility of a representative risk-averse farmer. We first give a tractable definition of basis risk and use it to show that weather index-based insurance is associated with a large basis risk. It has thus limited potential for income smoothing, whatever the index or the utility function. Second, in accordance with the existing agronomical literature we find that the length of the cotton growing cycle, in days, is the best performing index considered. Third, we show that using observed cotton sowing dates to define the length of the grow- ing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we found that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations which is provided by the national cotton company. This casts doubts on the strategy of international institutions, which support weather-index insurances in cash crop sectors while pushing to liberalisation without recommending any price stabilization schemes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hal.archives-ouvertes.fr/docs/00/79/65/28/PDF/cahier_de_recherche_2013-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series CIRED Working Papers with number hal-00796528.

as in new window
Length:
Date of creation: 04 Mar 2013
Date of revision:
Handle: RePEc:hal:ciredw:hal-00796528

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00796528
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Agriculture; weather; index-based insurance.;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gine, Xavier & Townsend, Robert & Vickery, James, 2007. "Patternsof rainfall insurance participation in rural India," Policy Research Working Paper Series, The World Bank 4408, The World Bank.
  2. Dercon, Stefan & Christiaensen, Luc, 2007. "Consumption risk, technology adoption, and poverty traps : evidence from Ethiopia," Policy Research Working Paper Series, The World Bank 4257, The World Bank.
  3. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262572249, December.
  4. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, Elsevier, vol. 89(1), pages 1-11, May.
  5. G Lien & JB Hardaker, 2001. "Whole-farm planning under uncertainty: impacts of subsidy scheme and utility function on portfolio choice in Norwegian agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 28(1), pages 17-36, March.
  6. Sommarat Chantarat & Andrew G. Mude & Christopher B. Barrett & Michael R. Carter, 2013. "Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 80(1), pages 205-237, 03.
  7. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(416), pages 56-78, January.
  8. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
  9. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports, Federal Reserve Bank of New York 373, Federal Reserve Bank of New York.
  10. Birgit Müller & Martin Quaas & Karin Frank & Stefan Baumgärtner, 2009. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 149, University of Lüneburg, Institute of Economics.
  11. Hill, Ruth Vargas & Hoddinott, John & Kumar, Neha, 2011. "Adoption of weather index insurance: Learning from willingness to pay among a panel of households in rural Ethiopia," ESSP working papers, International Food Policy Research Institute (IFPRI) 27, International Food Policy Research Institute (IFPRI).
  12. Roger Claassen & Richard E. Just, 2010. "Heterogeneity and Distributional Form of Farm-Level Yields," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 93(1), pages 144-160.
  13. Dean Karlan & Robert Darko Osei & Isaac Osei-Akoto & Christopher Udry, 2012. "Agricultural Decisions after Relaxing Credit and Risk Constraints," NBER Working Papers, National Bureau of Economic Research, Inc 18463, National Bureau of Economic Research, Inc.
  14. Ghada Elabed & Marc F. Bellemare & Michael R. Carter & Catherine Guirkinger, 2013. "Managing basis risk with multiscale index insurance," Agricultural Economics, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 44(4-5), pages 419-431, 07.
  15. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, Elsevier, vol. 36(10), pages 1766-1785, October.
  16. Claire Delpeuch & Antoine Leblois, 2013. "Sub-Saharan African Cotton Policies in Retrospect," Development Policy Review, Overseas Development Institute, Overseas Development Institute, vol. 31(5), pages 617-642, 09.
  17. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center, Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  18. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
  19. Carter, Michael R. & Galarza, Francisco & Boucher, Stephen, 2007. "Underwriting area-based yield insurance to crowd-in credit supply and demand," MPRA Paper, University Library of Munich, Germany 24326, University Library of Munich, Germany.
  20. Antoine Leblois & Philippe Quirion & Agali Alhassane & Seydou Traoré, 2014. "Weather Index Drought Insurance: An Ex Ante Evaluation for Millet Growers in Niger," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 57(4), pages 527-551, April.
  21. Karlan, Dean & Morduch, Jonathan, 2010. "Access to Finance," Handbook of Development Economics, Elsevier, Elsevier.
  22. repec:hal:wpaper:hal-00866412 is not listed on IDEAS
  23. Allan W. Gray & Michael D. Boehlje & Brent A. Gloy & Stephen P. Slinsky, 2004. "How U.S. Farm Programs and Crop Revenue Insurance Affect Returns to Farm Land," Review of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 26(2), pages 238-253.
  24. Hans P. Binswanger-Mkhize, 2012. "Is There Too Much Hype about Index-based Agricultural Insurance?," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 48(2), pages 187-200, February.
  25. Francesca de Nicola, 2011. "The Impact of Weather Insurance on Consumption, Investment, and Welfare," 2011 Meeting Papers, Society for Economic Dynamics 548, Society for Economic Dynamics.
  26. Hans Binswanger, 1981. "Attitudes toward risk: Theoretical implications of an experiment in rural india," Artefactual Field Experiments, The Field Experiments Website 00010, The Field Experiments Website.
  27. Ahmed Mushfiq Mobarak & Mark R. Rosenzweig, 2013. "Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries," American Economic Review, American Economic Association, American Economic Association, vol. 103(3), pages 375-80, May.
  28. Paul MAKDISSI & Quentin WODON, 2004. "Price Liberalization and Farmer Welfare Under Risk Aversion: Cotton in Benin and Ivory Coast," Cahiers de recherche, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke 04-09, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  29. Gunnar Breustedt & Raushan Bokusheva & Olaf Heidelbach, 2008. "Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 312-328, 06.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hal:ciredw:hal-00796528. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.