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Integrating seasonal forecasts and insurance for adaptation among subsistence farmers : the case of Malawi

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  • Osgood, Daniel E.
  • Suarez, Pablo
  • Hansen, James
  • Carriquiry, Miguel
  • Mishra, Ashok

Abstract

Climate variability poses a severe threat to subsistence farmers in southern Africa. Two different approaches have emerged in recent years to address these threats: the use of seasonal precipitation forecasts for risk reduction (for example, choosing seed varieties that can perform well for expected rainfall conditions), and the use of innovative financial instruments for risk sharing (for example, index-based weather insurance bundled to microcredit for agricultural inputs). So far these two approaches have remained entirely separated. This paper explores the integration of seasonal forecasts into an ongoing pilot insurance scheme for smallholder farmers in Malawi. The authors propose a model that adjusts the amount of high-yield agricultural inputs given to farmers to favorable or unfavorable rainfall conditions expected for the season. Simulation results - combining climatic, agricultural, and financial models - indicate that this approach substantially increases production in La Niña years (when droughts are very unlikely for the study area), and reduces losses in El Niño years (when insufficient rainfall often damages crops). Cumulative gross revenues are more than twice as large for the proposed scheme, given modeling assumptions. The resulting accumulation of wealth can reduce long-term vulnerability to drought for participating farmers. Conclusions highlight the potential of this approach for adaptation to climate variability and change in southern Africa.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4651.

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Date of creation: 01 Jun 2008
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Handle: RePEc:wbk:wbrwps:4651

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Keywords: Hazard Risk Management; Debt Markets; Rural Poverty Reduction; Banks&Banking Reform;

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References

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  1. Wang, Shaun S. & Young, Virginia R. & Panjer, Harry H., 1997. "Axiomatic characterization of insurance prices," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 173-183, November.
  2. Sarah Murphy & Richard Washington & Thomas Downing & Randall Martin & Gina Ziervogel & Anthony Preston & Martin Todd & Ruth Butterfield & Jim Briden, 2001. "Seasonal Forecasting for Climate Hazards: Prospects and Responses," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 23(2), pages 171-196, March.
  3. Carriquiry, Miguel A. & Osgood, Daniel E., 2006. "Index Insurance, Production Practices, and Probabilistic Climate Forecasts," 2006 Annual meeting, July 23-26, Long Beach, CA 21463, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Mjelde, J. W. & Hill, H. S. J., 1999. "The effect of the use of improved climate forecasts on variable costs, input usage, and production," Agricultural Systems, Elsevier, vol. 60(3), pages 213-225, June.
  5. Phillips, J. G. & Deane, D. & Unganai, L. & Chimeli, A., 2002. "Implications of farm-level response to seasonal climate forecasts for aggregate grain production in Zimbabwe," Agricultural Systems, Elsevier, vol. 74(3), pages 351-369, December.
  6. Hansen, James W., 2002. "Realizing the potential benefits of climate prediction to agriculture: issues, approaches, challenges," Agricultural Systems, Elsevier, vol. 74(3), pages 309-330, December.
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Cited by:
  1. Stefan Hochrainer & Reinhard Mechler & Georg Pflug, 2009. "Climate change and financial adaptation in Africa. Investigating the impact of climate change on the robustness of index-based microinsurance in Malawi," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(3), pages 231-250, March.
  2. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
  3. Ranganathan, C. & Palanisami, K. & Kakumanu, K. & Baulraj, A., 2011. "Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor due to Climate Change," ADBI Working Papers 333, Asian Development Bank Institute.

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