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Weather index insurance for managing drought risk in smallholder agriculture: lessons and policy implications for sub-Saharan Africa

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  • Million Tadesse

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  • Bekele Shiferaw
  • Olaf Erenstein

Abstract

This paper reviews recent advances in, and challenges for, weather index insurance for managing drought risk in smallholder agriculture, with a focus on sub-Saharan Africa. Despite its promise to integrate local agricultural risk smoothing with insurance principles, there remain many challenges to its mainstreaming in low income countries. Scaling up of weather index insurance pilot projects is particularly constrained by high-basis risk, related to the divergence between the calculated weather index and actual productivity loss on the farm. Various options may be considered to enhance uptake of weather index insurance. Linking reliable weather data with location-specific crop and agronomic conditions using flexible geospatial crop modeling tools is one option to reduce the basis risk. The other option is interlinking weather index insurance with credit or safety nets. In the end, insurance should be offered as part of a wider set of business services that provide real value to smallholders. Finally, the review acknowledges that the suggested conceptual solutions, especially interlinking index based weather insurance with credit will require more empirical evidence on the extent to which insurance would reduce the cost of borrowing and make credit more accessible to the smallholder farmers. Copyright Tadesse et al. 2015

Suggested Citation

  • Million Tadesse & Bekele Shiferaw & Olaf Erenstein, 2015. "Weather index insurance for managing drought risk in smallholder agriculture: lessons and policy implications for sub-Saharan Africa," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 3(1), pages 1-21, December.
  • Handle: RePEc:spr:agfoec:v:3:y:2015:i:1:p:1-21:10.1186/s40100-015-0044-3
    DOI: 10.1186/s40100-015-0044-3
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    References listed on IDEAS

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    Cited by:

    1. Aditya Kusuma & Ilan Noy & Bethanna Jackson, 2017. "A Viable and Cost-Effective Weather Index Insurance for Rice in Indonesia," CESifo Working Paper Series 6530, CESifo Group Munich.
    2. Ricome, Aymeric & Affholder, François & Gérard, Françoise & Muller, Bertrand & Poeydebat, Charlotte & Quirion, Philippe & Sall, Moussa, 2017. "Are subsidies to weather-index insurance the best use of public funds? A bio-economic farm model applied to the Senegalese groundnut basin," Agricultural Systems, Elsevier, vol. 156(C), pages 149-176.
    3. Aditya Kusuma & Bethanna Jackson & Ilan Noy, 2018. "A viable and cost-effective weather index insurance for rice in Indonesia," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(2), pages 186-218, September.
    4. repec:spr:nathaz:v:92:y:2018:i:3:d:10.1007_s11069-018-3250-y is not listed on IDEAS
    5. Tong, Q. & Swallow, B. & Zhang, L. & Zhang, J., 2018. "Risk Attitude, Technical Efficiency and Adoption: An Integrated Approach to Climate-Smart Rice Production in the Jianghan Plain, China," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277311, International Association of Agricultural Economists.
    6. repec:eee:agisys:v:172:y:2019:i:c:p:28-46 is not listed on IDEAS
    7. repec:gam:jsusta:v:11:y:2019:i:5:p:1372-:d:211247 is not listed on IDEAS

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