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New modalities for managing drought risk in rainfed agriculture: Evidence from a discrete choice experiment in Odisha, India:

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  • Ward, Patrick S.
  • Makhija, Simrin

Abstract

In this paper we explore the potential for a new approach to managing drought risk among rainfed rice producers in Odisha, India. Droughts have historically been a serious constraint to agricultural production in rainfed agricultural systems, with droughts resulting in significant reductions in both yields and cultivated area, in turn leading to significant impacts on rural livelihoods and food security. Scientists and policy makers have proposed various strategies for managing risks, with limited success. In this study we consider two such strategies, specifically drought-tolerant rice and weather index insurance. While neither drought-tolerant cultivars nor weather index insurance products are perfect solutions for adequately managing drought risk in and of themselves, there is scope to exploit the benefits of each and bundle them into a complementary risk management product, specifically through proper index calibration and an optimized insurance design. In this study, we explore preferences for such a complementary risk management product using discrete choice experiments in Odisha, India. We are able to estimate the added value that farmers perceive in the bundled product above and beyond the value associated with each of the independent products. We also show that valuations are sensitive to the basis risk implied by the insurance product, with farmers less enthusiastic about risk management products that leave significant risks uninsured.

Suggested Citation

  • Ward, Patrick S. & Makhija, Simrin, 2016. "New modalities for managing drought risk in rainfed agriculture: Evidence from a discrete choice experiment in Odisha, India:," IFPRI discussion papers 1563, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifprid:1563
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    2. Dalton, Timothy J. & Yesuf, Mahmud & Muhammad, Lutta, 2011. "Demand for Drought Tolerance in Africa: Selection of Drought Tolerant Maize Seed using Framed Field Experiments," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103712, Agricultural and Applied Economics Association.
    3. David L. Ortega & Patrick S. Ward, 2016. "Information processing strategies and framing effects in developing country choice experiments: results from rice farmers in India," Agricultural Economics, International Association of Agricultural Economists, vol. 47(5), pages 493-504, September.
    4. Hans P. Binswanger-Mkhize, 2012. "Is There Too Much Hype about Index-based Agricultural Insurance?," Journal of Development Studies, Taylor & Francis Journals, vol. 48(2), pages 187-200, February.
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    6. Patrick S. Ward & David L. Ortega & David J. Spielman & Neha Kumar & Sumedha Minocha, 2020. "Demand for Complementary Financial and Technological Tools for Managing Drought Risk," Economic Development and Cultural Change, University of Chicago Press, vol. 68(2), pages 607-653.
    7. Hess, Stephane & Hensher, David A., 2010. "Using conditioning on observed choices to retrieve individual-specific attribute processing strategies," Transportation Research Part B: Methodological, Elsevier, vol. 44(6), pages 781-790, July.
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    9. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    10. Ward, Patrick S. & Ortega, David L. & Spielman, David J. & Singh, Vartika, 2014. "Heterogeneous Demand for Drought-Tolerant Rice: Evidence from Bihar, India," World Development, Elsevier, vol. 64(C), pages 125-139.
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    13. Ward, Patrick S. & Spielman, David J. & Ortega, David L. & Kumar, Neha & Minocha, Sumedha, 2015. "Demand for complementary financial and technological tools for managing drought risk:," IFPRI discussion papers 1430, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Hansen, James & Hellin, Jon & Rosenstock, Todd & Fisher, Eleanor & Cairns, Jill & Stirling, Clare & Lamanna, Christine & van Etten, Jacob & Rose, Alison & Campbell, Bruce, 2019. "Climate risk management and rural poverty reduction," Agricultural Systems, Elsevier, vol. 172(C), pages 28-46.
    2. Hill, Ruth Vargas & Kumar, Neha & Magnan, Nicholas & Makhija, Simrin & de Nicola, Francesca & Spielman, David J. & Ward, Patrick S., 2017. "Insuring against droughts: Evidence on agricultural intensification and index insurance demand from a randomized evaluation in rural Bangladesh," IFPRI discussion papers 1630, International Food Policy Research Institute (IFPRI).

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    Keywords

    drought; risk; drought tolerance; rice; insurance; rainfed farming; agricultural policies;

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