IDEAS home Printed from
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

  • Antoine Leblois


    (JRC, Ispra - Commission Européenne)

  • Philippe Quirion


    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - CIRAD - Centre de coopération internationale en recherche agronomique pour le développement - École des Ponts ParisTech (ENPC) - CNRS)

  • Benjamin Sultan

    (PARVATI - Processus de la variabilité climatique tropicale et impacts - LOCEAN - Laboratoire d'Océanographie et du Climat : Expérimentations et Approches Numériques - CNRS - UPMC - Université Pierre et Marie Curie - Paris 6 - MNHN - Muséum National d'Histoire Naturelle - Institut de recherche pour le développement [IRD] - INSU)

In the Sudano-sahelian zone, which includes Northern Cameroon, the inter- annual variability of the rainy season is high and irrigation scarce. As a consequence, 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, whatever the index considered. It has thus limited potential for income smoothing, a conclusion which is robust to 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 growing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we find that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations provided by the national cotton company. This casts doubt on the strategy of supporting weather-index insurances in cash crop sectors selling at international market prices without recommending any price stabilisation scheme.

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:
Download Restriction: no

Paper provided by HAL in its series Post-Print with number halshs-00967313.

in new window

Date of creation: 2014
Date of revision:
Publication status: Published in Ecological Economics, Elsevier, 2014, pp.42. <10.1016/j.ecolecon.2014.02.021>
Handle: RePEc:hal:journl:halshs-00967313
DOI: 10.1016/j.ecolecon.2014.02.021
Note: View the original document on HAL open archive server:
Contact details of provider: Web page:

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. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  2. Dercon, Stefan & Christiaensen, Luc, 2007. "Consumption risk, technology adoption, and poverty traps : evidence from Ethiopia," Policy Research Working Paper Series 4257, The World Bank.
  3. Karlan, Dean & Morduch, Jonathan, 2010. "Access to Finance," Handbook of Development Economics, Elsevier.
  4. Dean Karlan, Robert Osei, Isaac Osei-Akoto, and Christopher Udry, 2012. "Agricultural Decisions after Relaxing Credit and Risk Constraints," Working Papers 310, Center for Global Development.
  5. Carter, Michael R. & Galazara, Francisco & Boucher, Steve, 2007. "Underwriting Area-based Yield Insurance to Crowd- in Credit Supply Demand," Working Papers 190918, University of California, Davis, Department of Agricultural and Resource Economics.
  6. 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 149, University of Lüneburg, Institute of Economics.
  7. Ruth Vargas Hill & John Hoddinott & Neha Kumar, 2013. "Adoption of weather-index insurance: learning from willingness to pay among a panel of households in rural Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 44(4-5), pages 385-398, 07.
  8. 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, vol. 57(4), pages 527-551, April.
  9. 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, vol. 26(2), pages 238-253.
  10. Delpeuch, Claire & Leblois, Antoine, 2010. "Sub-Saharan African Cotton Policies in Retrospect," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96174, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  11. Roger Claassen & Richard E. Just, 2010. "Heterogeneity and Distributional Form of Farm-Level Yields," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 144-160.
  12. Rosenzweig, Mark R. & Binswanger, Hans P., 1989. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Bulletins 7455, University of Minnesota, Economic Development Center.
  13. 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, vol. 28(1), pages 17-36, March.
  14. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-35, January.
  15. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
  16. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  17. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, June.
  18. 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, vol. 80(1), pages 205-237, 03.
  19. repec:hal:wpaper:hal-00866412 is not listed on IDEAS
  20. Paul MAKDISSI & Quentin WODON, 2004. "Price Liberalization and Farmer Welfare Under Risk Aversion: Cotton in Benin and Ivory Coast," Cahiers de recherche 04-09, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  21. Carter, Michael R. & Galarza, Francisco & Boucher, Stephen, 2007. "Underwriting area-based yield insurance to crowd-in credit supply and demand," MPRA Paper 24326, University Library of Munich, Germany.
  22. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," World Bank Economic Review, World Bank Group, vol. 22(3), pages 539-566, October.
  23. 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.
  24. 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, vol. 91(4), pages 1022-1037.
  25. 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, vol. 44(4-5), pages 419-431, 07.
  26. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
  27. 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, vol. 59(2), pages 312-328, 06.
  28. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-90, December.
  29. Francesca de Nicola, 2011. "The Impact of Weather Insurance on Consumption, Investment, and Welfare," 2011 Meeting Papers 548, Society for Economic Dynamics.
  30. Ahmed Mushfiq Mobarak & Mark R. Rosenzweig, 2013. "Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries," American Economic Review, American Economic Association, vol. 103(3), pages 375-80, May.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00967313. 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.