Stories tagged: insurance

Moving Small-scale Farmers Up the Ladder of Protection and Possibility

Professor Michael R. Carter, founding director of the Resilience+ Innovation Facility, outlines how the Resilience+ framework can help smallholder farmers flourish through better risk management.

Life is constantly changing, and this is especially true for small-scale farmers. Ideally, a farming family’s livelihood will improve over time: they might grow a little more food to be able to sell locally, and then set aside whatever they can to protect themselves in the inevitable next disaster.

While life may change, risk is a reliable constant. One of the primary ways farmers manage their risk of losing crops is to reduce how much they stand to lose in the worst of circumstances. Avoiding investments in inputs like improved seeds or fertilisers can help a farming family to survive a disaster, but it also stunts their ability to improve their circumstances over time. Although a disaster can drive a rural family into poverty, the risk of a disaster can keep them struggling. But does that have to be the end of the story?

At the University of California, Davis, we recently established the Resilience+ Innovation Facility to spark inclusive agricultural transformation among small-scale farmers in sub-Saharan Africa and South Asia.

More than a decade of research shows that it is possible to shift these dynamics with effective and accessible financial tools to manage risk. The most recent advances have made it possible to take the next step with bundled financial tools that respond to a farming family’s changing needs and circumstances over time, helping them to move up the ladder of both protection and possibility.

In Mozambique and Tanzania, the author tested a bundle of stress-tolerant maize seeds developed by CIMMYT in combination with a low-cost form of insurance. Photo credit: Jonathan Malacarne

Resilience+ – a framework to manage risk

Resilience+ is a term we use to describe two ways in which rural families benefit from more effective tools to manage risk. First, a financial instrument that provides support in the wake of a shock can help a family to recover quickly with a lower likelihood of long-term or lasting impacts. Second, when a family knows they will have this protection, they tend to increase their investments in producing more food and income.

In Burkina Faso and Mali, I led a study from UC Davis testing a low-cost form of insurance for small-scale cotton growers. In Mali, a coup d’état forced the project to halt in 2012, but the direct impact on cotton investments was already substantial. Farmer groups who purchased the insurance increased their planting by between 25-40 per cent, which would at harvest increase average income by about US $300.

In Mozambique and Tanzania, we tested a bundle of stress-tolerant maize seeds developed by the International Maize and Wheat Improvement Center (CIMMYT) and a low-cost form of insurance that would trigger seed-replacements after severe drought.

We were surprised to find that farmers who received replacement seeds achieved higher yields than even before the shock. Surveys showed that in addition to planting those seed replacements, farmers also increased their total investments in improved seeds. After experimenting with the bundle, they were able to learn for themselves its benefits.

Tools to generate Resilience+

A number of financial instruments make it possible to build from these and other successes in generating Resilience+. The most well-researched is agricultural index insurance, a form of insurance that by design is low-cost and easily scalable in even the most remote rural communities. Instead of basing payouts on losses that are individually verified, index insurance triggers payouts based on an area’s average conditions that are correlated with losses. However, there is the chance that an index will fail to trigger payments if the estimates of average losses do not reflect a farmer’s actual losses.

Today, we have new indexed financial tools that don’t come with the same level of risk as index insurance. One of these is a kind of savings account that limits withdrawals to pre-defined need, such as after a drought or for investing in agricultural inputs. Another instrument is a contingent loan that functions like insurance but without premiums paid in advance. An evaluation of such a loan designed in partnership with the NGO BRAC in Bangladesh showed that it increased rice planting by about 25 per cent, and households who did not suffer any flood losses produced about 33 per cent more from their crops.

There are a number of financial mechanisms help generate Resilience+, but more research is needed writes the author. Photo credit: Unsplash

A new approach to an old problem

While each of these instruments moves money through time to a present moment of need, they have different prerequisites. Savings require cash, emergency credit requires creditworthiness, and insurance requires the money to pay premiums as well as trust in the contract and an understanding of how it works.

The benefits of each instrument also vary. With savings, farmers are guaranteed to receive the money that they paid in advance. By contrast, a loan and insurance provide access to money through leverage. Because of its low cost, insurance seems the most viable for households with the least means. However, it is the most potentially dangerous: if payouts do not trigger for actual losses, a farmer is not only without the expected support but is also out the money paid in advance for protection.

The various qualities and mechanisms of these three instruments make them potentially powerful complements as a farmer’s circumstances and opportunities change. But there is a need for research that provides evidence from the field about how this flexible approach can meet the changing needs of small-scale farmers – a cause that helped give rise to the Resilience+ Innovation Facility.

This Resilience+ approach to development is designed to leverage existing networks of local private sector companies to reach small-scale farmers and pastoralists with better tools to manage risk. This approach is critical to ensuring that our successes are self-sustaining and continue to expand opportunities for rural families to achieve stability, prosperity and resilience.

Michael R. Carter is a distinguished professor of agricultural and resource economics at the University of California, Davis and honorary professor of economics at the University of Cape Town. Carter directs the Feed the Future Innovation Lab for Markets, Risk & Resilience and is the founding director of the Resilience+ Innovation Facility.

Pastoralists are Defying Kenya’s Droughts with the Help of Big Data

Before drought hit northern Kenya in 2016, Dahira Ali, 50, had 300 sheep. By the time the rains broke, though, she had lost 150 because there was not enough fodder on the parched lands to feed them, while the other 150 were too weak to sell. Continue reading

Scaling Up Agricultural Adaptation through Insurance

14 May 2017

Bonn, Germany

As climate change takes hold, increasingly erratic weather and climate shifts threaten already tenuous agricultural livelihoods and food security in the developing world. Agricultural insurance is an important tool which can help address this risk, by providing indemnity payments to farmers. Join the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), the Technical Centre for Agricultural and Rural Cooperation (CTA) and Syngenta Foundation for Sustainable Agriculture (SFSA) in this one-day conference that will bring together the climate change, agriculture and insurance communities to highlight the value of index-based insurance, draw lessons and identify key challenges for effective scaling up of index-based insurance as a climate change adaptation action. Read more >>

Erik Chavez: A New Approach to Building Climate Resilient Supply Chains

In this guest blog post, Erik Chavez introduces the WINnERS project, a new initiative developing weather-index based risk services based at Imperial College London.

Did you know that more than 50% of disruptions to food and fibre supply chains are caused by storms or droughts? As extreme weather events become more severe and frequent, the challenges to operating supply chains that meet global food security needs are only expected to multiply. Demand for food, feed and fibre already outpaces supply and will only increase with population growth, rising incomes and shifts in energy resources to biofuels. Continue reading

10 Technologies That Will Help Feed the World in 2050

A recent Reuters article listed ten climate change adaptation technologies that can help the world’s farmers meet food demands within more extreme weather conditions:

1. Innovations around infectious diseases. Hotter global temperatures will lead to the spread of more infectious diseases such as malaria, dengue, tick-borne encephalitis, and Lyme disease, according to the UNFCCC. Most of this will happen in regions that are tropical and close to tropical geographies. Higher temperatures will also lead to increases of food-born diseases like Salmonella in more developed regions. Innovations in drug delivering, drugs themselves, and prevention will be needed.

2. Flood safeguards. Building owners and farmers in vulnerable regions will increasingly look to technologies that can help them adapt to potential floods. Those could include building homes on stilts, to crafting barriers around rivers in populated regions, and using seeds and crops that are more resistant to floods.

3. Weather forecasting technologies. Extreme weather conditions, from massive floods to hurricanes, will become more common in certain regions because of the warming of the Earth. Weather forecasting has been an area of little innovation and will depend heavily on information technology tools (satellites, software, computing, sensors) to inject some much-needed innovation into the sector.

4. Insurance tools. To help spread the risk of extreme weather events and higher temperatures, farmers and governments in developing countries could invest in insurance programs that would pay out when poor conditions happen. Already, insurance companies in some areas are seeing more events around flooding due to climate change. In particular, look to insurance tools that came out of the Internet industry — like WeatherBill — to find solutions.

5. More resilient crops. High temperatures can cut annual crop productivity dramatically, can lead to droughts or more rainfall, and can lead to longer or shorter crop seasons. Farmers that grow crops on risk-prone lands will be looking for seeds that can withstand higher temperatures, more or less water, and fluctuating crop cycle times. Genetically modified crops could play a key role in this movement.

6. Supercomputing. Weather forecasting and climate change data will benefit immensely from more powerful and faster supercomputers that can crunch data and make important predictions in real time. Can exascale computing save us?

7. Water Purification. Harsher and more wide-spread droughts will lead to a strain on communities and farmers that need fresh water. At the same time, rising sea levels will affect coastal regions, potentially leading to an increase of salt in ground water. So-called desalination technology has seen an under-investment by the venture capitalist community, as VCs are unfamiliar with the markets for water technology.

8. Water Recycling. Beyond desalination, other water technologies include using gray water and harvesting rainwater, for crops and everyday human uses. The key to this type of technology is that it has to be cheap, cheap, cheap.

9. Efficient Irrigation Systems. While it’s not cutting edge technology, farmers in affected regions will be quick to embrace irrigation systems that are much more efficient than they currently use. Packaging a product attractive to this segment could be popular.

10. Sensors. With all the potential problems and fluctuations in the environment due to global warming, there will be a growth in the need for accurate environmental data, particularly from sensors. Whether these are located in the ocean, in the atmosphere, in soil, in flood zones or in arid drought-stricken lands, organizations, governments and companies will want to track the changes in order to develop solutions to deal with the problem.