Integrating Seasonal Forecasts and Insurance for Adaptation among Subsistence Farmers : The Case of Malawi
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World Bank, Washington, DC
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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.
Palabras clave
ACCESS TO INFORMATION, AGRICULTURAL INPUTS, AGRICULTURAL OUTPUT, AGRICULTURAL PRODUCTION, AGRICULTURAL SECTOR, ANNUAL INFLATION RATE, ASYMMETRIC INFORMATION, BANK LOANS, BANKS, BENEFICIARIES, CHRONIC FOOD INSECURITY, CHRONIC MALNUTRITION, CLIMATE CHANGE, CLIMATE FLUCTUATIONS, CLIMATIC CHANGE, COLLATERAL, COMMODITY, COMMODITY RISK MANAGEMENT, CONTRACT DESIGN, CREDIT CONSTRAINTS, CREDIT WORTHINESS, CROP INSURANCE, CROP LOSS, CROP PRODUCTION, CROP YIELD, CUSTOMER BASE, CYCLE OF POVERTY, DAMAGES, DERIVATIVE, DERIVATIVE MARKETS, DERIVATIVES MARKET, DERIVATIVES MARKETS, DEVELOPING COUNTRIES, DISASTER, DISASTER AID, DISASTER RISK, DISASTERS, DISTRIBUTION OF BENEFITS, DROUGHT, DROUGHT RISK, DROUGHTS, EARTHQUAKES, EASTERN EQUATORIAL PACIFIC, ENSO, EXCHANGE RATE, EXPORTER, FARMER, FARMERS, FARMLAND, FINANCES, FINANCIAL EXPOSURE, FINANCIAL INSTRUMENTS, FINANCIAL MANAGEMENT, FINANCIAL RISK, FLOODS, FOOD AID, FOOD INSECURITY, FOOD SECURITY, GLOBAL CLIMATE SYSTEM, GROSS MARGINS, GROSS REVENUES, HOLDING, HOLDINGS, HOUSEHOLD SURVEY, HURRICANES, INCOME, INDEMNITY, INDIVIDUAL LOANS, INFLATION, INFLATION RATE, INFORMATION TECHNOLOGIES, INSTITUTIONAL CAPACITY, INSURANCE, INSURANCE COMPANY, INSURANCE CONTRACT, INSURANCE CONTRACTS, INSURANCE MARKETS, INSURANCE PREMIUM, INSURANCE PREMIUMS, INSURANCE SCHEME, INSURANCE SCHEMES, INSURER, INSURERS, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL STRATEGY FOR DISASTER REDUCTION, INVESTING, LABOR COSTS, LENDERS, LENDING PORTFOLIO, LIABILITY, LIFE EXPECTANCY, LOAN, LOAN SIZE, MARKET MECHANISMS, MATHEMATICS, MICRO-INSURANCE, MICROCREDIT, MICROFINANCE, MORAL HAZARD, NATURAL HAZARDS, PANDEMIC, POLICY RESPONSES, POOR, POOR PEOPLE, POVERTY LEVELS, POVERTY LINE, PREDICTABILITY, PREMIUM PAYMENT, PROBABILITY, REINSURANCE, REPAYMENT, RISK ANALYSIS, RISK MANAGEMENT, RISK OF DEFAULT, RISK REDUCTION, RISK SHARING, RURAL, RURAL AREAS, RURAL BANKS, RURAL DEVELOPMENT, RURAL FARMERS, RURAL HOUSEHOLDS, SAFETY, SAFETY NETS, SALE, SEA SURFACE TEMPERATURE, SMALLHOLDER FARMERS, SOCIAL SAFETY NETS, STAKEHOLDER, STAKEHOLDERS, STATE UNIVERSITY, STOCKS, SUBSISTENCE FARMERS, SYSTEMIC RISK, TAX, TRANSACTION, TRANSACTION COSTS, TRANSPARENCY, TRANSPORT, TRUST FUND, URBAN DEVELOPMENT, VALUATION, VARIABLE COSTS, WEATHER DERIVATIVE, WEATHER DERIVATIVES