Potential Demand for Drought Insurance in Burkina Faso and Its Determinants

Sakurai, Takeshi; Reardon, Thomas

doi:10.2307/1244277

Cited by 64 publications

(39 citation statements)

References 10 publications

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“…Sakurai and Reardon 1997;Skees 1999, Skees and Ayurzana 2002, Barnett and Mahul 2007, Barnett, Barrett and Skees 2008) the first successful implementation has been realized in the U.S. in 1997: after the deregulation of the energy sector, energy providers increasingly insured themselves against mild winters to compensate for potential loss of revenue due to the decreased use of energy for heating (Cao Li and Wei 2003). Since then, stakeholders in the sectors of tourism, agriculture, travel and event organization have engaged in the trading of weather derivatives which became a 40 billion dollar business for the Chicago Mercantile Exchange alone in 2006 (Ginocchio 2008).…”

Section: Weather Index Insurance Literature and Challengesmentioning

confidence: 99%

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Fuchs

Wolff

2011

American J Agri Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Recently, Weather Index Insurance (WII) has received considerable attention as a tool to insure farmers against weather related risks, particularly in developing countries. Donor organizations, local governments, insurance companies, development economists as well as agricultural economists are discussing the costs and benefits of WII. While the literature on WII has mainly focused on many cases in Africa and Asia, in this article we analyze the WII program in Mexico, which is one of the largest WII programs worldwide. In this context we discuss potentially important spill-over effects on related markets which so far have not been considered in the academic literature. First, we argue that WII creates disincentives to invest in other non-insured crops leading to potential overspecialization and monoculture. Secondly, WII generates disincentives to invest in irrigation systems because farmers are insured only as long as production takes place on non-irrigated land. Third, in case of catastrophic events food prices can potentially inflate with indemnity payments at the expense of the uninsured poor. We also suggest that in Mexico the thresholds of the weather index be (continuously) re-calibrated in order to adjust for the development of drought resistant seeds. Finally, the index could relatively easily be extended to account for precipitation variances. We argue that these factors and spillover effects should be accounted for in cost benefit analysis...

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Section: Weather Index Insurance Literature and Challengesmentioning

confidence: 99%

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Fuchs

Wolff

2011

American J Agri Economics

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“…Sakurai and Reardon 1997, and references therein). However, as shown by Sakurai and Reardon (1997), these strategies are not always sufficient. Drought insurance might be a way to mitigate these adverse events, by providing an indemnity to farmers in dry years.…”

Section: Introductionmentioning

confidence: 99%

Weather-Index Drought Insurance in Burkina-Faso: Assessment of Its Potential Interest to Farmers

Berg

Quirion

Sultan

2009

Weather, Climate, and Society

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By using a detailed agricultural and climate dataset over Burkina-Faso and simple assumptions regarding the form of an insurance contract, the authors investigate the potential economic efficiency for farmers of a weather-index insurance system in this country. To do so, the results of more than 3000 simulated contracts applied to 30 districts, 21 yr , and five crops (cotton, millet, sorghum, maize, and groundnut) are explored. It is found that such an insurance system, even based on a simple weather index like cumulative rainfall during the rainy season, can present a significant economic efficiency for some crops and districts. The determinants of the efficiency of such contracts are analyzed in terms of yield/index correlations and yield variability. As a consequence of these two main determinants, the farmer's gain from an insurance contract is higher in the driest part of the country. In the same way, maize and groundnuts are the most suitable to implement an insurance system since their respective yields show a large variance and a generally high correlation with the weather index. However, the implementation of a real weather-index insurance system in West Africa raises a number of key practical issues related to cultural, economic, and institutional aspects.

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“…However, diversification may result in lower yields and in lower income and assets, which could have been used for mitigating risks through financial markets, such as insurance. For instance, studies in India and Burkina Faso indicate that farmers sacrifice 12 % to 30 % of average income to reduce risk by relying on low-return low-risk production activities (Gautam et al 1994;Sakurai and Reardon 1997;Rosenzweig and Binswanger 1993). Hazell et al (1986) are among the few who compare the costs of diversification with the benefits of crop insurance for managing the effects of drought risks.…”

Section: Household Strategies (Micro-level)mentioning

confidence: 99%

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

2015

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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.

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Potential Demand for Drought Insurance in Burkina Faso and Its Determinants

Cited by 64 publications

References 10 publications

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Weather-Index Drought Insurance in Burkina-Faso: Assessment of Its Potential Interest to Farmers

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

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