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Insurance and Reinsurance for Natural Catastrophe Risk in Africa Date: November13-14, 2006 Agriculture and Weather Cover PPT Presentation
Agriculture remains a source of livelihood for almost half of humanity. It is also a source of growth for national economies and can be a provider of investment opportunities for the private sector. However, millions of poor people face prospects of tragic crop failure or livestock mortality when, as a result of climate change, rainfall patterns shift or extreme events such as drought and floods become more frequent. Agricultural insurance is key in assisting farmers, herders, and governments lessen the negative financial impact of these adverse natural events.
Agricultural insurance in developed countries originates in named peril products that were originally offered by private companies approximately two hundred years ago, first in Europe and then in the United States. Today, many agricultural insurance products are offered, most of them heavily subsidized by governments. In the context of developed economies, this article examines the evolution of agricultural insurance products, the economics of the demand and supply sides of agricultural insurance markets, and the economic welfare, political economy, and trade relation implications of private and public agricultural insurance in developed countries.
In this paper we review the historical relationship between the work of applied economists and policy makers and the institutions that came to characterize the commodity and risk markets of the 1980s. These institutions were a response to the harmful consequences of commodity market volatility and declining terms of trade. However, the chosen policies and instruments relied on market interventions to directly effect prices or the distribution of prices in domestic and international markets. For practical and more fundamental reasons, this approach failed. We next discuss how a growing body of work contributed to a change in thinking that moved policy away from stabilization goals toward policies that emphasized the management of risks. We distinguish between the macroeconomic effects of volatile commodity markets and the consequences for businesses and households. We argue that both sets of problems remain important development issues, but argue that appropriate policy instruments are largely separate. Nonetheless because governments, households and firms must all respond to a wide range of sources of risk, we emphasize the role for an integrated policy by government.
Risk characterizes life for many of the world’s poorest households. They are more likely to be located in environments where livelihoods are highly susceptible to weather and price variability and where health risks are pervasive. When these risks are uninsured, they not only reduce the current welfare of poor rural households, but also threaten future income growth and thus perpetuate poverty. Reducing the risks faced by poor households, and enabling poor households to better deal with bad events when they do occur, is essential to improving their welfare in the short run and their opportunities for income growth in the long run. This note draws on the briefs published in the IFPRI’s 2020 Focus “Innovations in Insuring the Poor” and other work, to examine the potential for agricultural insurance, and in particular index insurance, as a risk management tool for rural households in sub-Saharan Africa.
China is the world's most populous country and one of the largest producers and consumers of agricultural products. It produced crops and livestock valued at $366 billion in 2004, about 50 percent more than the U.S. total. Despite limited supplies of land, water, and other natural resources, China grows most of its own food and is a major exporter of many agricultural commodities. China ranks number 1 in the world in rice paddy production with over 40 percent more production than India which ranks number 2. Importantly, China also ranks number 1 in the world in fresh vegetable production with 4 times more production than India which ranks number 2 again. China is also the largest wheat producing country in the world. In total, China ranks number 1 in the world in the production of 45 agricultural commodities (FAO, 2005).
Pre-feasibility work is important, as initiating index insurance schemes is often very challenging. For example, the need for accurate and reliable data for the establishment of the index creates major challenges in many developing countries. For years there has been underinvestment in meteorological services and infrastructure and very often data series are simply not available. There are a number of prerequisites that are necessary for the implementation of pilot or scheme and practitioners should seek to identify whether these are available at the very outset of the activity. In certain cases, where some prerequisites are missing, there may be alternative solutions and technology can play an important role in this regard. For example, where traditional weather data is missing, “synthetic weather” has been constructed using a number of data sources to backfill missing gaps.
Full Publication available here Index-based micro-insurance overcomes many of the challenges faced by crop insurance programmes by delinking indemnification from individual production. Although subject to its own limitations, such as basis risk, index insurance may provide less-costly and more-transparent risk management than other alternative products, enabling farmers to make more-productive investments and better manage consumption risk.