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Feasibility Study for Livestock Index Insurance - Uruguay

Cattle production is a key economic activity in Uruguay, contributing nearly 50% of the value of exports. However beef cattle production is heavily exposed to the effects of weather events. On several occasions, droughts have resulted in livestock loss and reduction in productivity and fertility of surviving cows.
Project type:

NDVI Livestock Pasture-Index Feasibility Study

Requesting Agency:

Ministry of Livestock, Crops and Fisheries of Uruguay (MGAP)

Project rationale:

In 2011 The World Bank Group (WBG) launched a feasibility study on developing an Index Insurance pilot in Uruguay, funded by the Government of Japan through the Global Index Insurance Facility (GIIF). The outputs of this technical and financial assistance has allowed the government to  start pilot testing an innovative Normalized Difference Vegetation Index (NDVI) index insurance to cover small scale cattle producers meat producers in two  regions against damage caused to permanent pasture by drought. The unique quality of this insurance is its ability to prevent extensive damage: quick claims payments allow herders to buy fodder to make up for missing pasture, thereby preventing livestock loss or quality impairment.

Key achievements:
  • The feasibility study has concluded that Remote sensing Normalized Difference Vegetative Indexes (NDVI) is a suitable option for pasture index-based insurance purposes. It recommends the implementation of a macro-level NDVI pasture index coverage that would protect the Federal and/or Provincial budgets in years of catastrophe (mainly drought) induced losses in the livestock sector and would ensure ex-ante timely payouts to livestock producers in areas where the quantity and quality of pasture and grazing is seriously reduced, thereby preventing livestock loss and reduction in productivity and fertility.
  • If the Government of Uruguay approves the program, the Ministry of Livestock, Crops and Fisheries has indicated that it plans to start with a Pilot Program in seven selected Departments located in two regions, four departments in the Basalto region in northern Uruguay and three more in south eastern Uruguay.
  • The World Bank supported the development of a historical NDVI data-base and digitized pasture maps at a spatial resolution of 2,500 Ha for all natural and sown pasture and grazing areas of Uruguay.
  • An Excel-based NDVI contract design and actuarial rating tool was developed (including a user manual) to enable the local insurers and other key stakeholders in the government and in the livestock industry to estimate the pure rates and technical premium rates corresponding to a series of contract design options and parameters.
Key stakeholders:

The Office of Programming and Policy for Agriculture and Livestock within the Ministry of Livestock, Agriculture and Fisheries of Uruguay, the Insurance Supervisor;  the insurance industry; the National Direction of Meteorology (DNM); the Laboratory for Regional Analysis and Remote Sensing, Faculty of Agronomy, University of Buenos Aires National Commission for Rural Development.

Contacts:

Fatou Assah
Program Manager
World Bank group
Tel: + 1 202 473 6160
Fassah@worldbank.org