Food Security

, Volume 2, Issue 4, pp 395–405 | Cite as

Drought insurance for agricultural development and food security in dryland areas

Original Paper


This paper reviews the potential role for and experience with index based insurance for managing drought risks in agriculture and rural areas in the dry areas of developing countries. It argues that while index insurance is not a panacea for risk management, it could make important, market-based contributions in catalyzing sustainable safety nets and promoting agricultural growth. And though the private sector should be the main supplier, there are still important enabling and facilitating roles that need to be played by the public sector.


Drought management Agricultural risk management Disaster risk management Index insurance Dry areas Agricultural insurance Food security 


  1. Binswanger HP (1980) Attitudes towards risk: experimental measurement in rural India. Am J Agric Econ 62(3):396–407CrossRefGoogle Scholar
  2. Binswanger HP, Sillers DA (1983) Risk aversion and credit constraints in farmers’ decision-making: a reinterpretation. J Dev Stud 20:5–21CrossRefGoogle Scholar
  3. Carter MR, Barrett CB (2006) The economics of poverty traps and persistent poverty: an asset-based approach. J Dev Stud 42(2):178–199CrossRefGoogle Scholar
  4. Chantarat S, Barrett CB, Mude G, Turvey CG (2007) Using weather index insurance to improve drought response for famine prevention. Am J Agric Econ 89(5):1262–1268CrossRefGoogle Scholar
  5. Dercon S, Hoddinott J, Woldehanna T (2005) Shocks and consumption in 15 Ethiopian villages, 1999–2004. In special issue on risk, poverty and vulnerability in Africa. J Afr Econ 14(4):559–585CrossRefGoogle Scholar
  6. Fuchs A, Wolff H (2011) Concept and unintended consequences of Weather Index Insurance: the Case of Mexico. Am J Agric Econ 93(1). in pressGoogle Scholar
  7. Gautam M, Hazell P, Alderman H (1994) Rural demand for drought insurance. Policy Research Working Paper 1383. World Bank, Washington DCGoogle Scholar
  8. Giné X, Yang D (2008) Insurance, credit, and technology adoption: field experimental evidence. J Dev Econ 89:1–11CrossRefGoogle Scholar
  9. Giné X, Townsend R, Vickey J (2007) Statistical analysis of rainfall insurance payouts in Southern India. Am J Agric Econ 89(5):1248–1254CrossRefGoogle Scholar
  10. Giné X, Townsend R, Vickey J (2008) Patterns of rainfall insurance participation in rural India. World Bank Econ Rev 22(3):539–566CrossRefGoogle Scholar
  11. Glauber J (2004) Crop insurance reconsidered. Am J Agric Econ 86(5):1179–1195CrossRefGoogle Scholar
  12. Grosh M, del Ninno C, Tesliuc E, Ouerghi A (2008) For protection and promotion: the design and implementation of effective safety nets. World Bank, Washington DCGoogle Scholar
  13. Guy Carpenter (2008) World catastrophe reinsurance markets 2008. Guy Carpenter and Company.
  14. Hazell P (1992) The appropriate role of agricultural insurance in developing countries. J Int Dev 4(6):567–581CrossRefGoogle Scholar
  15. Hazell P, Ramasamy C (1991) The green revolution reconsidered: the impact of the high yielding rice varieties in South India. Johns Hopkins University Press, BaltimoreGoogle Scholar
  16. Hazell P, Pomareda C, Valdés A (eds) (1986) Crop insurance for agricultural development: issues and experience. Johns Hopkins University Press, BaltimoreGoogle Scholar
  17. Hazell P, Oram P, Chaherli N (2003) Managing livestock in drought-prone areas of the Middle East and North Africa: policy issues. In: Löfgren H (ed) Food, agriculture, and economic policy in the Middle East and North Africa, Vol. 5. Elsevier Science, New York, pp 70–104Google Scholar
  18. Hellmuth ME, Osgood DE, Hess U, Moorhead A, Bhojwani H (eds) (2009) Index insurance and climate risk: prospects for development and disaster management. Climate and Society No. 2, International Research Institute for Climate and Society (IRI). Columbia University, New YorkGoogle Scholar
  19. Hess U (2003) Innovative financial services for India: monsoon-indexed lending and insurance for smallholders. Agriculture and Rural Development Working Paper 9. World Bank, Washington DCGoogle Scholar
  20. Hess U, Im S (2007) Saving livelihoods through weather risk management: the role of insurance and financial markets—a case study of Ethiopia. J Rural Dev 401(1):21–30Google Scholar
  21. Hess U, Syroka J (2005) Weather based insurance in Southern Africa, the case of Malawi. Agriculture and Rural Development Discussion Paper 13. World Bank, Washington DCGoogle Scholar
  22. Hess U, Richter K, Stoppa A (2002) Weather risk management for agriculture and agri-business in developing countries. In: Dischel R (ed) Climate risk and the weather market: financial risk management with weather hedges. Risk Books, London, pp 295–310Google Scholar
  23. Hess U, Wiseman W, Robertson T (2006) Ethiopia: integrated risk financing to protect livelihoods and foster development, World Food Programme Discussion Paper. World Food Programme, RomeGoogle Scholar
  24. Hess U, Balzer N, Calmanti S, Portegies-Zwart M (2009) CERVO: community early recovery voucher scheme in weather risk management. In: Tang K (ed) Weather risk management: a guide for corporations, hedge funds and investors. Incisive Financial Publishing Limited, LondonGoogle Scholar
  25. International Fund for Agricultural Development and World Food Programme (2010) Potential for scale and sustainability in weather index insurance for agriculture and rural livelihoods. International Fund for Agricultural Development, RomeGoogle Scholar
  26. Kunreuther HC, Michel-Kerjan EO (2009) The development of new catastrophe risk markets. Annu Rev Resour Econ 1:119–137CrossRefGoogle Scholar
  27. Linneroth-Bayer J, Mechler R, Pflug G (2005) Refocusing disaster aid. Science 309(5737):1044–1046CrossRefGoogle Scholar
  28. Lybbert TJ, Galarza FB, McPeak J, Barrett CB, Boucher SR, Carter MR, Chantarat S, Fadlaoui A, Mude A (2010) Dynamic field experiments in development economics: risk valuation in Morocco, Kenya and Peru. Agric Resour Econ Rev 39(2):1–17Google Scholar
  29. Mahul O, Stutley CJ (2010) Government support to agricultural insurance: challenges and options for developing countries. World Bank, Washington DCCrossRefGoogle Scholar
  30. McCarthy N (2003) Demand for rainfall-index based insurance: a case study from Morocco. Environment and Production Technology Division Discussion Paper No. 106, IFPRI, Washington DCGoogle Scholar
  31. McCarthy N, Swallow B, Kirk M, Hazell P (eds) (1999) Property rights, risk, and livestock development in Africa. International Food Policy Research Institute, Washington DCGoogle Scholar
  32. Ministry of Agriculture of Mexico, Evaluacion Externa del Programa de Atencion a Contingencias Climatologicas, Universidad Autonoma de Chapingo, November 2009Google Scholar
  33. Mude A, Chantarat S, Barrett CB, Carter M, Ikegami M, McPeak J (2010) Insuring against drought-related livestock mortality: Piloting index based livestock insurance in Northern Kenya. Working Paper. Ithaca, N.Y.: Cornell University. Available at:
  34. Otsuka K, Hayami Y (1993) The economics of contract choice: an agrarian perspective. Clarendon, OxfordGoogle Scholar
  35. Pandey S, Bhandari H, Hardy B (eds) (2007) Economic costs of drought and rice farmers’ coping mechanisms. International Rice Research Institute, Los Banos (Philippines)Google Scholar
  36. Sakurai T, Reardon T (1997) Potential demand for drought insurance in Burkina Faso and its determinants. Am J Agric Econ 79(4):1193–1207CrossRefGoogle Scholar
  37. Sarris A, Christiansen L (2007) Rural household vulnerability and insurance against commodity risk. Food and Agriculture Organization, RomeGoogle Scholar
  38. Skees JR (1999) Opportunities for improved efficiency in risk sharing using capital markets. Am J Agric Econ 81(5):1228–1233CrossRefGoogle Scholar
  39. Skees JR (2000) A role for capital markets in natural disasters: a piece of the food security puzzle. Food Policy 25:365–378CrossRefGoogle Scholar
  40. Sommerfeld J, Sanon M, Kouyate BA, Sauerborn R (2002) Informal risk-sharing arrangements (IRSAs) in rural Burkina Faso: lessons for the development of community-based insurance (CBI). Int J Health Plann Manage 17:147–163CrossRefPubMedGoogle Scholar
  41. Syroka J, Nucifora A (2010) National drought insurance for Malawi, Policy Research Working Paper 5169. World Bank, Washington DCGoogle Scholar
  42. Walker TS, Jodha NS (1986) How small households adapt to risk. In: Hazell P, Pomareda C, Valdés A (eds) Crop insurance for agricultural development, issues and experience. Johns Hopkins University Press, Baltimore, pp 17–34Google Scholar
  43. Webb P, von Braun J (1994) Famine and food security in Ethiopia: lessons for Africa. Wiley, ChichesterGoogle Scholar
  44. World Bank (2005) Managing agricultural production risk. Agricultural and Rural Development Department Report No. 32727-GLB. World Bank, Washington DCGoogle Scholar
  45. World Bank (2010) World Development Report 2010: development and climate change. World Bank, Washington DCGoogle Scholar
  46. Wright BD, Hewitt JA (1994) All risk crop insurance: lessons from theory and practice. In: Hueth DL, Furtan WH (eds) Economics of agricultural crop insurance: theory and evidence. Kluwer, BostonGoogle Scholar

Copyright information

© Springer Science + Business Media B.V. & International Society for Plant Pathology 2010

Authors and Affiliations

  1. 1.School of Oriental and African StudiesLondon UniversityLondonUK
  2. 2.Centre for Environmental PolicyImperial College LondonLondonUK
  3. 3.World BankWashingtonUSA

Personalised recommendations