Demand for Complementary Financial and Technological Tools for Managing Drought Risk

Patrick S Ward, David L Ortega, David J Spielman, Neha Kumar, Sumedha Minocha
2018 Economic development and cultural change  
The International Food Policy Research Institute (IFPRI), established in 1975, provides evidence-based policy solutions to sustainably end hunger and malnutrition and reduce poverty. The Institute conducts research, communicates results, optimizes partnerships, and builds capacity to ensure sustainable food production, promote healthy food systems, improve markets and trade, transform agriculture, build resilience, and strengthen institutions and governance. Gender is considered in all of the
more » ... red in all of the Institute's work. IFPRI collaborates with partners around the world, including development implementers, public institutions, the private sector, and farmers' organizations, to ensure that local, national, regional, and global food policies are based on evidence. IFPRI is a member of the CGIAR Consortium. Abstract v Figures 2.1 Relative benefits of drought-tolerant (DT) crops under different degrees of drought stress 4 2.2 Illustration of full and limited coverage weather index insurance (WII) 7 3.1 Benefits of bundled drought-tolerant (DT) seed and weather index insurance (WII) product 9 5.1 Bogra district, Rajshahi division, Bangladesh 17 iv ABSTRACT Weather-related production risks remain one of the most serious constraints to agricultural production in much of the developing world. Financial and technological innovations that mitigate these risks have the potential to greatly benefit farmers in areas prone to such risks. In this study we examine farmers' preferences for two distinct tools that allow them to manage drought risk: weather index insurance and a recently released drought-tolerant rice variety. We illustrate how these tools can independently address drought risk and demonstrate the potential for these tools to be combined in a complementary risk management product. Using a discrete choice experiment, we assess farmers' preferences for these two tools independently and in a bundled package. Findings indicate that farmers are generally unwilling to pay for drought-tolerant rice independent of insurance, largely due to the yield penalty under normal conditions. When bundled with insurance, however, farmers' valuation of the rice increases. Farmers value insurance on its own, but even more so when bundled with the drought-tolerant rice variety. The results provide evidence that farmers value the complementarities inherent in a well-calibrated bundle of risk management tools.
doi:10.1086/700632 fatcat:zklsavskoza2jmak4hpuoe5k4m