Study on agricultural risk management by small-scale producers – Private instruments (warrantage and weather-based index insurance)
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Agriculture is crucial in developing countries, especially with regard to food security. Reducing local producers’ exposure to risks caused by price and climate variability is essential in international development co-operation. In 2009, the AFD and the French Ministry for Foreign and European Affairs sponsored a study on management instruments in context of food and agricultural price instability (AFD and MAEE, 2009). To go further, GRET and the AFD decided to investigate the potential of private agricultural risk management tools by comparing the theoretical frameworks in the literature to actual experience on the ground in 5 African and Asia countries (Tanzania, Ethiopia, Malawi, Kenya and India).
The overall objective of the project was to:
- Analyze private agricultural risk management tools for small producers and expected effects;
- Identify the necessary conditions for such instruments to be beneficial, with a specific focus on how they interact with the local context and the type of target producers;
- Use the findings for feasibility studies, in particular in the ECOWAS region.
More specifically, the study conducted by GRET aimed to identify factor for success and limitations of such private risk management tools, in particular in the context of small-holder farming in developing countries. They intended to determine which instruments are best to reduce producers’ income variability depending on local contexts (type of risk, exposure, institutional framework). In the context of increased food insecurity, the study focuses on instruments for subsistence agriculture, and in particular on weather-based index insurance and cereal warrantage. In Tanzania, the case study was focused on the analysis of the BRITA (Building Rural Enterprises Through Associations) Program, the AMSDP (Agricultural Marketing Systems Development Program), and the USAWA network (a network of SACCOs), which all include a warrantage system. The study revealed that the elements needed for a successful implementation of warrantage and weather indexed insurance are the following:
- A strong political will;
- A well-structured rural sector;
- Education and information dissemination efforts.