Over the years, various shocks (such as climate change and conflicts) have become increasingly frequent and intense in developing countries, adversely affecting agricultural growth, negatively impacting farmers’ lives, pushing people into poverty, and threatening people’s ability to lift themselves out of poverty. To help the most vulnerable people tackle these shocks in the long term, USAID and IFPRI have been working together to design innovative index insurance products to aid farmers facing crop losses due to severe weather conditions and to make agricultural development practices more sustainable.
Access to efficient risk management mechanisms such as agricultural insurance during extreme weather conditions has been limited. This exacerbates common poverty-trap situations for many smallholder farmers. In 2010, USAID and IFPRI, with support from other collaborators, developed simple and flexible index insurance products in Bangladesh, Ethiopia, India, and Uruguay that are easy to understand and use. Evaluation results suggested that these financial products increased the welfare of farmers by helping mitigate the impact of climate-related shocks on the incomes of the rural poor.
In Ethiopia, IFPRI and USAID worked with Buusaa Gonofaa MFI and Oromia Insurance Company to offer the new insurance product. An examination of the index insurance showed that payouts did result in widespread improvements in welfare outcomes in villages where group risk-sharing was encouraged. In Bangladesh, the study showed an exceptional uptake of the flexible index insurance— developed with BRAC, Gram Unnayan Karma, the Meteorological Department, Bangladesh Bureau of Statistics, Ministry of Finance, and Data Analysis and Technical Assistance—that allows farmers to buy coverage for the primary risks they face. In Uruguay, access to the index insurance helped educate farmers on how to protect their financial stability and how to better cope with climate-related shocks. In addition, the insurance product enhanced the Ministry of Agriculture’s efficiency in handling agricultural losses. By knowing exactly what is owed to farmers during crop failures, the ministry avoids long and costly negotiations and bargaining to determine payouts. The success of the pilot encouraged the Government of Uruguay to expand coverage to citrus crops and grains in other regions. Strengthening the resilience of smallholder farmers and the rural poor is often tied to their long-term ability to withstand, recover, and thrive in the face of shocks.
With support from USAID, notable progress was recently achieved in Colombia. In 2015, IFPRI researchers worked closely with Colombia’s Ministry of the Environment and Sustainable Development (MADS), the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), the University of the Andes, and the International Center for Tropical Agriculture (CIAT), and produced the study “Low Emission Development Strategies in Agriculture: An Agriculture, Forestry, and Other Land Uses (AFOLU) Perspective.” The team successfully identified that the agriculture, forestry, and other land uses (AFOLU) sector offers the most promising opportunities for both climate-change mitigation and improved productivity. In preparation for the 21st Conference of the Parties (COP21), MADS drew heavily from the compelling findings and included the contributions of the AFOLU sector in its official Intended National Determined Contributions. In this document, Colombia offered an ambitious pledge to reduce its greenhouse-gas emissions by 20 percent by 2030, exhibiting a strong resolve to transform its development model to focus not only on economic growth but also on long-term sustainability and resilience.
