How can rainfall insurance help dryland farmers

Bantilan, M C S and Kumara Charyulu, D and Rao, K P C and Gine, Xavier and Donald, Larson (2006) How can rainfall insurance help dryland farmers. Documentation. International Crops Research Institute for the Semi-Arid Tropics, Patancheru, Hyderabad, Andhra Pradesh.

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Abstract

About 65% of the cropped area in India is dependent on rains. Because most of the rains in India are received duringthe monsoon months, the crop growing seasons are quite short. Any aberrations in the amount of rainfall or in its distribution can adversely impact the crop yields. Yield and price uncertainties often reduce the incomes of the farm households and, consequently, their consumption levels and investments. Many of the farmers in the semi-arid tropics (SAT) of India live close to subsistence level, and shielding them from the weather-induced shocks in agricultural income is vital for their survival. The SAT accounts for 37% of the country’s geographical area as well as population, 46% of the net cultivated area, 59% of the coarse cereals area, 53% of the pulses area and 60% of the oilseeds area. Even 60% of the commercial crops are grown in the SAT. If rainfed agriculture in the SAT is to remain as a means of livelihood, ex-ante risk management is a critical first step to ex-post risk coping. Weather-related risks are co-variant as they typically impact all farm households in the affected region at the same time. Local risk sharing arrangements are largely ineffective in these situations. When the probability of weatherrelated risks is high, farmers diversify and adopt low risk and often low return production practices, which involve trading expected profits for lower risk. Like in many other developing countries, rural financial markets in India are fragmented and formal credit markets are, at best, emerging. Although credit is an important means of consumption smoothing, it tends to be complimented by an array of other ex-post risk coping strategies, such as asset sales, remittances from family members and other risk-sharing arrangements. When many farmers are in distress and seek to liquidate assets, their prices are likely to fall, making it hard for affected families to smooth consumption and to recover from the stress in the future. Households can also reduce their exposure to weather risk ex-ante. This could occur through precautionary saving,or by income smoothing strategies such as implementing more conservative agricultural production strategies. In fact, rainfed farmers were earlier focusing on low risk food crops to keep down risks although it meant sacrificing high expected returns from cash crops such as cotton, castor, vegetables, among others. But over the years, the returns from food crops such as millet and sorghum declined rapidly due to declining demand and falling prices. Farmers increasingly shifted to cash crops as their incomes from nonfarm sources and seasonal migration enabled them to accept higher risks. However, in the absence of effective incomesmoothing measures during drought, farmers often fall short of their consumption needs, leading to chronic indebtedness and, in some cases, even to desperation and suicide. In the absence of risk insurance, traditional ex-ante risk management strategies and ineffective ex-post risk coping systems lock the SAT farmers in poverty and subsistence production. Insurance is one of the important ex-post risk reduction strategies (Figure 1).

Item Type: Monograph (Documentation)
Divisions: UNSPECIFIED
CRPS: UNSPECIFIED
Series Name: Policy Brief No. 7
Subjects: Others > Agriculture-Farming, Production, Technology, Economics
Others > Climate change
Depositing User: Ms Vibha Raju
Date Deposited: 21 Oct 2011 04:08
Last Modified: 17 Mar 2014 07:39
URI: http://oar.icrisat.org/id/eprint/3051
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