Planning & Management

Oral

395100 - Exploring Forecast-based Financing Options to Mitigate Agricultual Losses

Monday, June 4
10:30 AM - 12:00 PM
Location: Greenway GH
Co-Authors: Eric Mortensen, Madison, WI – University of Wisconsin-Madison

Much work has been done in recent years in the field of index-based insurance, a unique alternative to traditional catastrophic loss insurance that provides coverage to farmers if a certain climactic index (one which is highly correlated to losses) is observed. By nature, though, this type of framework is still reactionary, that is the loss in question must first occur. Here, we investigate the potential for forecast-based financing (FbF) mechanisms for agricultural operations in southern Peru, a region particularly vulnerable to climate variability due to water resources scarcity, limited infrastructure, and complex topography. Similar to index-based insurance, we propose using a climate index as a proxy for losses, however, the climate information used in this FbF product is collected from the prior season. Payouts to farmers made in advance of a disaster could provide the extra time and financial resources to mitigate negative impacts incurred during poor growing seasons. Issues explored in this work include basis risk, initial endowment requirements, and institutional and policy needs. These are real challenges, however, the success of similar products throughout Peru bodes well for potential uptake.

Paul James. Block, PhD

Assistant Professor
University of Wisconsin - Madison

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