Are there any effective precedents for agricultural insurance mechanisms in developing countries

While financial innovations are just taking hold in some countries and others are continually being tested, progress has been made with weather insurance for farmers in India, Ukraine, Nicaragua, Malawi, Ethiopia, and Mexico. Several other experiments are also documented in this work.

Weather insured farmers in India say they either have a good crop in which case it does not matter if they do not recoup the insurance premium, or they have a monsoon failure in which case they receive an insurance payout, tte payout at least covers the farmers' cash outlay and absorbs part of the agricultural income deficit resulting from shock, so that families may keep their children in school and preserve household assets that they would otherwise be forced to liquidate, often at greatly reduced prices. Given the right incentives, farmers can invest a little more in the right seeds and fertilizer and optimize their returns. Quantifying the impact of insurance is a delicate task requiring robust monitoring and evaluation systems, several years of household data including baseline data from both control and experimental groups as well as controls for the numerous other shocks that impact vulnerable populations. A large impact assessment is underway, led by the World Bank's Research Department and Professor Townsend, which will soon provide more information on the effectiveness of these risk management systems. What is already clear, however, is that when offered the choice, many farmers in India are willing to pay for fully-priced weather insurance. Even farmers with access to the government-subsidized crop insurance product choose to buy the market-priced weather insurance product, claiming preference for the objective nature of the weather index whose values they may personally verify with easily accessible weather station measurements. Farmers also prefer the timeliness of payout, guaranteed by index insurance to be made shortly after the close of the agricultural season, as opposed to payout made under the national crop insurance product, which may be paid out as much as eighteen months following the season.

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