Making Markets Work for the Poor

Developing improved agricultural technology will almost certainly be necessary for adapting agriculture to climate change, but it is unlikely to be sufficient. Current adoption of improved cereal varieties differs widely across Africa, with estimates ranging from 0% adoption of improved millet varieties across much of the continent, to 80% adoption of improved maize varieties in parts of East and Southern Africa (Maredia et al. 2000; World Bank 2008). To adapt to climate change, farmers need access to these improved technologies and the knowledge and incentives to use them. While information provision to farmers will likely continue to require direct public-sector action (see Section 8.6.3), farmer access to new technologies is likely better served by the private sector in the long run, given the high fiscal and administrative costs often associated with government input distribution programs (World Bank 2008). Governments are often better positioned to provide investments in the physical and financial infrastructure that underpin functioning agricultural markets. These could include investments in transportation infrastructure to better link farmers to input and output markets, investments in the functioning of these markets themselves, and investments in improving poor farmer access to financial infrastructure such as credit and insurance.

For instance, input markets in many poor regions - notably Africa - are often poorly functioning and hamper farmer response to changes in climate. Expanding private-sector provision of inputs like seeds and fertilizer faces numerous difficulties, including high transport costs and weak demand from credit constrained and risk averse farmers. Government investment in roads and ports could help reduce transport costs, and recent foundation investments in agrodealer networks in East Africa has shown promise in linking smallholders to input markets (World Bank 2008).

Similarly, improvements in financial infrastructure could boost both ex-post and ex-ante adaptation capabilities of farmers. Expanding the availability of credit and insurance in poor countries, for instance, could help farmers finance the purchase of inputs, smooth incomes in the face of production shortfalls, and thus encourage diversification out of low-risk, low-return crops and into higher-reward activities.

In particular, there is widespread interest in the development of crop insurance schemes that would reimburse farmers in the event of a climate-related production shortfall. If risk avoidance explains much of why poor farmers are reluctant to adopt higher-return technologies, then the availability of insurance could speed the adoption of new, better-adapted varieties, in addition to helping maintain incomes in bad years.

Providing climate insurance products to poor producers faces a number of hurdles, including the transaction costs of dealing with high numbers of dispersed smallholders, moral hazard problems (were observed production shortfalls a result of bad weather or farmer laziness?) and issues related to the covariate nature of climate risk. This latter concern, in which climate shocks cause simultaneous losses across farmers in a region and thus exceed the reserves of the insurer, is a primary explanation for why insurance is unavailable in many poor regions (Barnett et al. 2008). If climate change greatly increases the incidence of "bad" years, the stability of existing insurance schemes could be further compromised.

Various solutions have been proposed to overcome these problems, including the development of index-based insurance products where payouts are linked to a publicly observable index such as rainfall. In these products, payments would be triggered if rainfall (or some other variable) fell below a pre-determined threshold. Such "weather-indexed" crop insurance schemes would overcome moral hazard problems, and could be helped to remain solvent in the face of covariate shocks if further guaranteed by governments or larger financial institutions. Various products are being piloted throughout the developing world, with some apparent successes (World Bank 2005; Gine et al. 2008).

Renewable Energy 101

Renewable Energy 101

Renewable energy is energy that is generated from sunlight, rain, tides, geothermal heat and wind. These sources are naturally and constantly replenished, which is why they are deemed as renewable. The usage of renewable energy sources is very important when considering the sustainability of the existing energy usage of the world. While there is currently an abundance of non-renewable energy sources, such as nuclear fuels, these energy sources are depleting. In addition to being a non-renewable supply, the non-renewable energy sources release emissions into the air, which has an adverse effect on the environment.

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