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How can rainfall insurance help dryland farmers

OAR@ICRISAT

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Relation http://oar.icrisat.org/3051/
 
Title How can rainfall insurance help dryland farmers
 
Creator Bantilan, M C S
Kumara Charyulu, D
Rao, K P C
Gine, Xavier
Donald, Larson
 
Subject Agriculture-Farming, Production, Technology, Economics
Climate change
 
Description 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).
 
Publisher International Crops Research Institute for the Semi-Arid Tropics
 
Date 2006
 
Type Monograph
PeerReviewed
 
Format application/pdf
 
Language en
 
Rights —
 
Identifier http://oar.icrisat.org/3051/1/How_can_rainfall_insurance_help_dryland_farmers.pdf
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.