Blog » The Role of Insurance in Promoting Climate Smart Agriculture
In collaboration with the World Bank Agricultural Finance team, a team of students from Columbia School of International and Public Affairs as part of the Capstone Program conducted this year a study on the role of insurance in promoting climate-smart agriculture. Climate change is resulting in an increased frequency and severity of droughts in countries such as Senegal and Ethiopia. For smallholder farmers who are dependent on rainfed agriculture and have limited protection from weather risks, climate change has the potential to devastate livelihoods, perpetuating the cycle of poverty in rural communities. Climate-smart agriculture offers the potential to increase the adaptive capacity of farmers while increasing incomes. However, climate-smart investment entails risks and costs that oftentimes risk-exposed farmers are unwilling or unable to manage. The team developed an interactive risk analysis framework that simulates the farmer’s decision- making process for various investment options using data and parameters for a smallholder farmer in Senegal. The model showed that. at lower levels of climate risk, farmers may rely more on risk reduction technologies rather than insurance to cover production risks. In such a case, government support for adoption of such technologies rather than insurance may be more effective. At higher levels of climate risk, farmers may need both technology and insurance to manage production risks. Under these conditions, subsidizing insurance could be considered, as insurance may function to mitigate the residual risk that technology is unable to mitigate.