Managing Irrigation Risk with Inflow-Based Derivatives: The Case of Rio Mayo Irrigation District in Sonora, Mexico

Uncertain reservoir inflows represent a major source of risk for irrigated agriculture. A derivative instrument that uses reservoir inflows as the underlying variable is designed and tested with a recursive stochastic simulation of the Rio Mayo irrigations system. The results indicate that the instrument effectively protects against downside risk.Risk and Uncertainty,

An Empirical Evaluation of Irrigation Insurance for Agricultural Systems in the Mexican Northwest

Prototype inflow-based derivative contracts are designed to hedge irrigation risk in the Rio Mayo Valley of Sonora, Mexico. The results indicate that an 18-month contract is feasible given the specific characteristics of the region selected for the study.Risk and Uncertainty,

EVALUATING USE OF OUTLOOK INFORMATION IN GRAIN SORGHUM STORAGE DECISIONS

This study examines grain sorghum storage decisions in the Texas Coastal Bend region. Decisions involving use and non-use of outlook information are compared using stochastic dominance criteria. Results indicate outlook information is of value to most classes of decision-makers. The value of outlook information, however, is contingent upon producers' risk preferences. The methodology presented could be used to evaluate a more extensive set of marketing strategies for grain sorghum as well as for other crops.Crop Production/Industries,

Innovations in Government Responses to Catastrophic Risk Sharing for Agriculture in Developing Countries

Markets for transferring catastrophic risk in agriculture are woefully lacking in developing countries. Even in developed countries, markets for transferring the risk of crop losses caused by natural hazards generally exist only with large government subsidies. However, such subsidies can be expensive, inefficient, and have detrimental implications that make future catastrophes even worse. In developing countries fiscal constraints limit the degree to which governments can subsidize markets for agricultural risk-sharing. Nonetheless, there are specific things governments can do to facilitate the development of these markets. This paper addresses the role of government in agricultural risk-sharing for natural disasters that impact crop yields or livestock mortality.Agricultural and Food Policy, Risk and Uncertainty, D8, H5, Q14, Q18, Q54,

Creating insurance markets for natural disaster risk in lower income countries: the potential role for securitization

This paper considers the potential for securitizing index-based insurance products that transfer weather and natural disaster risks from lower income countries. The paper begins with a brief overview of why markets for natural disaster risks are important in lower income countries and a review of some recent activities using index-based weather insurance. Next, the paper explains how natural disaster risks are handled in higher income countries. These examples along with the example of an innovative index-based livestock insurance pilot project in Mongolia illustrate how layers, or tranches, of natural disaster risk can be financed during the product development phase by creating structures similar to the Special Purpose Vehicles used in catastrophe bond, mortgage bond, and the emerging microfinance bond markets. We refer to these investment alternatives as micro-CAT bonds since the principal amounts would be small relative to the existing CAT bond market.Catastrophe risk, index insurance, weather risks, socially responsible investing, reinsurance, Risk and Uncertainty,

Is Area Yield Insurance Competitive with Farm Yield Insurance?

This article compares risk reduction from MPCI and GRP crop insurance contracts. The analysis extends and improves on the existing area-yield insurance literature in four important respects. First, the geographical scope greatly exceeds that of previous work. Second, unlike previous efforts, the area is not assumed to consist only of those farms included in the analysis. Third, the analysis is based on the actual GRP indemnity function rather than the area-yield indemnity function commonly used in the literature. Fourth, the analysis avoids the questionable assumption that GRP scale can be optimized at the individual farm level. Even with a number of conservative assumptions favoring MPCI relative to GRP, results indicate that at least for some crops and regions GRP is aviable alternative to MPCI.area yield insurance, Multiple Peril Crop Insurance, risk reduction, Risk and Uncertainty,

AN ANALYTICAL FRAMEWORK FOR DISCUSSING FARM BUSINESS INTERRUPTION INSURANCE FOR CLASSICAL SWINE FEVER

This paper studies farm business interruption insurance for Classical Swine Fever epidemics. Insight into the size of risk is obtained by a very detailed Monte-Carlo simulation model that includes both epidemiological and economic factors. The paper also considers issues such as farmers' and governments' influence on the size of risk.Livestock Production/Industries, Risk and Uncertainty,

Evaluating Post-Harvest Marketing Strategies for Grain Sorghum in the Texas Coastal Bend.

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Working Paper: Poverty Traps and Climate and Weather Risk: Limitations and Opportunities of Index-based Risk Financing

This paper examines the linkage between climate and weather risks and shocks and poverty traps by integrating diverse literatures on a wide range of related topics that enhance our understanding of how climate and weather shocks impact both poverty and development. That understanding is used to enlighten our evaluation of the potential developmental role of innovations in index-based risk financing for catastrophic climate and weather shocks