ECONOMIC RESEARCH IN FOOD SAFETY - PUTTING THE PUZZLE TOGETHER: DISCUSSION

Food Consumption/Nutrition/Food Safety,

RELEVANCE OF POLICY ANALYSIS: NEEDS FOR DESIGN, IMPLEMENTATION AND PACKAGING

This article challenges the traditional model of the economist as a humble technocrat who simply provides analysis given the preferences of policy decision-makers. Since decision-makers rarely reveal their preferences, it is important that the would-be policy research/analyst know the political economy and be willing to identify potential performance goals for society. Researchers who are willing to incur the transaction cost associated with becoming involved in useful policy research must learn to work within the imperfect policy process. Policy research that considers the importance of implementation and that acknowledges the institutions and the history will have the highest chance of being useful to policy-makers.Implementation, Institutions, Policy research, Political economy, Agricultural and Food Policy,

Managing agricultural risk at the country level : the case of index-based livestock insurance in Mongolia

This paper describes the index-based livestock insurance program in Mongolia designed in the context of a World Bank lending operation with Government of Mongolia and implemented on a pilot basis in 2005. This program involves a combination of self-insurance by herders, market-based insurance, and social insurance. Herders retain small losses, larger losses are transferred to the private insurance industry, and extreme or catastrophic losses are transferred to the government using a public safety net program. A syndicate pooling arrangement protects participating insurance companies against excessive insured losses, with excess of loss reinsurance provided by the government. The fiscal exposure of Government of Mongolia toward the most extreme losses is protected with a contingent credit facility. The insurance program relies on a mortality rate index by species in each local region. The index provides strong incentives to individual herders to continue to manage their herds so as to minimize the impacts of major livestock mortality events; individual herders receive an insurance payout based on the local mortality, irrespective of their individual losses. This project offered the first opportunity to design and implement an agriculture insurance program using a country-wide agricultural risk management approach. During the first sales season, 7 percent of the herders in the three pilot regions purchased the insurance product.Insurance&Risk Mitigation,Insurance Law,Hazard Risk Management,Debt Markets,Banks&Banking Reform

STRUCTURING INSTITUTIONS TO SHARE LOCAL WEATHER RISK GLOBALLY

This paper envisions the national weather index as an efficient instrument to hedge the agricultural risk. The theoretical framework is established based on the partition of risk and the cost minimization. The Morocco case was applied and the result shows that the risk can be reduced to a larger extent.Resource /Energy Economics and Policy,

New approaches for index insurance

The El Niño Southern Oscillation (ENSO) is a climate event associated with warming sea surface temperatures in the Pacific Ocean. In years of extreme El Niño events, areas in northern Peru experience catastrophic flooding. As of 2010, it is possible for stakeholders in northern Peru to purchase a new form of insurance that pays out just as flooding begins and stakeholders begin incurring extra costs and consequential losses. Given the high basis risk associated with selling index insurance to households, this insurance is designed for firms and institutions that serve households that are highly exposed to El Niño. ENSO insurance is sold by a Peruvian insurance company, and a major global reinsurer carries most of the risk. This new insurance product is the first insurance to use sea surface temperature as the proxy for catastrophic losses and also the first regulated “forecast index insurance” product in the world. This innovation could enhance progress in developing index-based insurance products for extreme weather events. Recent years have seen a growing number of pilot tests of index insurance for weather risk, motivated by an increased understanding of how natural disasters affect developing countries. Beyond immediate suffering (including deaths, destroyed assets, and lost income), disasters have troublesome indirect effects: economic growth can be disrupted, the poor are thrust into permanent poverty traps, and the mere presence of these risks constrains access to financial services and causes many decisionmakers to pursue low-return, low-risk strategies that impede economic progress. Much of the development of index insurance focuses on agriculture, because activities associated with agriculture remain the primary livelihood strategies for the rural poor in developing countries. Thus far, most index insurance pilots have involved products targeted at households—that is, micro-level products. Index insurance uses an objective measure (an index) of a natural event known to cause losses (such as excess rain, high river levels, or extreme sea surface temperatures). Using an index as the proxy for loss dispenses with expensive loss assessments. Furthermore, use of an index diminishes moral hazard and adverse selection, problems that plague traditional forms of insurance. Given these advantages, index insurance may be well suited to developing countries where data are sparse and delivery of financial services to smallholder households increases the per-unit cost of traditional insurance. Despite the promise of index insurance, uptake by smallholder households is slow. Presently, index insurance may be better suited for risk aggregators—that is, groups or institutions that aggregate the risk of households either through the services they provide or through informal risk-sharing arrangements (for example, agricultural lenders, firms in the value chain, and farmer associations). Focusing first on risk aggregators should also help build linkages and sustainable products that will directly serve smallholder households.ENSO insurance, Farmers, Flooding, forecast index, index insurance,

Examining the feasibility of livestock insurance in Mongolia

Herders in Mongolia have suffered tremendous losses in recent dzud (winter disasters), with livestock mortality rates of over 50 percent in some locales. This study examines the feasibility of offering insurance to compensate for animal deaths. Such an undertaking is challenging in any country. Mongolia offers even more challenges given the vast territory in which herders tend over 30 million animals. Traditional approaches that insure individual animals are simply not workable. The opportunities for fraud and abuse are significant. Monitoring costs required to mitigate this behavior would be very high. This study focuses on the potential for using the livestock mortality rate at a local level (for example, the sum or rural district) as the basis for indemnifying herders. Applications of index insurance are growing around the world, although no country has so far implemented such insurance for livestock deaths. But few countries have such frequent and high rates of localized animal deaths as does Mongolia, and it is one of the few countries that perform an animal census every year. This concept may therefore be precisely what is needed to start a social livestock insurance program. Just as important, the insurance that is used in Mongolia should not interfere with the exceptional efforts that experienced herders take to save animals during severe weather. Using an individual insurance may, in fact, diminish these efforts. Herders may ask,"Why should I work so hard to save my animals if I will simply be compensated for those that are lost?"Since the index insurance would pay all herders in the same region the same rate, the incentives for management to mitigate livestock losses remain strong. No one would reduce their effort to collect on insurance. Those who increase their efforts during a major event (dzud) would likely be compensated for this effort even though they do not lose livestock. In some cases, they could reasonably expect to receive payments that would compensate for the added effort or the added cost of trying to save their livestock.Payment Systems&Infrastructure,Insurance&Risk Mitigation,Livestock&Animal Husbandry,Health Economics&Finance,Labor Policies,Livestock&Animal Husbandry,Insurance&Risk Mitigation,Health Economics&Finance,Environmental Economics&Policies,Banks&Banking Reform

The Political Economy of A Crop insurance Experiment

A.E. Res. 93-14A new crop insurance alternative will be available for eight major crops in 1994. This paper provides background on the development and potential for the new Group Risk Plan (GRP). The policy issues surrounding the Federal Crop Insurance Program are reviewed with an emphasis on the microlevel problems. Recognition of the micro-level problems of adverse selection and moral hazard led to the development of a pilot test of GRP in 1993. Limited Federal funding and the political demands for improving the actuarial performance of the Federal Crop Insurance Program led to the rapid expansion of GRP for crop year 1994. ideas for using GRP to improve the mixture of government and private initiatives to assist U.S. farmers in managing risk are introduced

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,

MANAGING YIELD RISK THROUGH A COOPERATIVE

Developing new risk management products for all agricultural commodities has increased in importance given recent legislation. Vegetables have been difficult to insure. This paper investigates the use of index contracts for growers belonging to a Kentucky vegetable cooperative. Index contracts should be significantly more efficient than current crop insurance alternatives.Agribusiness, 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,