REVIEW Index-based insurance for Climate-Smart Agriculture Improving climate risk transfer and management for Climate-Smart Agriculture A review of existing examples of successful index-based insurance for scaling up Review The review consists of a collection of case studies providing the basis for further exploring the function of index-based risk management tools towards the promotion of Climate- Smart Agriculture, through the adoption of tailored solutions by farming communities increasingly exposed to climate change related ©FAO/Simon Maina risks. SECTIONS 1 Introduction Case studies 2 Jimmy Adegoke, Pramod Aggarwal, Mark Rüegg, James Hansen, Daniela Cuellar, Rahel Diro, Conclusions Rebecca Shaw, Jon Hellin, Helen Greatrex, Robert 3 Zougmoré Table of Contents Introduction ............................................................................................... 5 Case Study: India ..................................................................................... 10 Case study: West Africa ............................................................................ 14 Case study: The R4 Rural Resilience Initiative (R4) ....................................... 18 Case Study: Agriculture and Climate Risk Enterprise (ACRE) Africa ................. 21 Case Study: United States (U.S.) ............................................................... 25 Case Study: Nigeria .................................................................................. 30 Conclusions ............................................................................................. 34 Lessons learned, key challenges and potential for scaling up .......................... 34 References .............................................................................................. 38 2 REVIEW | INDEX-BASED INSURANCE FOR CLIMATE-SMART AGRICULTURE LIST OF ACRONYMS 1. ACRE Agriculture and Climate Risk Enterprise 2. AFD Agricultural and Forestry Development 3. AGRA Alliance for a Green Revolution in Africa 4. AGRODIA Association de Grossites et Detaillants d’Intrants du Burkina Faso 5. AIC Agricultural Insurance Company of India 6. AIP Approved Insurance Providers 7. AMAB Assurance Mutuelle Agricole du Benin 8. APH Actual Production History 9. ARBY Area-based yield 10. ARH Actual Revenue History 11. ARP Area Revenue Protection 12. ARS Assurance Récolte Sahel 13. AYP Area Yield Protection 14. CAT Catastrophic Coverage 15. CCAFS Climate Change and Food Security 16. CGIAR Consultative Group for International Agricultural Research 17. CIRAD Centre de Coopération Internationale en Recherche Agronomique pour le Développement 18. CSA Climate-Smart Agriculture 19. CSV Climate-Smart Village 20. ECOWAS Economic Community of West African States 21. EU European Union 22. ET Evapotranspiration 23. FAO Food and Agricultural Organization of the United Nations 24. FCIC Federal Crop Insurance Corporation 25. FMARD Nigeria’s Federal Ministry of Agriculture and Rural Development 26. GACSA Global Alliance on Climate-Smart Agriculture 27. GHG Green House Gases 28. GIIF Global Index Insurance Facility 29. GIZ German Corporation for International Cooperation 30. GRIP Group Risk Income Protection 31. HARITA Horn of Africa Risk Transfer for Adaptation 32. IBRD International Bank for Reconstruction and Development 33. IFC International Finance Corporation 34. IFDC International Fertilizer Development Center 35. IFW Insurance for Work 36. ILO International Labour Organization 37. IPCC Intergovernmental Panel on Climate Change 3 REVIEW | INDEX-BASED INSURANCE FOR CLIMATE-SMART AGRICULTURE 38. IRDA Insurance Regulatory and Development Authority of India 39. IRI International Research Institute for Climate and Society 40. MFIs Microfinance institutions 41. NAIC Nigerian Agricultural Insurance Corporation 42. NARF National Agricultural Resilience Framework 43. NDVI Normalized Difference Vegetation Index 44. NGOs Non-governmental organizations 45. NIA Nigerian Insurers’ Association 46. NIMET Nigerian Meteorological Agency 47. PG PlaNet Guarantee 48. PSNP Productive Safenet Program 49. REST Relief Society of Tigray 50. RMA Risk Management Agency 51. RNCPS Reseau National des Cooperatives des Producteurs de Semences d’Arachide du Senegal 52. RPG Replanting Guarantee 53. SSA Sub-Saharan Africa 54. SCO Supplemental Coverage Option 55. SNIID Social Network for Index Insurance Design 56. SRA Standard Reinsurance Agreement 57. UNCTAD United Nations Conference on Trade and Development 58. UNEP United Nations Environment Programme 59. USAID United States Agency for International Development 60. USDA United States Department of Agriculture 61. WBCIS Weather Based Insurance Index 62. WFP World Food Programme 63. WFRP Whole-Farm Revenue Protection 64. YP Yield Protection 4 REVIEW | INDEX-BASED INSURANCE FOR CLIMATE-SMART AGRICULTURE Introduction Climate-smart agriculture (CSA) has Overview of index based insurance recently gained prominence as a responsive tools application and rationale of the approach to these challenges. CSA is publication1 defined by three objectives: sustainably increasing agricultural productivity to support increased incomes, food security “In a world of plenty, no one, not a single and development; promoting adaptive person, should go hungry. But almost one capacity at multiple levels; and enabling billion still do not have enough to eat. I greenhouse gas (GHG) emission reductions want to see an end to hunger everywhere and increasing carbon sinks (FAO, 2013). within my lifetime.” Therefore, the concept of CSA combines climate change and food security through These were the words of Ban Ki-moon, the integration of adaptation and mitigation United Nations Secretary General, at the measures. As such, it aims to reduce Rio20+ Conference in Rio de Janeiro, Brazil vulnerability by improving the adaptive in 2012, where heads of states, principals capacity of agricultural systems to climate of major global development agencies, and stress, thus securing the provision of food, leaders from business and civil society met while reducing GHG emissions from to envision viable pathways for sustaining agricultural practices and land uses that the environmental well-being of the planet contribute to climate change (Scherr et al., as population grows toward a projected 2012; Campbell et al., 2014; Harvey et al., nine billion people by 2050. 2014). The case has been made that CSA’s overarching aim is to orient and “ground” The causes of hunger and global food the correct technical, policy and investment insecurity are numerous. Contributing conditions required for agriculture to factors include low agricultural productivity respond to climate change and future food of farmland in much of the developing demands (Ren, 2015). A key reason for the world; weak or under-developed emergence of the CSA model was the agricultural markets; inadequate extension recognition that agriculture, and related services; unsustainable farming practices; food security issues, require a holistic lack of access to capital and displacements approach that can be achieved through of populations from their homelands due to synergistic efforts that encompass climate persistent violence, conflict or insurgency. change mitigation and adaptation These situations constitute severe objectives within an integrated framework. challenges, many of which have been linked to climate change. Since 1980, As mentioned, a key component of CSA is climate change is estimated to have building adaptive capacity to enable various reduced global yields of maize and wheat actors along the agricultural production by 3.8 and 5.5% respectively (Lobell et al., value chain to respond effectively to 2011). Increased climate variability in the longer-term climate change and improve coming decades will increase the frequency their ability to manage the risks associated and severity of floods and droughts, with increased climate variability. Actions radically disrupting markets, increasing to build adaptive capacity are diverse. production risks, reducing coping capacities These include building ecosystem services and elevating threats to food access, that enhance resilience in agricultural especially for vulnerable and resource-poor systems; access to crop varieties that are communities (Bates et al., 2010; Thornton more tolerant to heat, drought, flood and and Gerber, 2010; FAO and EU, 2014). salinity; diversification of farm enterprises; and climate information services and information related to planting dates, pest 1 Contribution prepared by Professor Jimmy Adegoke, control, etc. (Campbell et al., 2014). University of Missouri-Kansas City (UMKC) and Bianca Dendena (FAO). 5 REVIEW | INDEX-BASED INSURANCE FOR CLIMATE-SMART AGRICULTURE Other actions may include enhancing social premiums in order for the insurance safety nets and adopting risk management company to account for the increased risk or risk transfer instruments such as index- of a payout. Index insurance largely based insurance, which is increasingly overcomes these problems. In this case, viewed as an important tool for allowing payout is determined by an objective smallholder farmers to better manage index, such as the amount of rain climate risk by enhancing their resilience. measured at a local weather station, or the health or vigor of vegetation as determined Index insurance differs from traditional through a satellite-derived index. There is indemnity insurance, where payouts are no need to verify losses through individual explicitly based on measured loss for a farm