Osgood, Daniel E.Suarez, PabloHansen, JamesCarriquiry, MiguelMishra, Ashok2012-06-012012-06-012008-06https://hdl.handle.net/10986/6873Climate variability poses a severe threat to subsistence farmers in southern Africa. Two different approaches have emerged in recent years to address these threats: the use of seasonal precipitation forecasts for risk reduction (for example, choosing seed varieties that can perform well for expected rainfall conditions), and the use of innovative financial instruments for risk sharing (for example, index-based weather insurance bundled to microcredit for agricultural inputs). So far these two approaches have remained entirely separated. This paper explores the integration of seasonal forecasts into an ongoing pilot insurance scheme for smallholder farmers in Malawi. The authors propose a model that adjusts the amount of high-yield agricultural inputs given to farmers to favorable or unfavorable rainfall conditions expected for the season. Simulation results - combining climatic, agricultural, and financial models - indicate that this approach substantially increases production in La Niña years (when droughts are very unlikely for the study area), and reduces losses in El Niño years (when insufficient rainfall often damages crops). Cumulative gross revenues are more than twice as large for the proposed scheme, given modeling assumptions. The resulting accumulation of wealth can reduce long-term vulnerability to drought for participating farmers. Conclusions highlight the potential of this approach for adaptation to climate variability and change in southern Africa.CC BY 3.0 IGOACCESS TO INFORMATIONAGRICULTURAL INPUTSAGRICULTURAL OUTPUTAGRICULTURAL PRODUCTIONAGRICULTURAL SECTORANNUAL INFLATION RATEASYMMETRIC INFORMATIONBANK LOANSBANKSBENEFICIARIESCHRONIC FOOD INSECURITYCHRONIC MALNUTRITIONCLIMATE CHANGECLIMATE FLUCTUATIONSCLIMATIC CHANGECOLLATERALCOMMODITYCOMMODITY RISK MANAGEMENTCONTRACT DESIGNCREDIT CONSTRAINTSCREDIT WORTHINESSCROP INSURANCECROP LOSSCROP PRODUCTIONCROP YIELDCUSTOMER BASECYCLE OF POVERTYDAMAGESDERIVATIVEDERIVATIVE MARKETSDERIVATIVES MARKETDERIVATIVES MARKETSDEVELOPING COUNTRIESDISASTERDISASTER AIDDISASTER RISKDISASTERSDISTRIBUTION OF BENEFITSDROUGHTDROUGHT RISKDROUGHTSEARTHQUAKESEASTERN EQUATORIAL PACIFICENSOEXCHANGE RATEEXPORTERFARMERFARMERSFARMLANDFINANCESFINANCIAL EXPOSUREFINANCIAL INSTRUMENTSFINANCIAL MANAGEMENTFINANCIAL RISKFLOODSFOOD AIDFOOD INSECURITYFOOD SECURITYGLOBAL CLIMATE SYSTEMGROSS MARGINSGROSS REVENUESHOLDINGHOLDINGSHOUSEHOLD SURVEYHURRICANESINCOMEINDEMNITYINDIVIDUAL LOANSINFLATIONINFLATION RATEINFORMATION TECHNOLOGIESINSTITUTIONAL CAPACITYINSURANCEINSURANCE COMPANYINSURANCE CONTRACTINSURANCE CONTRACTSINSURANCE MARKETSINSURANCE PREMIUMINSURANCE PREMIUMSINSURANCE SCHEMEINSURANCE SCHEMESINSURERINSURERSINTEREST RATEINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINTERNATIONAL STRATEGY FOR DISASTER REDUCTIONINVESTINGLABOR COSTSLENDERSLENDING PORTFOLIOLIABILITYLIFE EXPECTANCYLOANLOAN SIZEMARKET MECHANISMSMATHEMATICSMICRO-INSURANCEMICROCREDITMICROFINANCEMORAL HAZARDNATURAL HAZARDSPANDEMICPOLICY RESPONSESPOORPOOR PEOPLEPOVERTY LEVELSPOVERTY LINEPREDICTABILITYPREMIUM PAYMENTPROBABILITYREINSURANCEREPAYMENTRISK ANALYSISRISK MANAGEMENTRISK OF DEFAULTRISK REDUCTIONRISK SHARINGRURALRURAL AREASRURAL BANKSRURAL DEVELOPMENTRURAL FARMERSRURAL HOUSEHOLDSSAFETYSAFETY NETSSALESEA SURFACE TEMPERATURESMALLHOLDER FARMERSSOCIAL SAFETY NETSSTAKEHOLDERSTAKEHOLDERSSTATE UNIVERSITYSTOCKSSUBSISTENCE FARMERSSYSTEMIC RISKTAXTRANSACTIONTRANSACTION COSTSTRANSPARENCYTRANSPORTTRUST FUNDURBAN DEVELOPMENTVALUATIONVARIABLE COSTSWEATHER DERIVATIVEWEATHER DERIVATIVESWorld Bank10.1596/1813-9450-4651