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FINANCE AND ECONOMY

Design of Agricultural Insurance Based on Climate Indexes (2013 -)

Agricultural production contemplates at least two sources of uncertainty in producers' incomes: 1) the risk of productive activity, largely associated with climatic factors, and 2) the risk of prices, associated with increasing price volatility. Due to structural technological factors (non-mechanized crops and highly dependent on hydro-climatic conditions), traditional peasant agriculture is particularly exposed to the productive risk associated with extreme climatic phenomena. This problem is accentuated by the food crisis in the current world. In Bolivia, 34% of the national population still depends on agricultural activities, mostly on self-subsistence, but the sector persists as one of the main generators of employment in the country. Among this population, the proportion of farmers who lack mechanized crops for irrigation and other activities is still high (over 80% in the main crops in the country, according to INE, 2011); consequently, the base risk for climatic catastrophes is considerably high for this type of producer. In response to this complex reality, the Bolivian government, through the National Institute of Agricultural Insurance (INSA), is currently seeking to implement the Universal Agricultural Insurance "Pachamama" as a first initiative to be carried out in a public-private scheme to reduce vulnerabilities in agricultural producers to fluctuations in their income and consequently, reduce risks of food insecurity in the country. Initially, this insurance is thought of in a “yield” -based scheme, which implies high monitoring costs that could translate into coverage premiums that are too high, limiting the participation of small producers in this market and potentially requiring the design of public subsidies ( not sustainable over time).


Questions arise about the feasibility of alternative insurance mechanisms, in favor of food security, that allow reducing implementation costs, so that they are commercially self-sustainable and also accessible to small agricultural producers. In response to these questions, in the period 09/2012 - 08/2013 the Center for Economic and Business Research (CIEE) of the Private Bolivian University, in collaboration with the National Institute of Agricultural Insurance (INSA), will experimentally design agricultural insurance Pilot based on climatic indexes, by conception less onerous than performance-based insurance, in order to analyze the financial viability and self-sustainability of an initiative of this nature. The study, supported by the Productive Environment Improvement Program of the Inter-American Development Bank (IDB), will help complement the efforts made by the Bolivian government to build protection mechanisms for the country's farmers and contribute to food security, allowing the identification of and measure the limitations and opportunities of sustainable private participation in agricultural insurance.

Responsible:

Ricardo Nogales, PhD.c.

Email: rnogales@upb.edu

Principal Researchers:

Pamela Cordova, MSc. Carlos Foronda, MSc. Alejandro Vargas, MSc.

Investigadores Invitados:

Rodrigo García, MSc. Manuela Puente, MSc.

Research Assistants (Students of the Economics Degree - UPB):​

Brisa Rejas Adrián Ferrufino