'Climate Cost of Cultivation': A New Crop Index Method to Quantify Farmers' Cost of Climate Change Exemplified in Rural India

The Geneva Papers on Risk and Insurance Issues and Practice, 41(2), pp. 280-306, 2016, DOI: 10.1057/gpp.2016.6.

27 Pages Posted: 3 Apr 2016

See all articles by Nihar Jangle

Nihar Jangle

Micro Insurance Academy

Mamta Mehra

Micro Insurance Academy New Delhi

David M. Dror

Micro Insurance Academy (MIA)

Date Written: April 2, 2016

Abstract

We model the impact of agricultural droughts with a new multi-parameter index (using both climatic and non-climatic parameters) and propose a new risk transfer solution for crop insurance, called Climate Cost of Cultivation (CCC). We used 1979/80 to 2012/13 data relevant for wheat in Bihar, India to test the variation in the CCC values. The variance (risk to farmer) increased significantly in the second half of the period (two-tailed F-test, p=0.00045). We examine the efficiency of CCC by comparing it to typical index insurance (TII), and both indices to wheat yield data (2000/01 to 2012/13). The correlation of CCC index payouts with actual yield losses is improved by a factor of ~3.9 over TII results (76.0 per cent, compared with 19.6 per cent). The pure risk premium of the CCC index is lower by around 90 per cent than the premium of the TII. We also elaborate a method to quantify the premium’s climate change cost component.

Keywords: India; Bihar; agricultural insurance; index-based insurance; basis risk; climate change

Suggested Citation

Jangle, Nihar and Mehra, Mamta and Dror, David M., 'Climate Cost of Cultivation': A New Crop Index Method to Quantify Farmers' Cost of Climate Change Exemplified in Rural India (April 2, 2016). The Geneva Papers on Risk and Insurance Issues and Practice, 41(2), pp. 280-306, 2016, DOI: 10.1057/gpp.2016.6., Available at SSRN: https://ssrn.com/abstract=2757935

Nihar Jangle (Contact Author)

Micro Insurance Academy ( email )

52-B, 1st floor
Okhla Industrial Estate, Phase III
New Delhi, 110020
India

HOME PAGE: http://www.microinsuranceacademy.org

Mamta Mehra

Micro Insurance Academy New Delhi ( email )

52-B, 1st floor
Okhla Industrial Estate, Phase III
New Delhi, 110020
India

David M. Dror

Micro Insurance Academy (MIA) ( email )

New Delhi, NCR
India
+41 78 790 6789 (Phone)

HOME PAGE: http://https://en.everybodywiki.com/

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