Demand for complementary financial and technological tools for managing drought risk

IFPRI Discussion Paper 01430, 03/2015:

This study examines farmers’ preferences for two distinct tools that allow them to manage drought risk: weather index insurance and a recently released drought-tolerant rice variety. It illustrates how these tools can independently address drought risk and demonstrate the potential for these tools to be combined in a complementary risk management product.

Findings indicate that farmers are generally unwilling to pay for drought-tolerant rice independent of insurance, largely due to the yield penalty under normal conditions. When bundled with insurance, however, farmers’ valuation of the rice increases. Farmers value insurance on its own, but even more so when bundled with the drought-tolerant rice variety. The results provide evidence that farmers value the complementarities inherent in a well-calibrated bundle of risk management tools.