Abstract
Hydrological drought is expected to have an increasing impact on both crop and fruit yields in arid and semi-arid regions. Some existing crop insurance schemes provide coverage against water deficits in rain-fed agriculture. The Prevented Planting Program in the USA covers against drought for irrigated agriculture. However, drought insurance for irrigated agriculture is still a challenge for companies and institutions because of the complexity of the design and implementation of this type of insurance. Few studies have attempted to evaluate the risk of loss due to irrigation water scarcity using both stand-alone production functions and crop simulation models. This paper’s contributions are that it evaluates the suitability of AquaCrop for calculating drought insurance premiums for irrigated agriculture and that it discusses contract conditions and insurance design for hydrological drought risk coverage as part of a traditional insurance product, with on-field loss assessment in combination with a trigger index. This method was applied to an irrigation district in southern Spain. Our insurance premium calculation showed that it is feasible to apply this method provided that its data requirements are met, such as a large enough set of reliable small-scale yield and irrigation time series data, especially soil data, to calibrate AquaCrop. The choice of a trigger index should not be underestimated because it proved to have a decisive influence on insurance premiums and indemnities. Our discussion of the contract conditions shows that hydrological drought insurance must comply with a series of constraints in order to avoid moral hazard and basis risk.
Highlights
Drought-induced water scarcity is a recurring issue in some regions of the world
Our insurance premium calculation showed that it is feasible to apply this method provided that its data requirements are met, such as a large enough set of reliable smallscale yield and irrigation time series data, especially soil data, to calibrate AquaCrop
We propose to quantify the risk associated with irrigation water allocation directly from historical values of water allocation to each crop, which are annually reported by the irrigation district (ID) to the river basin hydrographic confederations
Summary
Drought-induced water scarcity is a recurring issue in some regions of the world. During drought periods, farmers resort to different management strategies, mostly aimed at increasing the amount of water available to crops: development of terraces, soil bunds or small catchments; mitigation of evaporation through crop residue management, intercropping and cover cropping; construction of water storage structures ranging from farm ponds to dams (Rockström, 2003).water harvesting and irrigation are not always a definitive solution because drought sometimes affects irrigated agriculture, too. Drought-induced water scarcity is a recurring issue in some regions of the world. Farmers resort to different management strategies, mostly aimed at increasing the amount of water available to crops: development of terraces, soil bunds or small catchments; mitigation of evaporation through crop residue management, intercropping and cover cropping; construction of water storage structures ranging from farm ponds to dams (Rockström, 2003). Water harvesting and irrigation are not always a definitive solution because drought sometimes affects irrigated agriculture, too. Hydrological drought is an event that inflicts significant losses on farmers. It is predicted that climate change may aggravate water scarcity and drought events in some regions by changing the frequency, intensity and distribution of precipitation (IPCC, 2012)
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