Innovations in Agricultural and Natural Disaster Insurance

Abstract

Agricultural production has always been a risky endeavor. Farmers constantly have to deal with unfavorable weather conditions, variability in prices of inputs and outputs, livestock disease outbreaks, pests, etc. The uncertainty of future incomes complicates both short-term production decisions and long-term planning (e.g., expansion of production or capital investments in machinery and equipment). It also renders lending institutions less willing to provide loans to farmers, since the probability of default is relatively high. Although some forms of selfinsurance may be available to farmers (e.g., crop diversification or intertemporal income transfers), these have certain limitations and ultimately reduce farm profits in the long term.