Abstract
Abstract. Rice production in Ecuador is steadily affected by extreme climatic events that make it difficult for farmers to cope with production risk, threatening rural livelihoods and food security in the country. Developing agricultural insurance is a policy option that has gained traction in the last decade. Index-based agricultural insurance has become a promising alternative that allows insurance companies to ascertain and quantify losses without verifying a catastrophic event in situ, lowering operative costs and easing implementation. But its development can be hindered by basis risk, which occurs when real losses in farms do not fit accurately with the selected index. Avoiding basis risk requires assessing the variability within the insurance application area and considering it for representative index selection. In this context, we have designed an index-based insurance (IBI) that uses a vegetation index (normalized difference vegetation index – NDVI) as an indicator of drought and flood impact on rice in the canton of Babahoyo (Ecuador). Babahoyo was divided in two agro-ecological homogeneous zones (AHZs) to account for variability, and two NDVI threshold values were defined to consider, first, the event impact on crops (physiological threshold) and, second, its impact on the gross margin (economic threshold). This design allows us to set up accurate insurance premiums and compensation that fit the particular conditions of each AHZ, reducing basis risk.
Highlights
Rice-cropping area in Ecuador has witnessed a reduction trend in recent years (FAO, 2018)
The kurtosis (0.56) and skewness (−0.78) indicated that the dataset of NDVI_ave fits a normal distribution; the Lilliefors (Kolmogorov– Smirnov) normality test showed that D = 0.080207 and a p value < 2.2 × 10−16 lower than 0.05; we rejected the null hypothesis because the dataset does not come from a normal distribution
Floods and droughts are a major threat for rice production in Ecuador that undermines food security and endangers the sustainability of rural livelihoods in many areas of the country
Summary
Rice-cropping area in Ecuador has witnessed a reduction trend in recent years (FAO, 2018). From an average cultivated area around 400 000 ha between 2005 and 2015, the annual average decreased to 385 039 ha in 2016 and to 370 406 ha in 2017, falling considerably to 301 853 ha in 2018 (Aguilar et al, 2015, 2018; INEC, 2018; Montaño, 2005) Such a downward trend rises the government’s concern, as rice production plays an important role in Ecuadorian food security (Pinstrup-Andersen, 2009) and is central to rural livelihoods in certain areas of the country. Rice production in Ecuador offers employment to 22 % of the economically active population, involving around 140 000 families For these reasons, the Ecuadorian government supports rice producers through technical advice, subsidized inputs, credit lines for farm modernization and minimum support prices (Eymond and Santos, 2013). These supporting mechanisms have not efficiently prevented the gradual reduction of rice-cropping area, which is necessary to adopt additional measures that support the stability of farmers’ revenues
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