The Impact of Climate Change on Risk and Return in Indian Agriculture

Abstract

We investigate the extent to which climate change will result in insurable and uninsurable losses for farmers in India. Changes in temperature and precipitation patterns may increase the volatility of farmers’ yields, leading to rising but insurable risk. These changes may also reduce the expected yield in an ‘average year’, causing uninsurable reductions in the returns to farming. We use a multi-run climate model to predict the future distribution of potential yields at the district level for sixteen major crops. For the average district, we project a sharp decline in expected agricultural revenue, but small shifts in volatility. This is because weather draws resulting in extremely low agricultural returns—what had once been 1-in-100-year events—are predicted to become the norm by the end of the century. Our projections therefore imply substantial uninsurable losses from the changing climate for Indian farmers.