The potential risks of climate change and weather index insurance scheme for Thailand's economic crop production

Abstract

The purpose of this study is to estimate the potential risks of climate change on economic crop production and to design weather index insurance schemes in four regions of Thailand. To obtain reliable estimates of the moment-based production function, the unit root tests and feasible generalized least squares involving a panel data model are explored using economic crop production and weather data from the provincial level from 1989 to 2017. The findings revealed that the primary weather variables (temperature and rainfall) have a significant impact on crop production. This study proposed weather index insurance as an institutional safeguard against the risk of reduced crop production due to climate change for 2030 2060 and 2090. According to the weather index insurance design, the insurance schemes have a risk reduction performance of 8.14 and 13.37 percent for rice, 2.43 and 6.48 percent for oil palm, and 8.89 and 14.13 percent for rubber tree, respectively. Weather index insurance is a guideline that farmers can use to mitigate the adverse effects of future climate change on economic crop production. The main contribution of this study is the proposal of an insurance scheme and the investigation of whether this measurement can effectively protect crop production losses due to climate change scenarios. However, weather index insurance continues to face persistent social inclusion and sustainable development challenges, which have an impact on the overall effectiveness of insurance schemes.