Saving for a rainy day
02 Dec 2015 by Yusuke Taishi, Regional Specialist for Climate Change Adaptation, UNDP - Global Environment Finance Unit, Bureau for Policy and Programme Support
“Save for a rainy day” is probably the single most important piece of wisdom a farmer can follow.
Farming is a risky undertaking everywhere, one that is at the mercy of capricious weather. But farmers in the Philippines (and many other developing countries) now face additional difficulties as climate change makes weather more unpredictable than ever. Traditional approaches to predicting the arrival of the rains are becoming less and less effective, with rain sometimes falling too sparsely and other times too hard.
Crop insurance is a common safeguard. In the United States, 90 percent of total harvested cropland is insured. But in the Philippines, crop insurance products cover less than 10 percent of total rice and corn production. Moreover, insurance in the Philippines is “indemnity-based”, which means that the damage needs to be verified by an insurance agent and payouts typically take up to six months. If farmers do not have sufficient savings to pay expenses until the next harvest, it is likely that they will either sell their productive assets or go into debt to local moneylenders, both of which threaten to push them further into poverty.
I work on a project with the Government of the Philippines to expand an alternative form of crop insurance: weather index-based insurance (WIBI). The advantage of WIBI is the speed of payouts, which are triggered by a predefined index (such as cumulative rainfall) rather than the verification of damages. The speed of payouts makes the farmers’ livelihood more resilient, allowing them to restart agricultural activities within the same cropping season.
This year, WIBI for rice was sold to 251 farmers (we expect that number to eventually rise to 2,000). The real innovation doesn’t lie in selling the product, but in developing an environment that will ensure that WIBI becomes both more effective and more sustainable.
First, WIBI coverage will be extended to crops like coconut and corn. This will reduce the risk for the insurance underwriter and increase the overall viability of WIBI provision. Second, the delivery of WIBI will be bundled with other financial products (such as savings and loans). Done in partnership with private and public financial service providers (FSPs), this would enable a larger number of farmers to purchase WIBI products. Lastly, a legislative change now provides additional financial incentive for FSPs to offer WIBI.
WIBI not only helps vulnerable farmers transfer the risk of climate change-induced variability of weather, but also can be made a financially feasible and sustainable tool for the Government.
When I think about the high stakes of our project, I think about people like Conrado Carreon. 47 years old, Conrado hails from Mindanao and is a prospective beneficiary of WIBI. One hectare of rice paddy is the only source of income for his growing family. He says, “I hope I can insure my crop. Our meager income is readily used up and there is barely enough left. As long as we work hard, we can do better and everything will eventually pay off someday”. But without access to insurance that is both affordable and flexible, a harsher reality might be waiting for him.
The international community is hoping for a truly effective agreement to be reached at the COP21 in Paris. But even if such an agreement is reached, the likelihood of containing the increase of the average global surface temperature below 2˚C is uncertain. This makes measures like WIBI more important than ever, since they can be used to immediately help people like Conrado protect themselves against an increasingly unpredictable climate.