Objectives:
The project will build the framework for index insurance programs for 900 subsistence farmers across three districts in Indonesia—Indramayu/West Java, Pacitan/East Java, and Kupang/East Nusa Tenggara. The project will help farmer groups and relevant government, insurance, and lending institutions to understand the potential of weather index insurance, and enhance partnerships between these stakeholders to develop and implement weather index insurance for improved livelihoods.
Rationale:
When rainfall in the southern Pacific is substantially below average, typically during the El Niño phase of the El Niño Southern Oscillation (ENSO), farmers in countries such as Indonesia face severe production losses. Worse, even in good years, farmers often forgo the purchase of inputs like fertilizer that would ensure a productive harvest if they consider their risk of default to be too high. Index-based rainfall insurance policies, which have been tested in other regions and contexts, can help protect impoverished households from full exposure to extreme climate events and help unlock the productivity-increasing potential of the credit market.
Innovation / Expected Results:
In addition to introducing index insurance to Indonesia, this project will innovate approaches to index insurance for irrigated paddy agriculture and larger amounts of rainfall, whereas most projects to date have focused on rain-fed grains in semiarid areas. The project will also explicitly integrate climate forecasts, which have relatively high rate of accuracy in Indonesia, with insurance policies. It will develop a new generation of bottom-up design and analysis approaches to produce simple, transparent, validated contracts with wide applicability and scalability.