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Catastrophic Drought Insurance based on the Remotely Sensed Normalized Difference Vegetation Index for Smallholder Farmers in Zimbabwe

Author

Listed:
  • Makaudze, Ephias M.
  • Miranda, Mario J.

Abstract

Index insurance, which indemnifies agricultural producers based on an objectively observable variable that is highly correlated with production losses but which cannot be influenced by the producer, can provide adequate protection against catastrophic droughts without suffering from the moral hazard and adverse selection problems that typically cause conventional agricultural insurance programs to fail. Using historical maize and cotton yield data from nine districts in Zimbabwe, we find that catastrophic drought insurance contracts based on the Normalized Difference Vegetation Index (NDVI) can be constructed whose indemnities exhibit higher correlations with yield losses compared to the conventional rainfall index. In addition the NDVI contracts can be offered within the 5–10 per cent premium range considered reasonably affordable to many poor smallholder farmers in Zimbabwe.

Suggested Citation

  • Makaudze, Ephias M. & Miranda, Mario J., 2009. "Catastrophic Drought Insurance based on the Remotely Sensed Normalized Difference Vegetation Index for Smallholder Farmers in Zimbabwe," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96183, African Association of Agricultural Economists (AAAE).
    • Handle: RePEc:ags:aaae10:96183
    DOI: 10.22004/ag.econ.96183
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    Citations

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    Cited by:

    1. Hira CHANNA*, 2018. "Potential For Index Insurance In Barani Areas Of Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 28(1), pages 1-17.
    2. Janna Frischen & Isabel Meza & Daniel Rupp & Katharina Wietler & Michael Hagenlocher, 2020. "Drought Risk to Agricultural Systems in Zimbabwe: A Spatial Analysis of Hazard, Exposure, and Vulnerability," Sustainability, MDPI, vol. 12(3), pages 1-23, January.
    3. Thomasz, Esteban Otto & Casparri, María Teresa, 2015. "Innovaciones financieras para adaptación al riesgo climático: el caso de las coberturas basadas en índices [Financial innovations for adaptation to climate risk in agriculture: the case of index-ba," MPRA Paper 72690, University Library of Munich, Germany.
    4. Miguel, Fusco & Dario, Bacchini & Esteban Otto, Thomasz, 2014. "Riesgo Agropecuario: Incidencia Económica e Innovaciones para su mitigación. El caso de Argentina [Agricultural Risk Managment: Economic Incidence and Mitigation Innovations. The Case of Argentina]," MPRA Paper 56408, University Library of Munich, Germany.
    5. Wienand Kölle & Andrea Martínez Salgueiro & Matthias Buchholz & Oliver Musshoff, 2021. "Can satellite‐based weather index insurance improve the hedging of yield risk of perennial non‐irrigated olive trees in Spain?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 66-93, January.
    6. Mitchell Roznik & C. Brock Porth & Lysa Porth & Milton Boyd & Katerina Roznik, 2019. "Improving agricultural microinsurance by applying universal kriging and generalised additive models for interpolation of mean daily temperature," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(3), pages 446-480, July.

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