Weather Risk Management for Agriculture and Agri-Business in Developing Countries
Economics of developing countries depend heavily on weather conditions that experience frequent weather hazards like droughts, floods, storms affecting households and companies having little access to well developed insurance and credit markets, leaving them financially ill equipped to deal with such shocks. Through this article the authors raise serious questions and suggest the possibility to effectively insure farmers and agri-businesses against weather risks, through formal or informal insurance, as the uncertainties involved not only hurt the livelihood of farmers but also impede the development of the financial market. The author lists five imperative success factors for Weather Risk Management (WRM) in emerging markets:
- Good weather data in key locations;
- The client profile as financial intermediary;
- Facilitation by development organizations';
- A benign regulatory framework; and
- Risk transfer mechanism into international weather markets.
Demonstrating the enormous potential for agri-business management, the authors conclude that the emergence of a vibrant weather market will be driven by by knowledge transfers to local "champions"? who grasp the opportunity, as well as the demonstration effects of a few emerging market transactions and the willingness of global weather risk market makers to shoulder some up-front costs in order to reap the benefits of a globally diversified weather market.
