Weather-Index Drought Insurance in Burkina-Faso: Assessment of Its Potential Interest to Farmers

Abstract

By using a detailed agricultural and climate dataset over Burkina-Faso and simple assumptions regarding the form of an insurance contract, the authors investigate the potential economic efficiency for farmers of a weather-index insurance system in this country. To do so, the results of more than 3000 simulated contracts applied to 30 districts, 21 yr (1984–2004), and five crops (cotton, millet, sorghum, maize, and groundnut) are explored. It is found that such an insurance system, even based on a simple weather index like cumulative rainfall during the rainy season, can present a significant economic efficiency for some crops and districts. The determinants of the efficiency of such contracts are analyzed in terms of yield/index correlations and yield variability. As a consequence of these two main determinants, the farmer’s gain from an insurance contract is higher in the driest part of the country. In the same way, maize and groundnuts are the most suitable to implement an insurance system since their respective yields show a large variance and a generally high correlation with the weather index. However, the implementation of a real weather-index insurance system in West Africa raises a number of key practical issues related to cultural, economic, and institutional aspects.