Impacts of Weather Index Insurance on Smallholder Agriculture in Ethiopia

Abstract

The changing climate is straining agricultural livelihoods around the world, especially for smallholder farmers. Adverse weather events, such as drought, affect crop production directly by damaging crops. They also have indirect effects. First, farmers who lack savings and access to credit sell productive assets during a drought to pay for food. Second, as uncertainty about the crops increases, farmers reduce investments in crop production to maintain cash to cover expenses in case of poor harvests. Both of these behaviors reduce farmers’ ability to generate income in good seasons. A drought can launch a descent into poverty, which is difficult to reverse.

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Ruiwen Lee
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I am an environmental economist.