Adapting to Climate Change: Assessing the World Bank Group ...

CHAPTER 3CLIMATE VARIABILITYto increase lending for farm inputs, then the appropriate intervention might beinsurance products that target banks (which bear weather risk, since their loan defaultsare higher in years with poor weather). IFC’s Global Index Insurance Facility is takingthis approach, targeting banks, cooperatives, and other organizations.3.39 Index insurance at the governmental level may be an effective means offinancing social protection programs. An IEG evaluation of social protectionmechanisms (IEG 2011b) found that Bank operations supporting social safety nets havebeen generally successful, particularly in low-income countries, but that many existingprograms were not well positioned to respond to systemic crises such as food priceshocks by identifying and assisting affected poor households. This suggests that localgovernment could purchase weather insurance and use payouts to finance crisis relief.Safety net payouts could also be made to landless farm laborers—among the mostvulnerable rural residents—who may not be reached by direct insurance instrumentsthat only pay farm owners.3.40 The Bank’s support for an ongoing weather derivative instrument in Malawi isan interesting example. The derivative effectively functions as an insurance contract; apremium is paid up front (funded by the United Kingdom’s Department forInternational Development), and then the government of Malawi receives a payout ifpredicted maize yields fall below a threshold level due to drought. Maize yields arepredicted using a crop prediction model based on observed rainfall. The Bank acts as anintermediary between Malawi and reinsurance companies and investment banks. Thederivative is tied into a social protection mechanism, whereby payouts will be used bythe government to purchase grain internationally in the event of poor domesticharvests, which can then be distributed to drought-affected areas. For low-incomecountries, such schemes may require ongoing donor support.CONCLUSIONS: AGRICULTURE AND DROUGHT MITIGATION3.41 In rainfed agriculture, especially in the drylands, current climate sensitivity isgreat, and linked to poverty. Project experience has shown that improved soil and watermanagement boosts yield and household incomes, presumably also cushioning ruralhouseholds against climate and other shocks. Irrigation is a powerful means of boostingincomes; in those areas where climate change brings increased precipitation, this will bean important adaptation opportunity. It is plausible that SLWM practices improve farmresilience against rainfall variability and drought, but there is also a possibility ofmaladaptation, and hydrological impacts are not being systematically assessed.3.42 All agriculturalists, but especially rainfed farmers and herders, are subject toweather shocks, including droughts and floods. One line of response has been to buildup institutions for drought mitigation and relief. These combine early warning systems45