The Potential for Scale and Sustainability in Weather Index Insurance

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THE POTENTIAL FOR SCALE AND SUSTAINABILITY IN WEATHER INDEX INSURANCE FOR AGRICULTURE AND RURAL LIVELIHOODS Case Study 2 PepsiCo contract farming in India Context As the third largest producer of potatoes in the world, India grows approximately 25 million tons of potatoes annually, or about 8 per cent of total worldwide production. To secure its supply of processing potatoes, used for potato chips, PepsiCo started a contract farming programme for potatoes in India in 1995. In 2008, it contracted with approximately 10,000 potato farmers across the country in Punjab, Uttar Pradesh, Bihar, West Bengal, Himachal Pradesh, Maharashtra, Tamil Nadu and Karnataka. PepsiCo planned to increase the total number of potato contract farmers to 12,000-15,000 by the end of 2009. The volume of potatoes sourced in this programme has increased sharply, from 2,920 tons in 2002 to 57,000 tons in 2007, accounting for approximately 60 per cent of PepsiCo’s total demand. In its contract farming arrangement, PepsiCo offers an extensive package of services. It distributes fertilizer, provides access to pesticides, and requires contracted potato farmers to use a specific variety of high-quality potato seed, which it sells to farmers at cost. PepsiCo offers farmers technical advice on production practices through a network of agronomists, extension workers and local facilitators. Contracted farmers have the opportunity to manage the many risks associated with potato-growing through an index insurance product, which is sold through ICICI Lombard General Insurance Company and managed by Weather Risk Management Services (WRMS). 13 PepsiCo has systematically educated farmers about this product, conducting numerous training sessions and meetings for the various actors involved. An integral part of the PepsiCo contract farming programme, WRMS is a private consultancy firm that designed the product, installed weather stations and manages the insurance aspect of the programme, charging PepsiCo a commission of 5 per cent of the premiums. WRMS has installed 250 weather stations in India to date, and aims to have 400 installed by year-end 2009. As a point of reference, the India Meteorological Department (IMD) operates 600 weather stations. The data generated by WRMS weather stations have been a key input into index insurance policies; they are also sold to newspapers, the Reuters service and television programmes. WRMS sent weather data advisory messages to each farmer via mobile phone, along with information on how to prevent avoidable crop loss. This weather service was sent in a timely, regular manner and charged separately to participating farmers. 13 www.weather-risk.com. ANNEX 75
76 CASE STUDY 2 PEPSICO CONTRACT FARMING IN INDIA The designations employed and the presentation of the material in this map do not imply the expression of any opinion whatsoever on the part of IFAD concerning the delimitation of the frontiers or boundaries, or the authorities thereof. Map compiled by IFAD. Figure 2: States in India where PepsiCo engages in contract farming for potatoes
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Contacts IFAD Francesco Rispoli f.r
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The Potential for Scale and Sustainability in Weather Index Insurance

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