The Potential for Scale and Sustainability in Weather Index Insurance

THE POTENTIAL FOR SCALE AND SUSTAINABILITY IN WEATHER INDEX INSURANCE
FOR AGRICULTURE AND RURAL LIVELIHOODS
Case Study 3
Index insurance in
Ethiopia – three pilots
Context
Some 44 per cent of Ethiopia’s population lives below the poverty line. Agriculture is the
dominant economic activity, accounting for roughly 47 per cent of GDP. 16 Almost four fifths
of the people live in rural areas, and the majority work in the agriculture sector.
Grains are the most important field crops – and the chief element in the diet of most
Ethiopians. The principal grains are teff, wheat, barley, corn, sorghum and millet. Other
widespread crops include pulses and oilseeds such as niger seed (neug) and sesame.
Agricultural activities in Ethiopia generally have low productivity. The sector is affected by
a high level of poverty, underdeveloped infrastructure and poor entrepreneurial
development. Natural resource degradation, shortage of capital and poor savings habits
trigger severe seasonal income fluctuations.
Ethiopia is one of the few countries in the world that has been ravaged by two extreme
hydrological phenomena: extreme drought and extreme flooding, both of which compound
the land degradation problem. The direct results are a dramatic decrease in economic
development and an increase in poverty. In order to cope, some farmers have diversified
crops in the case of drought or have sold cattle to repay loans or buy food.
The Government of Ethiopia’s agriculture policy aims to achieve rapid economic growth
through the development of a free market economy, with the intention of liberating Ethiopia
from aid dependency. 17 Within the Government Food Security Program, proposed
development alternatives include the use of index insurance products. Index insurance was
first piloted in the country in 2006.
Insurance programmes
Pilot overview I: Macro pilot project – disaster insurance
in Ethiopia, 2006
Ethiopia’s first index insurance pilot was implemented in 2006 through a partnership
between the World Food Programme (WFP) and the Government. The main objective was
to insure against the risk of national drought catastrophe on the international financial
16 IFAD. 2008. Ethiopia: Recent macroeconomic agriculture-sector performance and trends in rural poverty,
August 2008. Internal document. Rome.
17 www.eap.gov.et/About-MoARD/Vission.asp and
www.eap.gov.et/content/files/Documents/Rural_Development_Policies.pdf.
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