The 2011 Horn of Africa food crisis brought the stark reality of weather-related shocks to the world’s attention, as the region’s worst drought in 60 years led to widespread crop failures and skyrocketing food prices and plunged millions of people into severe hunger and malnutrition. An early, effective response could have prevented the kind of widespread tragedy seen in the Horn of Africa in 2011, reducing mortality rates and malnutrition of young children, as well as helping families get back on their feet after the drought. However, in many parts of the developing world, particularly sub-Saharan Africa, government and humanitarian responses to drought have historically been on an ad hoc basis after a disaster strikes; this type of slow, unpredictable response can mean significant loss of lives, livelihoods, and assets while poor populations are waiting for aid.
A new report, commissioned by the WFP and conducted by researchers from IFPRI and the University of Oxford, investigates whether insuring African governments against droughts could be part of the solution. In particular, the report analyses the proposed Africa Risk Capacity (ARC), a potential pan-Africa drought insurance facility designed to increase the ability of governments and international donors to respond to droughts in a faster, more efficient fashion – either during the onset of or immediately following a severe drought. Under the ARC, international donors and member countries would pay annual premiums, which would in return pay timely claim payments to insured governments if satellite weather indices indicate that a large drought is underway. These claim payments would address severe losses caused by unusually large droughts and could decrease the region’s dependence on last-minute calls for international aid after a food crisis has already begun.
Could a facility like the ARC be the future of food aid? The report’s authors, Ruth Vargas Hill of IFPRI and Daniel Clarke of the University of Oxford, argue that for this to make sense, ARC would need to focus on a number of details.
- First, paying timely insurance claims to countries is not enough; countries need to be able to channel these claim payments quickly to the families worst hit by the drought. This probably means that countries will need large-scale, well targeted safety net or state‐contingent schemes that can be scaled up quickly in times of hardship, such as Ethiopia’s Productive Safety Net Programme (PSNP). These schemes can also improve food security in “normal” years when one or two regions of the country are affected by localized drought or flooding, but when food insecurity across the country is not bad enough to trigger an insurance claim payment from ARC.
- Second, ARC needs to be reliable, paying claims to countries in the worst drought years. Satellite weather data alone may not be enough to adequately capture extreme food security needs, and so ARC should incorporate other data sources in their claim payment rules to increase the reliability of claim payments in the most extreme years. Payments should be based on reliable, objective indices that can be quickly calculated to respond to ongoing disasters.
- Third, insurance is most valuable when it is available at low cost. ARC should commit to principles for how it will decide how much reinsurance to purchase (a critical component of the cost) and how it will calculate the premium to charge to donors and member countries.
If proper attention is paid to these important details, ARC could lead the way in replacing the existing ad hoc food aid system in sub-Saharan Africa.
View further IFPRI research on index insurance and risk management.
Learn about further risk coping tools that are informing the 2012 G20 Summit.