Framing the Discussion: Developing IBLI

Ethiopia Research Agenda

Chantarat (Cornell University)

Workshop on Developing Index-Based Livestock Insurance to

Reduce Vulnerability due to Drought-related Livestock Deaths

ILRI, Addis Ababa, Ethiopia

12 July 2010

Outline Developing IBLI Ethiopia Research Agenda

Key Steps

• Design a livelihood-focused IBLI

• Identify suitable contract structure

• Identify suitable delivery mechanisms

• Address impacts of climate change and induce climate

change adaptation

Key Strategies

• Existing longitudinal household and satellite-imagery data

• Scoping mission (2010)

• Framing discussions for future research agenda

PARIMA (2000-02)

• Quarterly household

survey (30 hhs/kebele)

• 5 kebeles in 4 woredas

Desta (1999)’s Herd

Recalls Data (1981-97)

• Annual household

herd recalls (~15

hhs/center)

• 35-km radius of 4

town centers

Existing Data Longitudinal household data

LIBEN

DIRE

MOYALE

AreroTELTELE

Yabelo

ODO

SHAKISO

BORE

URAGA

GELANA

ABAYA

ADOLANA

WADERA

Dillo

Negele

ARERO

Qorate

Moyale

Finchawa

HAGERE MARYAM

YEBELO

Mega

Wachille

KENYAKENYA

Dida Hara

Desta’s Town Center

PARIMA’s Kebele

Note on Studied Sites:

Borana and Guji Zones

Existing Data Longitudinal household data

Wareda DIRE ARERO LIBEN

Kebele (sampled strata) Dillo Wachille Qorate Dida Hara Finchara

Climate

Annual rainfall (mm) - 2000-2004 400 550 450 500 650

Dekadal maximum NDVI (1981-2010) 0.21 0.28 0.27 0.30 0.31

Livelihood pastoral pastoral pastoral agro-past agro-past

Income share: livestock 54% 73% 84% 58% 78%

cropping 0% 0% 0% 11% 6%

employment/business 1% 1% 0% 2% 4%

food aid 40% 19% 15% 24% 11%

Livestock

Herd size (TLU) 12 10 16 19 16

% cattle (headcount) 47% 83% 83% 56% 48%

% smallstock (headcount) 52% 9% 2% 40% 25%

Poverty headcount (0.25$/day) 1.00 0.97 0.87 0.83 0.90

Assets/Banking

Total value of other asset ($) $2.13 $11.00 $0.42 $16.29 $71.06

% have bank account 0% 0% 0% 1% 0%

YABELO

Livelihood/ Poverty and Climate (PARIMA 2000-02)

Existing Data Longitudinal household data

Livestock Mortality rate (%)

Existing Risk Management Mechanisms

• Ex-ante: migration, offtakes, supplement. feed/water

• Ex-post: restocking, group-based social insurance*

0

1

2

3

4

5

6

7

8

LR 2000 LD 2000 SR 2000 SD 2001 LR 2001 LD 2001 SR 2001 SD 2002 LR 2002

Live

sto

ck lo

ss (

TLU

) p

er

ho

use

ho

ld

Drought

Disease

CCPP

Predator

Snake bite

Accident

Aging

Others

PARIMA (2000-02)

0%

10%

20%

30%

40%

50%

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Livestock Mortality Recalls in Desta's Data (1981-1997)

Yabello

Mega

Negele

Arero

0%

10%

20%

30%

40%

50%

LR2000 LD2000 SR2000 SD2001 LR2001 LD2001 SR2001 SD2002 LR2002

Livestock Mortality experienced in PARIMA (2000-02)

Dida Hara

Dillo

Finchara

Qorate

Wachille

Drought 2000 Drought 2009 Good forage condition 2010

Satellite imagery NDVI (8km resolution, available every 10 days in real-time)

Liben

DireMoyale

Arero

Teltele

Yabelo

HegermariamOdo Shakiso

Bore

Uraga

Gelana Abaya

Adolana Wadera

Liben

DireMoyale

Arero

Teltele

Yabelo

HegermariamOdo Shakiso

Bore

Uraga

Gelana Abaya

Adolana Wadera

Liben

DireMoyale

Arero

Teltele

Yabelo

HegermariamOdo Shakiso

Bore

Uraga

Gelana Abaya

Adolana Wadera

-3-2-101234

0%

10%

20%

30%

40%

50%Drought 84-85 Drought 90-91 Drought 99-00 Drought 05-06 Drought 09

Area livestock loss (%) (Recalls from Desta 1981-97, PARIMA 1998-2002)

Standardized NDVI

Key Questions:

1. Other longitude household-level data? Verification of past data?

2. The need to collect recent herd recalls?

Existing Data NDVI and Livestock Mortality

Objectives

1. To introduce IBLI to local

communities/authorities

2. FGD to learn the local

opinions on IBLI

3. To meet with local

authorities, financial

institutions, NGOs

Key discussions

1. Contract design (Group-based, ex-ante payout)

2. Delivery mechanism

3. Climate change

Scoping Mission (2010)

Individual IBLI Group as delivery channel Group as client

+ Substitute for absence financial facilities in remote locations

+ Use group learning to enhance education and extension

+ Use group rules to reduce individual basis risks

+ Enhance prospect for linking credit access with insurance

-- Groups need to be well-established, participated by pastoralists

Contract design/delivery/regulation Group-based IBLI

i ii

G

Financial Institution

i ii

Financial Institution

i ii

G

Financial Institution

Existing groups/cooperatives network

Woreda Cooperative Promoting Office

Microfinance

- Loan to livestock productions

- Also loan to non-livestock enterprises

Livestock-related enterprises

- Production groups

- Marketing groups

- Trading groups

-

Non-livestock enterprises

- Cereal groups

- Other women groups, etc.

Social insurance

- Busa gonofa

- Dabbarre

- Funeral groups

Commercial banks (loans)/ NGOs (seed grants) NGOs (restocking programs, etc)

Key Questions:

1. How do groups/cooperatives operate individually; as a network?

2. What are regulatory pre-requisites for group-based IBLI?

Contract design/delivery/regulation Group-based IBLI

Ex-ante payout

for asset protection

Contract design/regulatory Ex ante/ Ex post payout

Observed lossStart of the contract

Ex-post payout

for asset replacement

IBLI payment to insured to

protect animals before drought

+ Could be cheaper to protect

animals than to replace them

- Rely on accuracy in predicting

livestock mortality ex-ante

Potential use:

• Supplementary feed and water

• Hired transport to access market

IBLI payment to insured to

replace animals after drought

+ Higher accuracy in predicting

livestock mortality

- May be more expensive to

replace animals

Key Questions:

1. Which product could provide more effective risk management?

2. What are regulatory pre-requisites of ex-ante product?

Existing financial institutions and local NGOs

LIBEN

DIRE

MOYALE

TELTELE

Yabelo

ODO

SHAKISO

BORE

URAGA

GELANA

ABAYA

ADOLANA

WADERA

Dillo

Negele

ARERO

Qorate

Moyale

Finchawa

HAGERE MARYAM

YEBELO

Mega

Wachille

KENYA

Dida Hara

Commercial Bank of Ethiopia

Delivery Mechanisms Availability of finance

Oromia International Bank

Commercial Bank

Local NGOs

Main offices

Extended offices

(in every Woreda)

Arero

Lagula

Key Questions:

1. What can be potential delivery mechanism given sparsity of

financial institutions?

2. What might be roles of local NGOs in IBLI delivery mechanism?

Climate change more/worse droughts IBLI more

expensive … mitigation to limit premium rise, adaptation to

cushion against premium rise?

Evidence of change in NDVI

Climate change?

Existing community awareness in:

Changes in climate

patterns

Changes in

rangeland/resources

Community actions that

contribute to the changes

• Unpredictable rainfall

• Increased duration and

frequency of drought

• High temperature

• Decline in grazing areas

• Decline and shorten duration

of water availability

• Lost grass species

• Charcoal burning

• Bush encroaching

• Lack of grazing control

• Expand cropping/ settlements

Climate change adaptation/mitigation Awareness

y = -6E-05x*** + 0.321

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

19

81

19

82

19

83

19

85

19

86

19

87

19

88

19

90

19

91

19

92

19

93

19

94

19

96

19

97

19

98

19

99

20

01

20

02

20

03

20

04

20

05

20

07

20

08

20

09

NDVI Trend in Dida Hara

(1981-2010)

Extant community awareness of how to deal with the changes

Very low

Existing projects that promote climate change adaptations:

• Reforestation, Development of rangeland and/or water

sources, Bush clearing to reduce rangeland degradation

• Low community participation to date

Potential linkage of IBLI Ethiopia and Climate Change

• Modeling effects of climate change in rangeland condition

Extension of community awareness

• Using IBLI to induce community participation in climate

change adaptation and mitigation activities

conditional insurance transfer linked to above activities

Climate change adaptation/mitigation Actions

Key Questions:

1. What are the prioritized climate change adaptation activities in

the areas? Current projects? Current incentive mechanisms?

2. How to create extension messages to enhance community

awareness?

Framing the Discussion: Developing IBLI Ethiopia

Contract design

(Pin Chantarat)

Delivery

mechanisms

(Brenda Wandera)

Regulatory

framework

(Andrew Mude)

Climate change

adaptation/

mitigation

(Chris Barrett)

• Group-based or

individual IBLI?

• Explore ex-ante

contracts?

• Data needs for

mortality index

• Contract terms:

TLU vs. cattle?

Fixed value or stated

value? Etc.

• Groups as clients

or as brokers or

not needed?

• Availability of

financial facilities

and linking IBLI

to credit access

• Financial

education and/or

marketing

• Risk layering

Regulatory req’ts:

• Eligible agents

• Group sales?

• Certifying index

• Ex ante products?

• Verification of

insurable interest:

TLU vs. cattle?

Fixed value or

stated value? Etc.

• Promote climate

change adaptation/

mitigation practices

• Exploring pricing

implications of CC

• Incentive

mechanisms …

conditional insurance

transfers

Four themes to be discussed in the next session: