b. müller, m. quaas, k. frank & s. baumgärtner: pitfalls and potential of institutional change...

B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012

Birgit Müller1, Martin Quaas2, Karin Frank1, Stefan Baumgärtner3

Pitfalls and potential of institutional change:

Rain-index insurance and the sustainability of rangeland management

1 Helmholtz-Centre for Environmental Research UFZ – Dep. of Ecological Modelling2 University of Kiel -Department of Economics3 University of Lüneburg - Department of Economics, Dep. of Sustainability Sciences


Outline

1. Background

• (Semi-) arid regions and risk

2. Ecological-economic model (based on rangeland farm in Namibia)

3. Results

• Role of local grazing strategy: resting in rainy years

• Impact of rain-index insurance on strategy choice

4. Conclusions of the toy model study

5. Outlook: Potential of (agent-based) social-ecological modelling for research on micro-insurance


small-holder

agriculture

Semi-arid regions and risk

Ecology Economics

• low in average• highly variable in space and time

• yields varies strongly from year to year

• insecure livelihoods

Rainfall

• hazard of desertification

• high income risk


Problem

Does access to rain-index insurances influence the choice of the grazing management strategy of the farmer ?

Hypothesis: Yes, since farmer can better overcome years of low rainfall. ?


Case study: Gamis-Farm (Namibia)

Karakul sheep farm, 180 mm/a precipitation

many neighbouring farms gave up

application of sophisticated strategy:

• rotational grazing

• resting for a third of the camps during the growth period of the vegetation

• only in years with sufficient precipitation


insurancecompany

farmer

climate

precipitation

insu

ran

cep

rem

ium

vegetation

Concept of the ecological-economic toy model

forage

grazing

strategy

wool,lamb fur

sheep

insu

ran

cep

aym

en

t


photosynthesis

climate

green biomass

reserve biomass

current rainfall

rain-/grazing-history

forage

grazing

sheep

Ecological sub-model


Decision criterion of the farmer

Without insurance

Expected intertemporal utility function

It = St Income proportional to number of sheep (e.g. product for sale: fur of the lambs, milk, wool)


Without insurance

What is the effect of the

grazing strategy “Resting in rainy years”? ?


Strategy defined by:

1.Proportion of rested area α

2.Rain threshold, above which resting pgr

0.0 0.2 0.4 0.6 0.8 1.0

0.0

1.0

2.0

3.0

Geschonter Anteil

Re

ge

nsc

hw

elle

nw

ert

p̂

Grazing strategy “Resting in rainy years”

Space of possible grazing strategies

fraction of resting α

rain

thre

sho

ld p

gr

0 20 40 60 80 100

0

80

1

60

240


Role of resting in rainy years

Income risk

Income

2. Reduction of income risk

Acts as natural insurance

Resting in rainy years has two functions:

1.Effective build-up of reserve biomass

Investment in future income

(Müller et al. 2007 Agric.Syst.)

(Quaas et al. 2007 Ecol.Econ.)


Problem

Does access to rain-index insurances influence the choice of the grazing strategy of the farmer? ?


Sub-Model: Rain-index-insurance

Rain-threshold p*, below which insurance pays out

Revenues of insurance = Expected expenses of insurance

Assumption: fair insurance

e.g. if rainfall drops below 75% of long-term averageif

ifi - insurance paymentb - insurance premium


Impact of rain-index insurance on grazing strategy and sustainability

frac

tion

of re

sting

α in

%

strike-level of the insurance in % of MAP

without insurancewith insurance

1. The higher the strike level … the less resting … the lower the sustainability in the long-term

Müller et al. 2011, Ecological Economics

Expected reserve biomass, T=70Optimal fraction of resting with insurance

2. If strike level low enough: Un-intended side-effects avoided


Conclusions of the toy model study

Risk-reducing - “acts as an insurance”

Role of Grazing-Strategy: Resting in rainy years:

Impact of rain-index insurance on strategy choice:

The introduction of a rain-index insurance could create non-intended effects (rangeland degradation)

Appropriate design of rain-index insurances

Explicit consideration of social-ecol. feedbacks in need


Outlook: Potential of (agent-based) social-ecological modelling for research on micro-insurance

Example for participatory modelling: Role-playing simulation game as learning tool for farmers to understand functioning of index-insurance Patt, A. et al. 2010 Global Environmental Change

Toy models:

Modelling as tool of thinking, tool for experimentation and to enhance interdisciplinary communication

Models at science-practise interface:

• Interlinkages of social and ecological processes

• Incorporation of more realistic human-decision of farmers at the micro-scale (including farmer interactions)

• Investigation of impacts of design of new risk management instruments under global change on livelihoods and sustainability


Thanks to

Collaborative research centre on relationship of nomad and sedentary people: Funded by German Research Foundation (DFG)

[email protected]

b. müller, m. quaas, k. frank & s. baumgärtner: pitfalls and potential of institutional change...

Documents

potential of agent

microinsurance slide

karin frank

stefan baumgrtner

birgit mller

wool slide

martin quaas

grazing management strategy