Bundling Stress Tolerant Seeds and Insurance for Resilient Small-scale Agriculture: Impacts and the Challenge of Learning about Technologies with Stochastic Benefits

• Development Workshop

Date and Location

Tuesday, September 29, 2020, 1:10 PM - 2:30 PM

Abstract

Risk has long been hypothesized to inhibit small farm investment in new tech-
nologies. Recent evidence indicates that index insurance and stress tolerant seeds
can separately boost small farm investment. In this study, we explore whether the
complementarities between these risk management technologies can be harnessed to
underwrite a resilient, high productivity small farm sector. Utilizing a multi-year, ran-
domized control trial that spanned two countries and also exploits natural variation in
weather shocks, we find that drought tolerant maize seeds mitigate the impact of the
single peril of mid-season drought. We also find that shocks have long-lasting effects,
depressing future investment and productivity for the control group. Index insurance,
which covers the full spectrum of shocks, makes small farms resilient as they immedi-
ately bounce back from shocks. Importantly, we find that experiential learning is key.
Farmers who experienced shocks intensify their use of the technologies in the future,
exhibiting what we call resilience-plus. Those who did not experience shocks, begin
to move away immediately from the technologies and their additional costs. Together
these findings put a premium on the creation of policies that allow small-scale farmers
to learn about and trust technologies that offer stochastic benefits.