Innovative and integrated risk management in the agri-food chains

Agricultural production is closely related to the weather conditions and farmers are exposed to natural hazards such as excess flood, drought, and frost. The increase of the magnitude and frequency of extreme weather events requires the implementation of several risk management tools that may enhance the resilience of farming systems to climate change. In the last years, the interest on insurance market against extreme weather events has grown and crop insurance schemes may play a key role to manage systemic weather risks, mitigating production losses and stabilizing farmers’ incomes. More specifically, the weather index-based insurance represents a promising tool which may overcome some problems associated with traditional indemnity-based insurances (e.g., asymmetric information, high transaction costs, moral hazard, and adverse selection). However, the weather index-based insurance presents a major limitation, namely basis risk: farmers may experience severe yield losses without any reimbursement or, on the contrary, they may obtain a compensation without any yield loss mainly due to the discrepancy between the pay-out triggered by the weather index and actual losses. Clearly, this main threat limits the spread of this innovative risk management tool. Our studies aim to assess the dynamics between the weather variable and crop yield, i.e., the working principle of the weather index-based insurances, and crop insurance demand. First, we conducted a case study to deepen the knowledge on the linkages between durum wheat yields and weather events occurring in susceptible phenological phases; second, we studied how different approaches for the phenological stages identification and how different weather variables (and combination of thereof) within the econometric model may catch further relationships between durum wheat yields and weather conditions otherwise not caught; third, we assessed whether the relationship yield- temperature control for three categories of durum wheat earliness. We found several connections among yields and weather variables, highly related to both phenological stages, different temporal and design specifications within the econometric model, and earliness. We contributed to discuss on the feasibility of the weather index-based insurance at farm-level, also animating the debate on how policymakers may improve the attractiveness of these risk management tools using publicly available data.