"climate Cost of Cultivation": A New Crop Index Method to Quantify Farmers' Cost of Climate Change Exemplified in Rural India

Abstract

We model the impact of agricultural droughts with a new multi-parameter index (using both climatic and non-climatic parameters) and propose a new risk transfer solution for crop insurance, called Climate Cost of Cultivation (CCC). We used 1979/80 to 2012/13 data relevant for wheat in Bihar, India to test the variation in the CCC values. The variance (risk to farmer) increased significantly in the second half of the period (two-tailed F-test, p=0.00045). We examine the efficiency of CCC by comparing it to typical index insurance (TII), and both indices to wheat yield data (2000/01 to 2012/13). The correlation of CCC index payouts with actual yield losses is improved by a factor of ∼3.9 over TII results (76.0 per cent, compared with 19.6 per cent). The pure risk premium of the CCC index is lower by around 90 per cent than the premium of the TII. We also elaborate a method to quantify the premium's climate change cost component.