Developing Rainfall-Based Index Insurance in Morocco

Cereal production accounts for about
seventy percent of all agricultural land in Morocco. Cereal
producer prices, influenced by the government, are higher
than world prices. Production is divided into six broad
agro-climatic zones. About half of cereal production is
concentrated in the favorable, and intermediate zones; the
rest occurs mostly in less favorable (arid and semi-arid)
zones, with average annual rainfall below 450 millimeters.
The authors assess the feasibility of rainfall-based index
insurance, to provide effective, low-cost drought insurance
for Moroccan farmers, and rural dwellers. Their analysis
focuses on Morocco's three main cereal crops - hard
wheat, soft wheat, and barley - using data on annual
production, and planting from 1978-99. Maize is included in
some of the analysis. The benefits of this program over the
traditional insurance scheme are that it minimizes the risk
of moral hazard, and adverse selection, and promotes a
streamlined pay-out-process. These features make the program
more attractive to international re-insurers, and investors
in capital markets. A rainfall-indexed insurance product is
feasible in Morocco, where the statistical correlation
between rainfall, and cereal revenues is rather strong in
seventeen provinces in the more favorable agro-climatic
zones. Proportional rainfall insurance contracts, would pay
the insured an amount based on the shortfall in actual
rainfall, during a set period, compared with the trigger
rainfall. The contracts could be purchased in any amount,
allowing farmers to insure the full amount of their expected
revenue, if they wish.