Innovations in climate risk management: protecting and building rural livelihoods in a variable and changing climate

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Innovations in climate risk management: protecting and building rural livelihoods in a variable and changing climate
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  Innovations in Climate Risk Management: Protecting and Building Rural Livelihoods in aVariable and Changing Climate 1    James W Hansen 1,* , Walter Baethgen 1 , Dan Osgood 1 , Pietro Ceccato 1 , Robinson Kinuthia Ngugi 2   1 International Research Institute for Climate and Society, The Earth Institute, Columbia University, 61 Route 9W,Monell Building, Palisades, NY 10964-8000, USA 2 University of Nairobi, Department of Land Resources Management & Agricultural Technology, RangeManagement Section, P.O. Box, 29053-00625, Nairobi, KenyaCorresponding author,  jhansen@iri.columbia.edu   Abstract We argue that more effective management of climate risk must be part of the response of the internationalagriculture community to the double crisis of persistent poverty and a changing climate. The most promisingopportunities to adapt to climate change involve action on shorter time scales that also contributes to immediatedevelopment challenges. Climate risk management (CRM) combines systematic use of climate information, andtechnology that reduces vulnerability and policy that transfers risk. The cost of climate risk comes both throughdamaging extreme events and through forfeited opportunity in climatically-favorable years. Effective CRMtherefore involves managing the full range of variability, balancing hazard management with efforts to capitalize onopportunity. We discuss several innovations for managing climate risk in agriculture, which have not yet been fullymainstreamed in international agricultural research-for-development. First, effective rural climate informationservices enable farmers to adopt technology, intensify production, and invest in more profitable livelihoods whenconditions are favorable; and to protect families and farms against the long-term consequences of adverse extremes.Second, information and decision support systems synthesize historic, monitored and forecast climate informationinto forms that are directly relevant to institutional decisions (planning, trade, food crisis response) that impactfarmer livelihoods. Third, innovations in index-based insurance and credit overcome some of the limitations of traditional insurance, and are being applied to pre-financing food crisis response, and to removing credit constraintsto adopting improved technology. We present a typology of CRM interventions around the concept of dynamicpoverty traps. 1 Submitted 1 November 2007 to  Journal of Semi-Arid Tropical Agricultural Research . Invited paper for the ICRISAT 35thAnniversary symposium, "Climate-Proofing Innovation for Poverty Reduction and Food Security," 22-24 November 2007. 1  An Open Access Journal published by ICRISAT  ________________________________________________________________________________________________________  SAT eJournal | ejournal.icrisat.org December 2007 | Volume 4 | Issue 1  1.   Responding to a Double Crisis  The international agriculture community finds itself at the intersection of two crises. First, hunger and extremepoverty persist in our world at an unacceptable scale. The Green Revolution, which saved more lives and did moreto reduce hunger and poverty than any other human intervention in history, largely bypassed large, marginal rainfedagricultural regions, particularly in the semi-arid tropics, where rural poverty and hunger continue to frustrate theongoing efforts of the CGIAR and an aggressive global campaign around the Millennium Development Goals(MDGs). Around the same time that the MDGs focused global effort toward eradicating extreme poverty, the threatof climate change finally captured the world’s attention, bringing us to another crisis. In some ways, the “climatecrisis” parallels the fear of Malthusian disaster that, in the 1960s, catalyzed the Green Revolution and the formationof the CGIAR. The crisis at that time was not the occurrence of famine – famine has always been with us. Rather itwas an alignment of public awareness, political will and advances in technology that became a catalyst for change,largely because of the handful of visionaries who saw the opportunity to apply knowledge in new ways and at anunprecedented scale, and mobilized others to action. For the international agriculture community, the current crisisis not just the very real threat that climate change could undo past development efforts. It is a crisis of opportunityto respond to age-old problems – problems that are rendered more intractable by a variable climate, and that achanging climate threatens to intensify – in new ways and with new resources that come with public concern andpolitical will at a global scale. The IRI and an increasing number of development organizations see better management of climate risk today as anessential and feasible step toward reducing long-term vulnerability to a variable and changing climate. Climate riskmanagement (CRM) includes: (a) systematic use of climate information to reduce the uncertainty that impactsplanning and decision making, (b) climate-informed technologies that reduce vulnerability to climate variability(e.g., crop diversification, water harvesting, irrigation, improved water use efficiency, breeding for heat or droughttolerance), and (c) climate-informed policy and market-based interventions that transfer some part of risk away fromvulnerable rural populations (e.g., innovate use of insurance and credit, social safety nets, proactive disastermanagement). It deals with climate variability at multiple time scales. However, the most promising and perhapsmost neglected opportunities to impact poverty and food security involve seasonal to decadal time scales, fallingbetween the extremes of daily weather and the 50-100 year time scales typical of climate change scenarios.2  An Open Access Journal published by ICRISAT  ________________________________________________________________________________________________________  SAT eJournal | ejournal.icrisat.org December 2007 | Volume 4 | Issue 1  Effective climate risk management addresses the full range of variability, balancing protection against climate-related hazards with effort to capitalize on opportunity. It must involve a culture of climate awareness as well assystematic use of climate information among a range of stakeholders. In most contexts, it will require overcominglong-entrenched barriers between the agricultural development, food security early warning and response, andclimate communities. Much of the CGIAR’s work in marginal rainfed regions fits well within this view of CRM. Yet, several emerging opportunities to manage climate risk – new ways to use new types of climate information,climate-informed livelihood strategies, innovations in financial risk transfer products – are consistent with CGIARgoals and potentially synergistic with CGIAR technology, but have yet to be fully exploited within the CGIAR’sprograms. Subsequent sections discuss three such avenues for managing climate risk for agriculture and foodsecurity. 1.1.   Climate Risk Management for Climate Adaptation “Climate change,” associated with long-term natural and anthropogenic changes in the chemical composition andheat balance of the global atmosphere, is one end of the continuum of time scales at which the atmosphere varies,illustrated in Fig. 1 for an index of the West African Sahel. The linear trend, representing the climate change timescale, reveals a 23% per century decline in expected annual rainfall (Fig. 1a). Interactions between the atmosphereand its underlying ocean surface, such as those associated with the El Niño/Southern Oscillation (ENSO) in thetropical Pacific, influence the decadal (Fig. 1b) and year-to-year time scale (Fig. 1c) which are often referred to as“climate variability.” “Weather” is characterized by local-scale variations at daily or sub-daily time scales (maskedby the averaging in Fig. 1). Even in this region marked by the strongest decadal variability observed anywhere, theyear-to-year time scale accounts for the largest portion of overall variability, 2 and is important enough that anyattempt to adapt to longer-term changes must deal with current variability.Although the long-term threat from climate change is real and serious, the most promising opportunities tocontribute to agricultural development and poverty alleviation in the face of long-term climate change arguablyinvolve actions, including more effective management of climate risk, on shorter time scales. First, with a few 2 Averaging to produce the index dampens the interannual component of variability. The interannual component accounts forupward of 70% of the variance at several individual long-term stations in the region. 3  An Open Access Journal published by ICRISAT  ________________________________________________________________________________________________________  SAT eJournal | ejournal.icrisat.org December 2007 | Volume 4 | Issue 1  exceptions (e.g., coastal zones susceptible to sea level rise, irrigated agriculture fed by glaciers), the projectedimpacts of climate change on agriculture tend to be amplifications (sometimes reductions) of the substantialchallenges that climate variability already imposes. Efforts to adapt to the impact of climate change can thereforehope to succeed only if they prove effective at managing the challenges that climate risk currently imposes onagriculture. Managing current climate risk offers a win-win opportunity for developing countries to contribute tolegitimate current development priorities while reducing vulnerability to a changing climate. Second, in the face of pressing legitimate development priorities and a 2015 deadline for the MDG targets, the long (50-100 year) timehorizons of climate change scenarios that have shaped the dialog about adaptation are a disincentive for action.Planning horizons tend to be short for communities already living on the edge of survival, and for governments of poor countries dealing with pressing development problems. The substantial uncertainty of climate changeprojections (particularly for precipitation), at the local scale needed for adaptation decisions, is a further obstacle toinvesting in adaptation. Finally, poverty is perhaps the greatest source of vulnerability to climate at all time scales(Antle et al., 2004; Mendelsohn et al., 2001). Therefore improving rural livelihoods now through aggressive pro-poor development may be the most promising avenue for adapting to future climate change. John Lynam (Lynam,2006) expressed it well: “The irony about climate change and African agriculture is that the most effective means to mitigate thepossible negative consequences of future climate scenarios is to increase the rate of agricultural growth anddevelopment of these sectors. This is not to say that in many areas of Africa, climate change may evenfurther retard development possibilities, but without development, there is very little means by which Africanagricultural sectors can cope with the negative effects of climate change.” 1.2.   Managing the Full Range of Variability Effective CRM for agriculture and food security deals with the full range of impacts across the full range of climatevariability. Rural livelihoods are impacted by both ex post impacts – the losses that follow a climate shock such as adrought or flood – and ex ante impacts, which refer to the opportunity costs associated with conservative strategiesthat risk-averse decision makers employ in advance to protect themselves from the possibility of climate shocks. This distinction can be illustrated by a probability density function of some climate-sensitive agricultural outcome(e.g., production, farm income) (Fig. 2).4  An Open Access Journal published by ICRISAT  ________________________________________________________________________________________________________  SAT eJournal | ejournal.icrisat.org December 2007 | Volume 4 | Issue 1   The most visible impacts are crisis events in the left tail of the distribution, associated with climatic extremes. Poorcountries and the relatively poor within countries are disproportionately impacted by climate-related disasters(Carter et al., 2007; Easterly, 2001; Gaiha and Thapa, 2006).   Adverse climatic conditions that are less severe causehardship, but are within the coping capacity of the affected populations. The ex-post impact of a severe, uninsuredclimate shock can have long-term livelihood consequences through direct damage to crop and livestock productivity,infrastructure, the few productive assets of the poor and sometimes health and life, and also through the strategiesthat vulnerable households employ to cope with the resulting crisis, such as liquidating productive assets, defaultingon loans, migration, withdrawing children from school to work on farm or tend livestock, severely reducing nutrientintake and over-exploiting natural resources, to weather the resulting crisis. Permanent abandonment of farms andmigration to urban centers or refugee camps is an extreme example. Such coping responses sacrifice capacity tobuild a better life in the future, often leading vulnerable households into long-term poverty and even destitution(Carter and Barrett, 2006; Dercon, 2004; Dercon, 2005; McPeak and Barrett, 2001). The uncertainty associated with climate variability, combined with risk aversion on the part of decision makers,causes substantial loss of opportunity in climatically-favorable and even average years (the center and right portionof the distribution in Fig. 2). Without knowing when the next climate shock will come, poor farmers employ a rangeof precautionary ex-ante strategies to protect against the possibility of catastrophic loss, but at the expense of reduced average productivity and profitability, and inefficient and even exploitive resource use. Farmers’ ex-anteresponses to risk include: selection of less risky but less profitable crops (Dercon, 1996) or cultivars (Morduch,1990), under-use of fertilizers (Binswanger and Sillers, 1983; Bliss and Stern, 1982), engaging less household laborin farming enterprises (Rose, 2001; Rosenzweig and Stark, 1989), and shifting from productive to non-productivebut more liquid assets as precautionary savings (Fafchamps, 2003; Paxon, 1992; Zimmerman and Carter, 2003). Forthe risk-averse smallholder farmer, climate-related risk appears to be a significant disincentive to the investment inproductive assets (Barrett et al., 2007a) and adoption of improved technology needed to move toward prosperity(Kebede, 1992; Marra et al., 2003). The resulting opportunity cost is a serious impediment to agriculturaldevelopment efforts and hence to rural livelihoods and agrarian economies.Disentangling the ex-post and ex-ante livelihood impacts of uninsured climate risk is analytically difficult, yetlimited evidence suggests that the opportunity costs of farmers’ ex-ante response to climate risk is substantial –5  An Open Access Journal published by ICRISAT  ________________________________________________________________________________________________________  SAT eJournal | ejournal.icrisat.org December 2007 | Volume 4 | Issue 1
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