Drought: socio-economic impact and fight against the phenomenon

With global warming [4] and the climatic upsets that ensue, droughts have henceforth become a hazard that is equally frequent in industrialized countries having moderate climate and where specific legislations and technical provisions are implemented in order to forecast this phenomenon and cover its damages.

Drought: definition

The state of drought is the result of a prolonged period of insufficient rainfall during one or several seasons causing a water shortage, hence, the damage inflicted upon the country's economy, especially the agricultural sector. It is defined from a meteorological, hydrological, agricultural or socio-economic standpoint.

Heatwave

One of the major aggravating parameters of drought is heatwave. Heatwave stands for a substantial increase in temperature in a more or less localized area of the planet.

It is regarded as a natural catastrophe when it results in a drought whereby the quantity of water available in the soil and in rivers are short of meeting the needs of neighbouring populations, triggering losses in human lives as well as the slowdown or the stoppage of production in some companies.

Socio-economic impact of droughts

Drought is a medium and long-term concern. Its effects are progressive; the first conspicuous ones are forest fires and the loss of crops and seeds.

If a drought lingers on, livestock starves in the absence of the plants it feeds on. Eventually, droughts spread to humans and causes heavy losses in human lives.

On the medium term, the repercussions affect the upcoming farming campaign, which usually results in chain damage. Investments are reduced and so is the labour force employed in the farming sector, children stay away from school and the rate of indebtedness and rural population impoverishment gets worse.

On the long term, droughts are costly for the country's economy by and large. Other dramatic consequences, some of which of irreversible nature, emerge on the longer term. Shrinking soil volume (especially for the kind of clay submitted to substantial loadings) which provokes the destruction of the buildings it holds, along with utter desertification and massive population displacement when droughts linger on for a long time.

In France and Great Britain, namely, the share of damage due to soil reduction is increasingly rising, particularly because of the presence of clay soils in these two countries. On the other hand power producing companies are sustaining production losses along with inland waterway transport because of the water level that is too low to allow navigation.

Drought: Multiple and costly effects

China: A fragile-legged giant building up defences

According to report on the impact of climate change on the world economy elaborated by the British Nicholas Stern, the series of droughts and floods stand as real threats to China's economic growth.

The Chinese meteorological department has announced that the year 2006 has reported the hottest autumn since 1951. Temperatures have recorded a 0.8° increase in the recent hundred years. The studies have highlighted the important role of the farming insurance scheme and the governmental financial assistance plan in the struggle against this phenomenon.

In 2003, rainfall shortages and rising temperatures were the cause of a severe drought and a bad crop. It is estimated that 60 million hectares of cultivated lands suffered from the drought and that 7% of the country's annual provisions were lost.

In the face of this threat, catastrophe prevention and warning systems have largely developed. 2534 meteorological stations, 957 rainfall measurement centres, a meteorological network composed of 143 wind measurement stations, 3006 hydrological stations have been listed.

A calamity that may strike anywhere

India, the 1960s: According to Munich Re estimates, 1.5 million people have lost their lives because of rising temperatures.

Sub-Saharan Africa, 1970: The successive waves of droughts that have affected for a decade the countries of the coastal zone (Mauritania, Mali, Niger, Chad and Sudan), have caused starvation and the displacement of food-producing farming (flour, sorghum) to the north, a relocation that triggered, in its turn, a desertification, land shortage and conflicts between sedentary peasants and pastoral nomads.

United States, 1988: The total damage due to the drought that hit the country's west amounted to 13 billion USD.

Europe, 2003: The heatwave that claimed the lives of 20 000 people resulted in losses worth 13 billion USD.

France, 1989-1993, 1995-1999 and 2003: The series of drought waves cost more than 3.5 billion EUR (4.5 billion USD) to the insurance companies. For the 2003 heatwave alone, the State decided to acknowledge the state of natural disaster in some 3 700 towns, and for an almost equivalent number of towns not submitted to the acknowledgement, the government did provide an exceptional financial aid worth 180 million EUR (234 million USD).

France, 2006: The national commission of agricultural calamities in charge of the 2006 drought compensation has recognized, until now, 54 disaster departments, entirely or part of their territory as regard the 2006 drought.

Zimbabwe, 2006: The land reform started in 2002 coupled with rainfall shortages have consequently strained 17% of the rural population for the 2006-2007 season in which it shall not be able to satisfy its basic needs in cereals.

Eastern Africa, 2006: The erratic character of the precipitations during the short rain season has even worsened the drought that is currently affecting Kenya. According to the World Food Program (WFP), which, due to absence of funding, had to reduce by 20% the food intake handed out to 230 000 refugees in the country due to absence of funding, the number of people in need of urgent food relief is 1.4 million in the south of Somalia, 1.5 million in Ethiopia and 60 000 in Djibouti.

Australia, 2006: A lingering drought has caused huge fires that have ravaged huge forest areas inflicting serious damage to dwellings and to the environment.

Drought insurance

Confronted with this scourge which is destroying the livelihoods of large portions of the population, thus reducing to ashes all efforts aimed at the economic development of their countries, governments are getting more and more aware of the necessity to take consistent measures for drought prevention and risk management. Drought insurance stands as one of those key tools.

Examples of some drought insurance systems

Drought insurance in Morocco

The Moroccan experience started following the severe 1983 drought is regarded as exemplary in the field of insurance system against the drought risk. The genesis of the program in which reinsurance was called upon to play a key role dates back to 1994.

Morocco is the only country in the Maghreb region to have put in place such a program whose objectives are the encouragement of farmers to invest, financial stability of agricultural operators and a better benefit from State support in case of catastrophe.

Basically the measures deal with the funding of farming operations — mainly cereal ones — hit by droughts and with the partial cover of operational costs per hectare, taking into accounts the gaps between the estimated average performance and the actual one achieved. Indemnification is conditioned to the declaration of the state of drought per town and per province.

The procedure includes three levels of guarantee of a respective amount of 1000, 2000 and 3000 DH/hec (117, 234, 352 USD) with premiums corresponding to each of them, of 120, 240 and 360 DH/hec (14, 28, 42 USD) according to the years.

Two reinsurance schemes have been put in place:

• The first one is a five-year plan (2000–2004) in which the government's participation ranges from 50% to 0%.
• The second one is tri-annual (2005–2007) in which the government's participation is 50%.

By and large, the product has been successful. However, it is estimated that it could conquer a larger part of the target population, mainly small farmers. Observers have nonetheless reported a significant decrease in the insured area which in five years has dwindled down from 244 000 hec in 2000–2001 to 122 000 hec for the campaign 2005–2006, whereas the plan forecasts 300 000 hec per year throughout 18 provinces.

Drought insurance in Ethiopia

For the first time in its history, the United Nations Organisation has launched through its World Food Program (WFP) and in collaboration with the Ethiopian government a drought insurance plan for the benefit of the country's farmers.

Concluded with the insurer AXA following an international tender, the contract provides for the payment of 7.1 million USD in emergency fund in case a severe drought is to hit Ethiopia for the 2006 campaign.

Based on a graded index of rainfall data from the 26 meteorological stations set up throughout the Ethiopian territory, the derivative-contract type of insurance policy provides for the payment of funds when the data compiled from March to October 2006 show that rainfall is well below the historic average and that a generalised bad crop is looming ahead.

If the Ethiopian experience, regarded as a pilot project, is successful, this type of contract will be progressively generalised and extended to neighbouring Kenya and Niger.

The recourse to private insurance should be a supplement to the improvements provided by the UNO through the recent creation of the Central Emergency and Relief Fund (CERF) which is due to provide quick funds aimed at facilitating relief operations during the first days following the catastrophe.

Drought insurance in France

In France, the natural disasters [5] cover is integrated into the comprehensive house owners' insurance contract with a fixed rate set by the State.

The insurance scheme pertaining to natural catastrophes put in place in 1982 combines the mechanisms of solidarity and those of risk mutualisation. Since the two drought waves of 1989 and 1995, the compensation plan has been extended to a longer period and drought has been regarded as a natural catastrophe.

Following the 2003 severe drought which unveiled a number of implementation gaps, this law has been subjected to a reform which provided for the following measures :

• The annulment of the additional premium unique rate,
• A free pricing system within the framework of a predefined bracket for the most significant risks,
• The suppression of the decrees declaring the state of natural catastrophe,
• The planning of the conditions for the cover of damages due to land slides consecutive to droughts.

Drought insurance in India

In accordance with a partnership between insurance companies and civil society organisations, the Indian Regulatory and Development Authority (IRDA) is requiring from insurance companies to realise 15% of their transactions in rural areas.

In an effort to face meteorological risks, the Indian government has introduced for twenty years the National Agricultural Insurance Scheme (NAIS) designed to offer insurance products against droughts to small farmers, mainly microinsurance [6] product.

But the plan's performance has been deemed unsatisfactory at both economic and social levels. Between 1985 and 1999, 72 million EUR (93 million USD) of premiums were compiled while 412 million EUR (536 million USD) of indemnities were disbursed by insurance companies, that is a ratio of 1 to 5.72. Moreover, the plan reports some shortcomings pertaining to the indemnity disbursement with striking regional disparities noticed. With the support of the World Bank, ICICI Bank Lombard has elaborated an innovating service of meteorological risk management. It consists of a drought insurance covering some crops over a period of four months corresponding to rain season. Thanks to this service, the drought insurance develops into instrumental capital insurance.

Drought insurance project in Central America

Droughts which stand as the major cause of crop loss in the region trigger even more severe consequences: rising interest rates on loans, the reduction in the number of seasonal workers and the increase in the price of food products.

On the base for the cultivation of dried beans on Nicaragua's small farms, the International Centre of Tropical Agriculture (ICTA) has recently launched a feasibility study of a drought insurance system. Nevertheless, the issue pertaining to the funding of such a scheme, especially for small farmers and for the peasants' cooperatives, has not been settled in a successful way.

Drought coping strategies

With the growing awareness of the impact of climatic upsets on the world economy and on the future of the planet by the entire international community, drought risks should, henceforth, be integrated as key parameters in the elaboration of policies and in the countries' development strategies.

In the light of the experiences realised, it is concluded that the organisation of strategies aimed at combating the effects of droughts rests on the creation of an effective system of information and assessment for all the parameters surrounding the phenomenon. In order to be efficient, these schemes must be combined to tools helping in decision making, in the availability of financial and material means for intervention and to emergency action plans.

The pedagogical aspect is crucial to the success of such a strategy. It includes awareness-raising campaigns targeting the population and restricting measures as regards the economy and water consumption restrictions. Finally, and in some cases, these strategies should be aimed at shifting production systems towards a mixed agriculture that is better resistant to climatic variations than monocrops.