01. Stories from Prof. Patrick S. Ward

Far from the imagination of the blooming paradise that the poet has depicted, the rural world that produces the food and feeds the globe is very fragile. Crop production is frequently threatened by natural hazards such as hurricanes, flooding, drought, etc. Conversely, agricultural activities often add a variety of stress to nature, for instance: spraying pesticides, clearing and burning forests for farmland, or agricultural waste discharge.

Yet, rural residents often don’t have sufficient resources either to protect themselves from the extreme natural conditions, or to maintain a sustainable agriculture practice.

For much of his career, Professor Patrick Ward has focused on using quantitative measures to identify policy solutions to protect the villagers from financial loss due to natural disasters, and also mounting new systems to enable a self-motivated sustainable practice.

02. Helping the farmers to grow food under climate uncertainty

Insurance is  a common term to urban dwellers like us, who regularly use insurance to secure our belongings against unexpected misfortunes. Yet such a product usually has low demand among farmers in the developing world. While the uptake of insurance among farmers is limited, the likelihood of extreme catastrophe keeps growing due to climate change.

There are several issues that existing insurance products failed to attract farmers: 1) The insurance usually comes with a high premium, which rural consumers can rarely afford. 2) To cope with the high premium and low uptake, the government in the developing country often provides a large subsidy to bring down the price, which might be a fair temporary solution, but is rarely sustainable or cost-effective. 3) To many people who live in an undeveloped village, insurance itself, along with concepts such as “risk management”, “indemnification” or “basis risk” are not easy to understand.

Patrick has designed several insurance products to fill the niche of agricultural insurance for the villages in the developing countries. 

In Odisha, India, Patrick incorporated weather index insurance with a new drought-tolerant crop cultivar. In design, this would benefit farmers in multiple folds – 1) by adding insurance, it protects the farmers in the case of extreme drought where even drought-tolerant cultivars failed to survive or grow to be worth harvesting, 2) the weather index can be easily inferred or interpolated by weather monitoring stations. This saves the administrative cost of insurance and thus brings the premium price down, and 3) it further reduces moral hazard where the amount of farmland yield is tampered by malicious stakeholders.

In Bogra, Bangladesh, Patrick and colleagues introduced a hybrid index insurance product – it covers both an average yield reduction as well as successive dry days. Although irrigation is generally available to the Bangladesh agriculture practitioners, irrigation infrastructure did not always save the farmland from the drought and eliminate the need for insurance – one possible reason is that the water used to irrigate came at a price. When drought hits a massive area, as the demand for irrigation grows, the price of the water surged to the point that makes growing crops unfeasible. In this scenario, insurance is needed to reduce the financial loss of the farmers.

The real challenge in the rural world is much more complicated than what’s written here, and Patrick has always been discovering innovative ways to lower the barrier of farmers getting a financial safe net. 

In an ongoing project in Odisha, India, Patrick has demonstrated his interest in integrating available low-cost technology to expand the access to marginal farmers such as female farmers or tenants who don’t have legal documents to claim land ownership. In short words, while georeferenced photos during growing season can be an equivalent evidence of the connection between farmland and the people who grow crops on it, cell phones can be used to expand the availability of group loans to some marginal farmers.

03. Weaving a supportive network for sustainable conservation

While we suffer from all kinds of natural hazards, human beings are also changing nature, sometimes in bad ways. 

For many, a commonly heard environment story is the argument between an environmentalist who wants to preserve a virgin forest, and a farming community who wish to claim some farmland from it to make a living. The conflict between the economic reward of destroying nature and the logical reasoning of preserving nature has brought about the mechanism of Payments of Ecosystems Services (PES) – namely, people who benefit from the ecosystem should reward the people who are obliged to preserve it.

Patrick’s story at Malawi demonstrated how dots are connected to build a PES system that maintains the motivation without external resources:

Agriculture has been believed to be one of the major polluting sources, and sometimes the so-called “modern” agriculture schemes are just exploiting the soil in unsustainable ways. 

Around the Shire River Basin at Malawi, farmers have been practicing intensive monocrop production. Such practice will then exacerbate the erosion of the exposed topsoil, which will further create extra processing costs for the downstream hydropower generation.

As people better understood these drawbacks, Conservative Agriculture (CA)came into play – by adopting no-tillage farming, mulching and crop rotation, soil erosion can be significantly reduced, and the yield of CA-adopted soil may  also increase.

However, while academic researchers summarized do’s and don’ts, the adoption of Conservative Agriculture practices is often obstructed due to extra workloads or costs during the initial stage.

Patrick has noticed that while initial costs of adopting CA practices are added to the farmers, there is one stakeholder that will benefit from the ecosystem — the downstream hydropower generator. Therefore, by carefully designing a PES scheme, the hydropower can provide a subsidy to the farmers who adopted CA and reduced sediment loading, as a form of “source reduction”. The farmers who received payment and practiced CA also get their own reward: the productivity of the soil will eventually increase and should produce higher crop yields. Along with the initial financial motivation received, such a system may become self-sustaining.

The essence of the story came at when Patrick introduce the comparison of budget usage for the hydropower utility company: Under the most conservative estimation, the hydropower generation company pays $2,000 for each ton of sediment avoided, whereas in a non PES system the company paid $150,000 per ton of sediment removal through dredging, load shedding and generator maintenance.

04. Empowering sustainable development with quantitative analytics

It would be naive to believe that insurance plans and payment schemes are established by intuitive decisions. It would also be unfair to say that pure observation and simple reasoning will make the stories above happen.

Humans are subjected to a variety of conscious and unconscious biases. For researchers like Patrick, quantitative measures are an essential part in these stories.

Obviously, basic knowledge in actuary is required to determine the price of an insurance product. But in Patrick’s research, marketing is equally important to the insurance product itself. Mathematical and statistical modeling and knowledge of survey methods are often used to identify user preferences.

There are more in Patrick’s analytical toolbox. To deal with Extreme drought events, Extreme Value Theory is applied to account for the scarce but impactful extreme events. To better sample the recognition of drought events from farmers who are unfamiliar with probability, Patrick applied a method that uses paper bins and beans to simulate the probabilistic interpretation.

In fact, quantitative analytics is the foundation of these successful stories.

05. Happy Ending?

Some of the farmers in the Odisha study who bought the drought-tolerant crop seeds along with the weather index insurance did claim reimbursement, since the drought actually happened.

Similarly, CA-practicing farmers in the Malawi study also received subsidies from the PES system.

Yet, that is far from the “ending” of a story.

Even in these studies, many questions remain unanswered – moral hazard may persist even when environmentally-friendly practices are incentivized by subsidies if there is inadequate monitoring to ensure that the practices are actually implemented in the field. Farmers still tend to buy less insurance if they do not have experience of getting reimbursed from a disaster. The NGO session which aims to demonstrate the insurance product seems to be a source of peer pressure and pushing the farmers to participate in programs but only with a reserved extent…

As we wondered the answers to these questions,  we could expect more attracting stories from Patrick.