ASSESSING THE DEMAND FOR WEATHER INDEX INSURANCE IN SHANDONG PROVINCE, CHINA

Shandong Province, renowned as China’s greatest agricultural province, is dominated by smallholders growing rain-fed crops and vulnerable to severe weather shocks that can increase poverty rates. Weather index insurance, an innovative agricultural risk management product, may be an effective mechanism to address vulnerability to catastrophic weather risk in rural regions of China, including Shandong. This project evaluated current household livelihood and risk management strategies and farmer interest in weather index insurance. Data from 174 participants were collected using a methodology that included focus groups, questionnaires, and personal interviews. Despite limited access to formal financial services, Shandong farmers generally employ informal, well-diversified income strategies and rely on no-interest informal loans from community members to manage adverse impacts of natural disasters, such as drought. Households sometimes rely on reducing consumption as a risk coping strategy; however, unlike many regions of the world, Shandong farmers do not tend to sell livelihood assets to manage weather shocks. A majority of interviewed participants were interested in weather index insurance after they understood its basic concept; however, participants expressed concerns regarding basis risk and program implementation