DROUGHT INDEX IN SHANDONG

As part of my mandate as deputy director and adjunct professor of the Institute of Catastrophe Risk Management (ICRM) at the Nanyang Technological University (NTU) in Singapore, I co-supervised a Chinese PhD student in the development of weather indices for agricultural insurance in Shandong province (China).

While corn farmers in Shandong have access to government-subsidised crop insurance, drought, which is the main loss driver, was excluded from coverage. The research therefore aimed at developing cumulative rainfall deficit indices based on weather station data for five corn growth phases. In cases where the distance of an insured location to the next weather station was above 25 km, spatial triangulation was used to weight rainfall data from surrounding weather stations. Correlation coefficients between the payouts of the rainfall indices and yield reductions reached, except in one location, 0.86-0.96 and underline the performance of the indices with low basis risk. Risk premium rates of the rainfall indices ranged from 5.6-12.2% and could complement the government indemnity-based crop insurance policy to cover drought-related losses.

The results were published in 2017 in “Agricultural Finance Review” as Rainfall Index Insurance for Corn Farmers in Shandong based on High-Resolution Weather and Yield Data