Protecting Livestock and Livelihoods

by Alli Romano

As African herders struggle with extreme weather and drought, their livestock and livelihoods are at risk. Enter an innovative solution from Cornell University and global partners: index-based livestock insurance (IBLI). This groundbreaking program protects pastoralists in Kenya and Ethiopia from devastating losses by predicting severe conditions and providing cash payments to mitigate losses.

IBLI’s creators—including Chris Barrett, Stephen B. and Janice G. Ashley Professor of Applied Economics and Management in the Cornell Dyson School of Applied Economics and Management and professor in the Jeb E. Brooks School of Public Policy—explain this and similar initiatives in a new book, Escaping Poverty Traps and Unlocking Prosperity in the Face of Climate Risk: Lessons from IBLI. It traces IBLI’s journey from a Cornell PhD student’s dissertation to a successful pilot program in northern Kenya and expansion to other communities across four countries.

Herding is often the only viable livelihood in arid and semi-arid regions like the Horn of Africa, but livestock are vulnerable to extreme droughts. If animals die, it can be financially devastating for pastoralists.

“In these areas, catastrophic droughts would drive people into poverty,” Barrett said. “The challenge was, ‘How could we help them cope?’”

The idea for IBLI began when Barrett met Sommarat Chantarat, PhD ’09, a Cornell doctoral student in economics. She envisioned what’s known as a European put option—a financial derivative that gives a person the right to sell a security at a predetermined price within a specified time frame—as a financial tool to protect herders against catastrophic loss. The design of IBLI, and simulation-based studies of its likely impacts, became her dissertation.

Using a variation of Chantarat’s idea, IBLI provides herders with a lifeline. Instead of insuring individual animals, which is infeasibly expensive for insurance companies, it uses an index based on satellite remote sensing data, to track vegetation cover as a strong predictor of imminent livestock mortality. When the index falls below a threshold, indicating potential livestock losses, IBLI triggers cash payouts to insured herders.

Barrett explained that the payments could prevent herders from distress sales of surviving animals or skipping meals or pulling children out of school to cope with disaster.

Using in part data Barrett’s team had collected surveying local herders in northern Kenya over several years, Cornell researchers and international experts launched a pilot program in 2010 led by Andrew Mude, PhD ’06, then at the Nairobi-based International Livestock Research Institute (ILRI). The ILRI-based IBLI team launched radio spots and even a comic book explaining the program to spread the word.

The program was tested almost immediately. When massive droughts hit Kenya in 2011 and 2012, the index accurately forecasted the drought-affected areas and distributed payments to policyholders, using funds from a European reinsurance company that had purchased the risk from the Kenyan underwriter. IBLI had successfully transferred losses from a drought in Kenya to a financial institution in Europe.

“It worked exactly as it was designed,” Barrett said.

Success breeds success. Satisfied Kenyan herders passed word to extended family and clan members in southern Ethiopia, leading the team to develop an Ethiopian variant of IBLI. Nathan Jensen, PhD ’14, supervised IBLI’s expansion in Ethiopia and wrote his dissertation evaluating the program’s impacts.

“Cornell PhD students were the engine of the entire enterprise,” Barrett said.

The program continued to expand across the Horn of Africa. Impressed by its success, the Kenyan government launched a national livestock insurance program—the Kenya Livestock Insurance Program (KLIP)—to make IBLI available more broadly. One challenge was adapting IBLI for Muslim herders in northeastern Kenya to comply with sharia laws. So the team developed a takaful version.

In the field, organizers witnessed IBLI transforming herders’ lives. In early 2012, Barrett visited southern Ethiopia to meet herders impacted by drought. Elders from Kenya shared how IBLI’s cash payments allowed them to keep their surviving herd, buy food, and keep children in school. Surveys after subsequent droughts showed similar results.

“An insurance product that protects one type of productive capital—livestock—from drought also seems to, among other things, increase stock in another type of productive capital that is durable—human capital,” observed Jensen, now a senior research fellow at the University of Edinburgh.

Interest in IBLI is growing in Africa and beyond. The United Nations World Food Programme has invested in making it available elsewhere in Ethiopia and in Zambia. The governments of Kenya and Mauritania use it to help manage drought risk for herders. The team is working with the World Bank and governments of Djibouti, Ethiopia, Kenya and Somalia to cover another 1.5 million herders in the Horn of Africa.

“Many governments and organizations are interested in better policy instruments to respond to droughts, especially as droughts become more frequent and severe with climate change,” Barrett said.

Mude said that the book, published open access by Cambridge University Press in collaboration with the United Nations University World Institute for Development Economics Research, showcases how research into development for impact supported African pastoralist communities.

“The book describes how the identified solution—index-based livestock insurance—was tried and tested and how evidence-based results were leveraged to draw in public sector support and encourage private sector actors to deliver the product at scale,” said Mude, now division manager for the African Development Bank Group.

Barrett said the program and its growth are a testimony to Cornell’s commitment to global innovation.

“Cornell has been called ‘the land grant university to the world,’ and this is very much a land grant university project,” he said.