In many regions of the world, the timing between rainfall and the cropping season does not coincide creating the necessity for managing water resources. Although reservoirs and irrigation systems can usually guarantee needed water supplies for peak cropping periods within a single crop year, their risk-reducing effectiveness over a period of years can be diminished by annual rainfall and climate variables. The authors investigate a financial instrument based on river flow accumulations--irrigation insurance--to address drought-induced income shocks and water allocation problems.

The Weather Risk Management Facility, a joint undertaking of IFAD and WFP, reviewed a range of recent experiences with index insurance programmes around the world, analysing the key actors, features of the products, and their successes and challenges. These pilot programmes have demonstrated the great potential of index insurance as a risk-management tool. They suggest that index insurance could not only provide an additional effective, market-mediated solution to promote agricultural development, but it could also make disaster relief more effective.