Bundling Stress Tolerant Seeds and Insurance for Resilient Small-scale Agriculture: Impacts and the Challenge of Learning about Technologies with Stochastic Benefits

Steve Boucher, Michael Carter, Jon Einar Flatnes, Travis Lybbert, Jonathan Malacarne, Paswel Marenya, and Laura Paul

Risk has long been hypothesized to inhibit small farm investment in new technologies. Recent evidence indicates that index insurance and stress tolerant seeds can separately boost small farm investment. In this study, we explore whether the complementarities between these risk management technologies can be harnessed to underwrite a resilient, high productivity small farm sector. Utilizing a multi-year, randomized control trial that spanned two countries and also exploits natural variation in weather shocks, we find that drought tolerant maize seeds mitigate the impact of the single peril of mid-season drought. We also find that shocks have long-lasting effects, depressing future investment and productivity for the control group. Index insurance, which covers the full spectrum of shocks, makes small farms resilient as they immediately bounce back from shocks. Importantly, we find that experiential learning is key. Farmers who experienced shocks intensify their use of the technologies in the future, exhibiting what we call resilience-plus. Those who did not experience shocks, begin to move away immediately from the technologies and their additional costs. Together these findings put a premium on the creation of policies that allow small-scale farmers to learn about and trust technologies that offer stochastic benefits.