Farm aid from space

Dusty northern Kenya doesn't look like a laboratory, but across its dry plains, cattle herders are pioneering a new way to fend off poverty and teaming up with unlikely partners – insurance agents.

The two groups have been brought together by the International Livestock Research Institute (ILRI), headquartered in Kenya's capital, Nairobi. A few years ago, scientists at ILRI wondered if a new innovation, called weather-indexed insurance, might help impoverished cattle farmers survive the loss of their cows during times of drought.

Weather-indexed insurance has been around for about six years. Like all insurance, the idea is to mitigate risk. Think of homeowner's insurance: A homeowner pays premiums so that, if a pipe bursts, the insurance company will reimburse her – after they've verified the damage, of course.

For the cattle, camel, and goat herders in Marsabit, a dry part of Kenya that shares a border with Ethiopia, animals are assets. Their sale can bring the income a family needs to survive, and a big herd, like a big house, is a store of wealth that can be useful collateral for credit, which analysts often say is key to pulling people out of poverty. At minimum, losing a cow is a devastating financial blow.

That's the kind of risk that insurance can defray, but insurance agents aren't going to travel to Marsabit to verify cattle deaths.

"We really wouldn't have even begun … a traditional [insurance] process. It was very clear for us at the onset that it wouldn't work," says Andrew Mude, chief scientist with ILRI.

Enter weather-indexed insurance, which changes the way the damage is verified for everything from cattle to crops.

"The idea with an index is, instead of providing a payout based on crop loss, you provide a payout based on something you can measure independently," says Dan Osgood, associate research scientist at the International Research Institute for Climate and Society at Columbia University.

Data gathered by 'moving stars'

In Kenya, they're measuring something slightly different. Mr. Mude and his team use the Normalized Difference Vegetation Index, or NDVI. "This is the measure of the greenness level on the ground," says Mude. "It's a very good predictor for us of ... the nutrition available for livestock," which eat the green vegetation.

The index is maintained by NASA, which has been using satellites to take pictures of the area since 1980. Such a long track record of data allowed Mude to test what seem, at first, like simple hypotheses: Does drought correspond to less greenery, and less greenery to high rates of cattle deaths?

"It certainly wasn't a given," Mude says. "If the relationship was not strong, then the index would not have value." But the tests worked, and the data became a proxy for livestock mortality: Insurance companies could use the proven relationship between vegetation and cattle deaths to build a complex formula that allows them to offer policies with affordable premiums to herders. For $10, a farmer in the driest part of the district can insure one cow. If grass levels fall below a certain point, the herder gets a payment of $200 per insured cow. Mude expects herders to insure about 50 percent of their herd in this pilot year.

This sidesteps the biggest problem of any insurance program: the moral hazard.

"If you're a farmer and you have [traditional] insurance," Mr. Osgood says, "you have an incentive to let your crops do badly, and the insurance company has to be very good at measuring how your crops are doing and making sure you're not letting them do badly."

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