Development lenders are forging new weather insurance schemes to protect small farmers in the developing world from being wiped out by drought, the head of a World Bank subsidiary said Thursday.

"We're experimenting now with weather insurance for small holders in places like Rwanda," said Lars Thunell, chief executive of the International Finance Corporation, which specialises in private sector development funding.

He told AFP that volatility in commodity prices and weather, particularly drought, are the two big risks to small-scale farmers in the developing world.

The IFC, he said, was looking to develop a financial "hedging mechanism" that could help protect these farmers from price swings and also, with EU grant aid, a system of weather insurance for drought-prone areas.

"You get a product where you have both the financing and the weather insurance in one. You give them the financing. If the drought is bad enough, (they) don't have to pay," he said.

Thunell said governments would have to make data available for insurance companies to calculate the weather risk to farmers and warned the system would not work in places with too harsh a climate.

"If you have too erratic weather, then of course it is too difficult for the insurance companies to price the risk and it is going to be too expensive," he explained.

"If you have reasonable regularity, so that you know for example that every five years you have a drought, then you can do it," he added.

"We see some of the big insurance companies like Swiss Re and Munich Re and others being more and more interested in this."

earlier related report
France to give farmers 1 bn euros drought aid: PM
Paris (AFP) June 9, 2011 - France will have to pay a billion euros ($1.5 billion) in aid to farmers hit by a drought in parts of the country, Prime Minister Francois Fillon said on Thursday.

"We now have to implement direct national support for the farmers," Fillon told the Senate. "It is nearly a billion euros that the nation will have to commit to our farmers."

Limits on water use are in place in more than half of France's administrative departments after weeks of warm weather.

A national disaster fund for farmers has been set up and has already made available 200 million euros for "the most urgent cases" but this sum is likely to be "largely exceeded," Fillon said.

The one-billion-euro estimate "is not a very exact one because it depends on the requests of the farmers," he added.

President Nicolas Sarkozy earlier Thursday unveiled a plan to help the farmers, offering them relief on tax and loan repayments.

He stressed the government would avoid giving the kind of direct state subsidies that would break European Union rules.

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