Drought is a slow-moving natural disaster that affect agriculture, ecosystem as well as the society in general. Examples of drought have changed the history of humankind (e.g. destroyed Mayans civilization, spread of diseases, etc.). By the general definition, the drought can be explained as a simple lack of rainfall or prolonged dry period in the natural climate cycle. Still, when it comes to agriculture, the drought is described through its effect on soil moisture and crop growth.
Due to a climate change, increased frequency of heatwaves and droughts have been affecting the agricultural production across the globe. For example, in 2018, the drought caused low productivity of summer crops yields in France (maize and potatoes), huge harvest loss in Germany, loss of Lithuanian farmers estimated between 15 and 50% of their regular crops production etc.[1] Following this trend, the yield forecasts for 2020 are already reduced for all crops due to a prevailing hot and dry weather across Europe from the beginning of the year[2]. Particularly threatened can be the production of some basic crops (e.g. barley and wheat), as these crops represent the rainfed crops, relying directly on rainfall. Moreover, according to the WWF report, 22% of basic food crops (wheat, barley, corn) are already grown in areas with a high to very high risk of drought.
Nevertheless, there is a missing market for drought insurance in many countries. For example, in Serbia only one company is offering the drought insurance product. Still, such product is not affordable enough for greater commercial uptake by farmers. The reason why the drought is not easy to cover is the fact that it is a very complex weather disaster with many parameters involved at the same time. Here, as a potential resolution of the problem, the index insurance can help, through the selection of best possible weather index as a parameter for measurement.
[1] https://www.farm-europe.eu/blog-en/drought-in-europe-summer-2018-crisis-management-in-an-orderly-chaos/
[2] https://iegpolicy.agribusinessintelligence.informa.com/PL224221/Drought-cuts-yield-expectations-for-EU-crops
