Climate variability poses a severe threat to subsistence
farmers in southern Africa. Two different approaches have
emerged in recent years to address these threats: the use
of seasonal precipitation forecasts for risk reduction (for
example, choosing seed varieties that can perform well for
expected rainfall conditions), and the use of innovative
financial instruments for risk sharing (for example,
index-based weather insurance bundled to microcredit
for agricultural inputs). So far these two approaches have
remained entirely separated. This paper explores the
integration of seasonal forecasts into an ongoing pilot
insurance scheme for smallholder farmers in Malawi. The
authors propose a model that adjusts the amount of highyield
agricultural inputs given to farmers to favorable or unfavorable rainfall conditions expected for the season.
Simulation results—combining climatic, agricultural,
and financial models—indicate that this approach
substantially increases production in La Niña years
(when droughts are very unlikely for the study area), and
reduces losses in El Niño years (when insufficient rainfall
often damages crops). Cumulative gross revenues are
more than twice as large for the proposed scheme, given
modeling assumptions. The resulting accumulation of
wealth can reduce long-term vulnerability to drought for
participating farmers. Conclusions highlight the potential
of this approach for adaptation to climate variability and
change in southern Africa.