STATEMENT
OF WORK

theoretical
considerations

Climate Variability and Household Welfare in the Andes:
Farmer adaptation and
use of weather forecasts in decision making

Household decisions in an uncertain environment

Rural households in many developing countries are characterized as peasant producers (Ellis, 1993), meaning that their production decisions affect their consumption decisions and viceversa; the markets in which they participate are unreliable and incomplete (Ellis, 1993); many of the resources that they manage are accessed through non-market relations. Many uncertainties affect their daily decisions, caused by climate, economic, political and idiosyncratic events.  Farmers, because of these conditions and their low levels of income are in various degrees, mostly risk averse (Sadoulet and de Janvry, 1995).  No insurance markets exist to, for example, protect them from droughts or the fall of market prices. Under uncertainty, farmers manage risk ex-ante by diversifying the portfolio of economic activities to smooth income through the year (Dunn et al. 1996), conditioned on their level of wealth, weather sensitivity, and ability to cope with negative outcomes (Alderman and Paxson; Carter, 1997; Valdivia et al, 1996; Bromley and Chavas, 1989; Panter-Brick and Eggerman, 1997).  Activities may include off- farm employment (Low, 1986), spatial diversification of crops, staggered planting, and choice of economic activities that are not covariant (Reardon et al, 1992; Robinson and Barry, 1987).  Rosenzweig and Binswanger (1993) found that in riskier environments, portfolio assets less sensitive to weather but less profitable were chosen. On the other hand others propose that diversification may be a means to maximize use of all resources available to the household (Ellis, 1993; Reardon et al., 1992; Valdivia et al., 1996).

The degree of covariance between various income earning activities should be low or negative in order for the portfolio to better insure against risk (Reardon et al, 1992; Robinson and Barry, 1987).  A question is whether information would improve  portfolio selection improve household welfare or wether wealth and stage in the lifestyle inhibit the choice of portfolios (Valdivia et al., 1996; Dunn et al., 1996; Reardon et al., 1992 ). Other researchers argue that reduction of risk can increase income by increasing specialization (Bromley and Chavas, 1989 ). Will forecasts have this effect?  Studying changes in farmer portfolios is thus an important window for understanding how weather information influences production decisions.

Local Knowledge Systems

The ability of farmers to use climatic forecasts to increase food security depends on the nature of their local knowledge systems.  Forecasts must be in a form that is meaningful and useful to them and farmers must have alternatives available to them that allow them to adjust to climatic fluctuations.  Local knowledge systems are different than scientific knowledge systems.  Scientific knowledge systems are organized to produce general principles that are applicable across time and space.  Local knowledge systems are organized to explain single cases at a point in time (Kloppenberg, 1991).  Local knowledge systems incorporate traditional or indigenous knowledge as well as scientific knowledge. For example, Andean farmers may use traditional forecasting methods like assessing the condition of certain cacti on a given saints day (Hatch 1981) while they also use weather information they hear on the radio (Woodman, 1998).

Social Capital

Historically, the scientific on debate social adjustments to change has focused on either cultural or structural constraints.  The former see differences in adaptation due to values and belief systems that are transmitted across generations.  Often traditionalism or a Aculture of poverty@ are seen as barriers to change (Lewis, 1968).  The latter approach emphasizes the structure of the economy and the economic resources that a family possesses.  However, recently there has been a focus on social relationships and more specifically social capital (Wall et al, 1998:316).  Social capital describes those networks and social relationships that give persons advantages in competitive situations (Coleman, 1988).  These may include intimate relations such as family ones as well as those with neighbors or casual acquaintances.   The latter type of relationship has received considerable attention since the publication of Granovetter=s paper on the Astrength of weak ties@ in 1973.  This paper demonstrated the importance of casual acquaintances as sources of information and as links to resources.  Trust and norms of interaction may reduce risks and transaction costs significantly.  Social capital is not fungible however, a given form of social capital may be valuable in some situations and harmful or useless in others (Coleman, 1988,s98). The above research described studies that indicated the importance of social capital in developed economies, but their impact may even be greater in the Altiplano where markets and climate are unreliable and where  traditional institutions and informal relations are more prominent than in North America.  Participation in community institutions may be an important source of social capital in the region. Narayan and Pritchett (1996) have developed indicators of social capital in Africa and social capital has been found to be an important predictor of household survival in rural Russia, (O=Brien et al, 1997).

Transactions Costs

Markets that farmers in the Andes face tend to fail (Ellis, 1993; Sadoulet and de Janvry,1995) or are non existent, as mentioned above. As a result many decide to produce for their own consumption rather than rely on the market. Failure of the market takes place when the farmer prefers to produce for subsistence than make use of the market (Sadoulet and de Janvry, 1995), because the difference between the subjective value of their own production and market price is very high.  Production for consumption indicates that it is cheaper for a farmer to produce than to purchase in the market.  Transactions costs include factors that increase transportation costs, imperfect markets, asymmetric information. Use of climate and weather forecasts may be limited by these costs. Differences in access to the market and effective prices do to transactions costs, conditions access to climate and weather forecasts, and therefore its use. Farmers with lower transactions costs will are able to use more weather and climate information in their decisions. Sadoulet and de Janvry propose that both transactions costs and assets, explain different income strategies and predict social differentiation (1995). We propose that the different strategies, are conditioned by distinct access to information and ability to withstand a risky event. 

Findings on Households and Decision Making in the Altiplano of Peru and Bolivia

Small holder farmers and their families have always confronted climatic perturbations in  the Andes. Uncertainty and risk are in their production and consumption decisions. For centuries people in this region have used diversification as an ex ante risk management strategy (Mart­nez-Castilla 1992; Kervyn, 1988).  In a normal rainfall cropping year our research found that households pursue a diversification strategy that is conditioned by stage in the life cycle, and that  all families grew potatoes and quinoa for consumption.  Older families depended more on transfers and  younger groups were more diversified (Valdivia and Jetté, 1997).  The latter diversified to cattle production if wealthier, retaining both adults in the farm households (Dunn et al., 1994). Those with fewer resources had sold their labor off the farm (Dunn et al.,1994).

During the low rainfall period of 1994-1995 a second survey was applied to evaluate if there was a change in strategy, and what permitted this change. Frost also affected production, therefore the strategies reflected actions to confront both events. There was an overall increase in forage production, dairy, and sheep, all believed to withstand better the abiotic effects (Valdivia, forthcoming). Networks facilitated access and control of resources, more effective than property in explaining farmer strategies (Espejo and Jetté, 1995). Off-farm employment was an important diversification strategy for those without dairy. Both are activities that are not covariant with crops.

Farmers have incorporated many activities into their portfolios, and current strategies reflect the technological innovations that have been available to them in the last 30 years (Markowitz and Valdivia, 1995).  Understanding how farmers access weather information, and how it affects their choice of crops and use of inputs. Measuring the costs of changing decisions, as reflected in their economic portfolio, through the change in the net income of each identified strategy will allow us to determine the impact of information (Phillips, 1996).

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