The uncertainty of climate change, especially extreme events, makes it difficult for individual farmers to incorporate risk into their decision-making. Vulnerabilities to climate effects on production, pests, disease and price volatility depend on farmers’ assets and natural resource base Appropriate risk management tools, such as improved forecasts and extension support, and appropriately designed safety nets or insurance instruments must revolve around the vulnerabilities in specific farming situations. Rural households in developing countries, limited in both resources and access to information, could be disproportionately affected unless appropriate measures are introduced to manage the additional risk and uncertainty related to climate change. Innovative management of risk and uncertainty employs financial mechanisms (for example risk transfer or insurance contracts) that use several types of methods to understand investment decisions, technology choices, and risk perceptions. These methods include remote-sensing technology, micro-level household data, analysis of diversification, and farm surveys. Implementation of such insurance instruments requires appropriate technical innovation, building awareness and trust, ensuring viable market demand, and enhancing local capacity building among local financial institutions.
