Design of an index-based insurance for hedging the risk of hydrological drought in irrigated agriculture

In Spain, irrigated agriculture is especially vulnerable to the risk of hydrological drought. In practice, this circumstance implies that sometimes the water allotments received by farmers are insufficient to meet crops water needs, the so-called 'water supply gap', involving important negative consequences on farming activity. In order to minimize the negative effects of water supply gap, an index-based drought insurance for irrigation is proposed, linked to the variable 'stock of water available in regulation reservoirs', as a new risk management instrument. It is expected that this proposal, once implemented into the real world, will be able to improve the management of drought risk in irrigated systems, as well as guarantying the sustainability and resilience of these systems under the increasing impact of climate change.