The response cost of food insecurity per person is taken as $50 per season in areas that are bimodal (two growing seasons) and $100 in unimodal areas (one growing season).

The approach taken by ARV to assess food insecurity is simple and has relatively few variables that can be adjusted to match historical drought losses. The initial settings in ARV based on work by the technical team in charge of developing ARV are meant to be default settings and each country participating in the ARC is given a year to customize these settings<sup>32</sup> (drought categories and their impact on household income, thresholds for determining food insecurity, all parameters related to crop models, etc.) to match their own historical drought losses. This is done with the intention of devising settings at the country level that minimize basis risk for that country with the additional benefit that domestic technical capacity is developed in the participating countries (which is important for the long‐term sustainability of the ARC). One thing to note here is that the ARV food insecurity assessments is based on farming households only so this leaves out the urban poor. However, there are scaling factors that each country can specify which can be used for among other things to account in an approximate manner for the other vulnerable people who may not be counted in the current ARV methodology.

One other thing about the current implementation of ARV is that in its first phase of development, the countries about to join the pool have decided to focus on one staple crop<sup>33</sup> they felt was the most important for food security. For example, Kenya chose to look at rangeland in the ASALs<sup>34</sup> and other areas of the country were excluded and Senegal chose groundnuts and the non‐groundnut growing areas were excluded from the analysis. What this means is that the scaling factor discussed above which each country customizes is also accounting, albeit in an approximate manner, for the food security of farmers growing crops other than the modeled crop.

The output of the ARV model is an exceedance probability curve of the number of food insecure people and if the response cost is used then then an exceedance probability curve of the cost of food insecurity. A detailed analysis of the basis risk of the current implementation of the ARV is presented in Clarke and Hill 2013. The authors conduct a cost‐benefit analysis to examine the financial sustainability of the proposed ARC pooling mechanism and the benefit it offers. In addition, the authors carry out a dynamic financial analysis, DFA, based on which they have made proposals for the amount of cover (in terms of the return period of the drought) that nations should consider buying, the cost of the premium for this cover, etc.

> 32 In fact, ARV offers more customization as detailed in _Africa RiskView: Customizaton_ available at <u>http://www.africanriskcapacity.org/africa‐risk‐view/customization. In addition to the settings for assessing</u> drought intensities and their impact on household income, settings on sowing window, length of growing season, soil properties, etc. that impact WRSI calculations can also be customized for each grid.

> 33 Personal communication with Dr Joanna Syroka on 20 March 2014.

> 34 The ASALs are the arid and semi‐arid lands lying mostly in the Rift Valley and they make up more than 80% of Kenya’s land area.

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