Crop production in the tropics is subject to considerable climate variability which is often attributable to the El Niño-Southern Oscillation (ENSO) phenomenon. In Indonesia, El Niño events are associated with comparatively dry conditions. In four El Niño years between 1973 and 1992, the average annual rainfall amounted to only 67% of the 20 year average in Java, causing a yield decline of 50%. Little is known about the impact of ENSO-related drought on farm households in developing countries and their strategies towards income and consumption smoothing. This dissertation seeks to contribute to closing this gap with a case study from Central Sulawesi, Indonesia. Its objectives are (1) to investigate the ex-ante and ex-post risk response strategies taken by farm households with respect to drought, (2) to measure household resilience towards drought periods, and (3) to identify factors which influence drought resilience to derive policy recommendations.

Due to a distinct rainfall gradient in the research area, elevation above sea level was used as stratification criterion to select eight research villages. In a second step, a stratified random sample of 228 farm households was selected. Data were collected through Rapid Rural Appraisals and a household survey. This dissertation employs an asset-based livelihood framework to analyze household risk management with regard to drought. Enhancing human capital, investments in agricultural management skills are identified as a strategy to achieve increased and less variable returns, thus strengthening the self-insurance capacity of farm households. Sub-optimal management manifests itself in technical inefficiency; therefore, farm-specific levels of technical efficiency are estimated using Stochastic Frontier production functions for the two primary crops in the research area, irrigated rice and cocoa. To measure resilience, a linear composite ‘Drought Resilience Index’ (DRI) is constructed from consumption expenditure-related indicators, and influencing factors of DRI which are categorized as different forms of capital are identified using a Tobit regression model.

Farmers in Central Sulawesi face a substantial risk of recurring ENSO-related drought periods which depress crop yields by more than one-third and lead to a similar reduction of total annual household income. Their risk management is mostly confined to ex-post coping strategies, some of which imply negative consequences for forest resources and long-term welfare. Most of the affected households are forced to substantially reduce expenditures for basic necessities. Drought resilience is positively influenced by the possession of liquid assets and access to credit. Furthermore, a high level of technical efficiency in agricultural production enhances resilience by facilitating the accumulation of reserves during years of average climatic conditions, which can be used to smooth consumption during drought periods. The potential to increase efficiency is particularly large in the cultivation of cocoa, the primary cash crop in the area. The results suggest the following policy recommendations: First, the farmers’ access to existing ENSO forecasts should be improved to allow them to take precautionary measures before the onset of a drought; second, formal financial services should be promoted to facilitate consumption smoothing at moderate interest rates on the one hand, and provide remunerative savings options on the other; and, third, agricultural extension should be intensified, emphasizing the proper management of cocoa.