Article

Index-based agricultural insurance products: Challenges, opportunities and prospects for uptake in sub-Sahara Africa

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Abstract

Agricultural insurance products have been piloted in Sub-Saharan Africa (SSA) to address climate related risks faced by farmers. However, these products in general face low rates of adoption in SSA. Factors and challenges that may explain the low uptake of index-based insurance products in SSA are reviewed in this paper with the objective of assessing and documenting (i) the insurance products available to farmers, (ii) factors influencing farmers to purchase insurance products, (iii) challenges limiting farmers accessing to insurance products and (iv) opportunities that can positively enhance uptake in SSA. This review reveals that area yield index insurance, index-based crop insurance and index-based livestock insurance have been piloted or implemented in the region. The uptake of these products was found to be positively correlated with on-farm income/savings, literacy, and family size with estimated coefficients of 0.211, 0.292 and 0.018, respectively; and negatively correlated with premium rate (-0.183), age of farmer (-0.058), land tenure (-0.800) and farm size (-0.167). Challenges that impede uptake of index-based products include weakness of regulatory environment and financial facilities, basis risk, quality and availability of weather data, capacity building of stakeholders (farmer, insurer, and regulator), and lack of innovation for local adaptation and scalability. The current gap between high promise and low uptake calls for farmer-driven product design, strong public-private partnerships and improved quality and availability of weather data.

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... However, despite the substantial contribution of agriculture to Rwanda's economy, it is still highly rain-fed and the adoption of improved farm inputs and technologies remains low (Nahayo et al., 2017;Tigabu et al., 2015). In addition, agriculture is susceptible to adverse climate hazards, pests, and diseases outbreak (Ntukamazina et al., 2017). Okoffo et al. (2016) noted that the effect of climate shocks such as droughts and rainfall variability, natural disasters like floods, and biological hazards such as pests and diseases result in crop failure and food insecurity. ...
... Typically, farmers attempt to manage and adapt to some of the above-mentioned risks through the adoption of irrigation, crop diversification, crop residue retention, conservation tillage, and drought-tolerant seed varieties, among others (Bogale, 2015;Okoffo et al., 2016). Previous studies indicated that these adaptation strategies tend to be less effective and profitable for farmers (Bogale, 2015;Ellis, 2017;Fonta et al., 2018;Ntukamazina et al., 2017;Okoffo et al., 2016). Governments of most developing economies have been supporting the agriculture sector through risk-associated agricultural policies like export taxes, minimum support prices, and restrictions (Ali & Gupta, 2011;Tangermann, 2011). ...
... The choice of variables used in this study was guided by previous literature on the willingness to participate and pay for crop insurance(Abbas et al., 2015; Abugri et al., 2017; Addey et al., 2021; Adzawla et al., 2019; Afroz et al., 2017;Arshad et al., 2016;Budhathokia et al., 2019;Fonta et al., 2018;Ntukamazina et al., 2017;Okoffo et al., 2016;Sibiko et al., 2018) and the context of Rwandan agricultural sector. ...
Article
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Agriculture plays a significant role in Rwanda's economic growth but is still highly rain-fed with risks and losses caused by adverse natural and climate shocks. Agricultural insurance schemes are widely recognized as potential risk management strategies. This study aims to examine the determinants of farmers' willingness to insure maize farms and the premium farmers are willing to pay for crop insurance. The data used in this study were obtained from a household survey conducted in Eastern Rwanda and a sample of 325 households was drawn. A double-hurdle model is used for empirical analysis and the findings show that education, land tenure, farm size, group membership, and insurance awareness have a positive effect on maize farmers' decision to adopt crop insurance. Regarding the determinants of willingness to pay, education, land tenure, farm size, credit access, and income positively influenced the insurance premium maize farmers were willing to pay whereas household size negatively influenced the premium farmers were willing to pay for crop insurance. The study recommends policy frameworks that strengthen the education in rural communities about the usefulness of crop insurance to enhance farmers' participation in crop insurance and increase the premium farmers will be willing to pay for crop insurance. Besides, the study highlights the importance of building the capacity of farmers' groups or cooperatives to promote the uptake of crop insurance as well as the premium to be paid. The study also recommends the improvement of farmers' access to credit facilities to allow farmers to get the financial capability.
... Index insurance schemes for crops and livestock have been developed and tested in several pilot schemes in Ethiopia, and a number of studies have been conducted around their feasibility and potential for scale (Bageant & Barrett, 2017;Bishu et al., 2018;Bogale, 2015;Brans, Tadesse, & Takama, 2010;Dercon et al., 2014;Gebrekidan et al., 2019;Hazell & Hess, 2010;Hill, Hoddinott, & Kumar, 2013;Madajewicz, Tsegay, & Norton, 2013;Mcintosh, Sarris, & Papadopoulos, 2013;Ntukamazina et al., 2017). Yet, available literature is largely grey literature, only few peer-reviewed studies on insurance in Ethiopia exist, as literature search with the database SCOPUS revealed (which yielded only 23 results despite using a range of search terms). ...
... Since 2009, NISCO has been offering its Weather Index Crop Insurance (WICI) product, which is subsidised by donors, covering haricot beans, teff, and other cereals against drought. According to a study from 2017, NISCO has an estimated client base of around 22 200 farmers (Ntukamazina et al., 2017). ...
... The programme offers precipitation index-based crop insurance as part of a wider risk management package and extends insurance and disaster risk reduction measures in exchange for labour. The R4 programme has grown from some 13,000 farmers reached in 2009-2011 to over 24,000 in 2014 in Ethiopia alone (Greatrex et al., 2015;Ntukamazina et al., 2017). By 2018, the programme reached over 57,000 farm households (over 300,000 people) in Ethiopia, Senegal, Malawi, Zambia and Kenya (WFP, 2018). ...
Technical Report
A report prepared by the Potsdam Institute for Climate Impact Research (PIK) in cooperation with HFFA Research GmbH for the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The report aims to contribute to Ethiopia’s NDC implementation and to the objectives of the NDC Partners
... Despite its demonstrated welfare gains, the uptake of index insurance has remained low across many of the contexts in which it has been introduced. Research has identified several important factors affecting uptake, including basis risk (i.e., the deviation between actual losses and losses predicted by the index) (Giné et al., 2008;Mobarak and Rosenzweig, 2012;Jensen et al., 2018), household risk and ambiguity preference (Giné et al., 2008;Hill et al., 2013;Belissa et al., 2019b;Bryan, 2019), upfront premium (price) payments and credit constraints (Giné et al., 2008;Cole et al., 2013;Ntukamazina et al., 2017;Casaburi and Willis, 2018;Belissa et al., 2019a), a lack of trust and understanding (Cole et al., 2013;Ntukamazina et al., 2017;Belissa et al., 2019a), and social network and existing alternative risk-management mechanisms (Mobarak and Rosenzweig, 2012;Dercon et al., 2014;Cai et al., 2015;Sibiko et al., 2018;Takahashi et al., 2019). Due to data constraints, most research in this field has focused on insurance demand at one point in time. ...
... Despite its demonstrated welfare gains, the uptake of index insurance has remained low across many of the contexts in which it has been introduced. Research has identified several important factors affecting uptake, including basis risk (i.e., the deviation between actual losses and losses predicted by the index) (Giné et al., 2008;Mobarak and Rosenzweig, 2012;Jensen et al., 2018), household risk and ambiguity preference (Giné et al., 2008;Hill et al., 2013;Belissa et al., 2019b;Bryan, 2019), upfront premium (price) payments and credit constraints (Giné et al., 2008;Cole et al., 2013;Ntukamazina et al., 2017;Casaburi and Willis, 2018;Belissa et al., 2019a), a lack of trust and understanding (Cole et al., 2013;Ntukamazina et al., 2017;Belissa et al., 2019a), and social network and existing alternative risk-management mechanisms (Mobarak and Rosenzweig, 2012;Dercon et al., 2014;Cai et al., 2015;Sibiko et al., 2018;Takahashi et al., 2019). Due to data constraints, most research in this field has focused on insurance demand at one point in time. ...
... Econometric analysis shows that households headed by individuals with greater risk-tolerance and higher levels of education, who are relatively well-off, are more likely to purchase and benefit from IBLI. The results are largely consistent with those in the other settings in the literature with shorter-term data, suggesting external validity of our findings (e.g., Giné et al., 2008;Cole et al., 2013;Hill et al., 2013;Jensen et al., 2018;and Ntukamazina et al., 2017). In order to develop an inclusive insurance product, how to better reach the poorest members of society who are most vulnerable to climate risks and need the insurance the most is an important avenue for future research. ...
Article
Despite the demonstrated benefits of index insurance, its adoption rate remains low in many developing countries. While a growing literature explores the factors associated with insurance uptake, we still know little about its dynamic patterns. Using a unique data set covering four years and six semi-annual sales periods of an index-based livestock insurance (IBLI) product in southern Ethiopia, we examine the dynamics of pastoralists’ demand for IBLI. We find that reduced insurance premiums induce households to purchase IBLI. While a one-shot subsidy can create a price reference point that may reduce the subsequent uptake, we do not find such price-anchoring effects. We also find that overall uptake decision is positively correlated intertemporally, although there is no strong evidence for learning by doing or learning from others. Finally, we show that pastoralists are more likely to purchase IBLI when drought risk is high, consistent with the existence of spatiotemporal adverse selection. We discuss the potential of distributing discount coupons to trigger initial uptake and adjusting premium rates dynamically to avoid spatiotemporal adverse selection as effective policy tools toward sustainable livestock insurance. Overall, our study signifies the importance of an empirical analysis that considers the dynamic demand structure.
... Diversification of crop production and off-farm livelihoods have been the traditional risk management practice for smallholders in Sub-Saharan Africa (Kumar, Sailaja, & Voleti, 2006). Other risk management measures considered innovative include hedging, contract farming and agricultural insurance (Ntukamazina et al., 2017). ...
... Recent research interests have moved towards a risk reduction, management and transfer mechanism in agricultural/crop insurance, with index-based insurance receiving utmost attention (Balmaissaka, Wumbei, Buckner, & Nartey, 2016;Conradt, Finger, & Spörri, 2015;Daron & Stainforth, 2014;Hochrainer-stigler, Velde, Fritz, & Pflug, 2014;Johnson, 2013;D. S. Kumar, Barah, Ranganathan, & Venkatram, 2011;Ntukamazina et al., 2017;Rao, 2010a;Sinha & Tripathi, 2014;Skees, Black, & Barnett, 1997;Turvey & McLaurin, 2012;Yuzva, Botzena, Brouwera, & Aerts, 2018Dercon, Vargas, Clarke, Outes-leon, & Seyoum, 2014. Payouts are generally determined based on the parameter(s), such as temperature, rainfall or NDVI, which have been pre-identified as the most related to crop yield and losses during the design of the insurance index. ...
... The attractiveness of insurance mechanisms in general is that they aid the rebuilding of places exposed to a disaster (Mumo & Watt, 2019). Specifically, WII is able to help improve food security for smallholders in drought and encourage higher productions in years without drought (Bobojonov, Aw-Hassan, & Sommer, 2013;Madajewicz et al., 2017;Ntukamazina et al., 2017). Farmers who receive payouts from insurance during drought years enjoy a cushioning effect on the impact of their crop/revenue losses, thus improving food security at household levels and providing funds for purchase of inputs for future seasons. ...
Article
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Rainfed agriculture output is constantly at risk of being influenced by rainfall deficits and drought events. The northern part of Ethiopia, has witnessed historical meteorological and agricultural drought events, which have highly impacted on smallholders' crop yield. With the frequency and severity of drought events expected to increase in the future due to predicted climatic changes, the need for risk-reduction mechanisms is overt. Crop insurance is an innovative risk management mechanism during extreme weather events like droughts, with index-based insurance designs being more popular and feasible in developing countries where traditional crop insurance is unattainable. This study therefore utilized crop yield data from survey of 34 randomly selected farmers’ plots to develop payout thresholds related to reported crop losses during historical drought years to develop a crop insurance index to be triggered by drought. The kiremt (summer) DevNDVI shows the closest proxy to crop losses recorded in the area with a lower threshold of 1.31Qt/ha. The indexes designed by this study performed very well when payout conditions were evaluated in the light of the recent drought years in the area. We therefore advocate the consideration of area-specific crop insurance index for implementation in Ethiopia at large, being more compensatory than the current policies based on weather derivatives.
... IBCI is a type of insurance that calculates compensation from a predetermined index rather than a direct proof of the incurred loss [11]. The index must be associated with crop health, crop yields, and crop losses [11,12]. The commonly used indices are rainfall, temperature, soil moisture, evapotranspiration and crop yield-related indicators like the Normalized Difference Vegetation Index (NDVI) and area yields [12,13]. ...
... The index must be associated with crop health, crop yields, and crop losses [11,12]. The commonly used indices are rainfall, temperature, soil moisture, evapotranspiration and crop yield-related indicators like the Normalized Difference Vegetation Index (NDVI) and area yields [12,13]. IBCI then issues payouts when these indices deviate from the normal levels associated with healthy crops because the deviations cause crop losses. ...
Article
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Crop farming in Sub-Saharan Africa is constantly confronted by extreme weather events. Researchers have been striving to develop different tools that can be used to reduce the impacts of adverse weather on agriculture. Index-based crop insurance (IBCI) has emerged to be one of the tools that could potentially hedge farmers against weather-related risks. However, IBCI is still constrained by poor product design and basis risk. This study complements the efforts to improve IBCI design by evaluating the performances of the Tropical Applications of Meteorology using SATellite data and ground-based observations (TAMSAT) and Climate Hazards Group InfraRed Precipitation with Station data (CHIRPS) in estimating rainfall at different spatial scales over the maize-growing season in a smallholder farming area in South Africa. Results show that CHIRPS outperforms TAMSAT and produces better results at 20-day and monthly time steps. The study then uses CHIRPS and a crop water requirements (CWR) model to derive IBCI thresholds and an IBCI payout model. Results of CWR modeling show that this proposed IBCI system can cover the development, mid-season, and late-season stages of maize growth in the study area. The study then uses this information to calculate the weight, trigger, exit, and tick for each of these growth stages. Although this approach is premised on the prevailing conditions in the study area, it can be applied in other areas with different growing conditions to improve IBCI design
... As such, to avoid marginalizing certain fishers, communities, or sectors, insurance schemes need to consider the different needs of these groups to ensure they are equitable and accessible to all as much as possible (Sainsbury et al., 2019). Additionally, wider agricultural literature highlights the importance of developing understanding of index insurance schemes and wider financial literacy among individuals to increase participation in and awareness of these schemes (Carter et al., 2017;Ntukamazina et al., 2017). Index insurance differs from traditional insurance and people may lack awareness and/or understanding of such schemes; therefore, engaging fishers may be valuable to build capacity and improve future insurance uptake (Tadesse et al., 2015;Carter et al., 2017;Ntukamazina et al., 2017). ...
... Additionally, wider agricultural literature highlights the importance of developing understanding of index insurance schemes and wider financial literacy among individuals to increase participation in and awareness of these schemes (Carter et al., 2017;Ntukamazina et al., 2017). Index insurance differs from traditional insurance and people may lack awareness and/or understanding of such schemes; therefore, engaging fishers may be valuable to build capacity and improve future insurance uptake (Tadesse et al., 2015;Carter et al., 2017;Ntukamazina et al., 2017). ...
Article
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Climate-change-driven storminess and extreme events are increasingly challenging fishers in tropical island countries. Weather-based index insurance is an emerging tool that can assist fishing communities in their recovery and adaptation to such events. In these regions, coral reefs support valuable fisheries and also provide coastal protection during extreme events. Surveying 80 fishers in Grenada, this exploratory study examined fishers’ perceptions of index insurance in the context of their experiences of extreme events. We also explore perceptions of reef health and its’ connections to fishing outcomes and coastal protection, given the indirect role this plays in supporting fishers’ resilience through associated fisheries and storm protection. Most fishers viewed extreme events as a severe risk to their livelihoods, affecting their ability to make future plans. Fishers comprehended the links between improved reef health and positive impacts on fishing (higher catches and incomes). Several challenges regarding index insurance were raised, which centred on themes of flexibility, affordability, inclusivity, and accessibility. These could pose barriers to fishers and undermine demand for or participation in such schemes. As such, research, design, and implementation of future index insurance schemes should consider issues raised by fishers to ensure that provision is equitable and improve uptake.
... including those supported by ACRE-Africa and R4 Rural Resilience Initiative (Barnett et al., 2008;Ntukamazina et al., 2017). ...
... The spatial basis risk particularly (i.e., the mismatch between the weather-based index and the actual crop damage caused by the spatial variance of the weather-crop relationship) is one of the major concerns for farmers (Hess and Syroka, 2005;Leblois and Quirion, 2013). In fact, most of the WII ensuring crop loss due to water stress and droughts relies on indexes expressing (deficit or lack of) precipitation measured at ground stations (Barnett et al., 2008;World Bank, 2011;Ntukamazina et al., 2017;Möllmann et al., 2020). Given the high spatial variability of precipitation events, the station records may not represent the actual meteorological conditions experienced by the farmers the further from the station. ...
Article
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Weather Index-based Insurances (WIIs) have emerged as a promising risk coping mechanism to compensate for weather-induced damage to rainfed agriculture. Remote sensing may provide cost-effective information capable of discriminating the weather spatial variability thus reducing the spatial basis risk, i.e., the mismatch between the weather-based index triggering the insurance payout and the actual damage experienced by the farmers, which is often one of the causes hindering the wide implementation of WIIs. In this work we assess which indices based on remote sensing datasets are the best proxy indicators for rainfed maize yield in Malawi. We analyse the spatial (district scale) and temporal (monthly) correlations of historical maize yield data and several remote sensing datasets including the Climate Hazards group Infrared Precipitation with Stations (CHIRPS) dataset, the ESA CCI Soil Moisture combined dataset (version 4.2), the Evaporative Stress Index (ESI) from the Atmosphere-Land Exchange Inversion model (ALEXI), the MOD13Q1 Normalized Difference Vegetation Index (NDVI) and Enhanced Vegetation Index (EVI). With respect to the previous literature, this work exploits a historical crop yield dataset at the sub-national level which allows us to analyse the correlation of the hydro-meteorological and vegetation variables at a higher spatial resolution than what is commonly done (i.e., at the national level using FAO national yield statistics) and ultimately explore the issues related to WII spatial basis risk. Results show that the correlations between crop yield and satellite datasets show high spatial and temporal variability, making it difficult to identify a unique WII index that is at the same time simple and effective for the entire country. Precipitation, particularly the standardized March precipitation anomaly, has the highest correlations with maize yield (with Pearson correlation values higher than 0.55), in Central and South Malawi. Soil moisture and NDVI do not add much value to precipitation in anticipating historical maize yield at the district scale. From a methodological perspective, our work shows that WII indexes are best identified by: i) considering datasets with fine spatial resolution, whenever possible; ii) accounting for the vulnerability of the different crop growing stages to water-stress; iii) distinguishing between water scarce and water abundant events.
... Kidney bean (Phaseolus vulgaris L.) is one of the most important pulse crops in terms of global production. Despite kidney bean's role in meeting food security needs, sustainable production is limited by an array of biotic, abiotic and socio-economic factors such as pest and disease attack, global climate change, financial constraints and poor market access (Ntukamazina et al., 2017). Approximately 60 percent of kidney bean produced in developing countries is cultivated under conditions of drought stress and low fertility/ input conditions. ...
Research
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The Journal of Agrometeorology (JAM) with ISSN 0972-1665 (print) and 2583-2980 (online), is a quarterly publication of Association of Agrometeorologists, Anand, Gujarat, India.
... N refers to the number of research papers. Ntukamazina et al., 2017;Clement et al., 2018) but none have investigated if agricultural climate IBI research is being carried out in the countries that may need it the most. More generally, reviews on financial protection (of which insurance is one component) have consistently identified disparities between countries, highlighting a lack of data and assistance in those countries that have the highest need (Croppenstedt et al. 2018;Hazell and Varangis, 2019). ...
Article
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Agricultural climate index-based-insurance (IBI) compensates farmers for losses from adverse climatic conditions. Using a systemic review, we show that research related to agricultural climate index-based-insurance efficacy and application is lacking in many climate and food security vulnerable countries. We concluded that there are countries with high climate and food insecurity risk based on several climate and food security indicators that lack agricultural climate index-based-insurance research that could help farmers in these countries. Research to date has also largely focused on cereal crops and drought, which only represent a fraction of the crops and climate risks that agricultural climate index-based-insurance could be beneficial in managing. Our paper provides evidence-based recommendations for countries that should be focused on to redress the current disparities in agricultural climate index-based-insurance research.
... A pilot project was conducted on agricultural insurance products to address climate-related risks in Sub-Saharan Africa, and the results showed that yield index insurance, index-based crop insurance, and index-based livestock insurance were positively correlated with on-farm income/savings, literacy, and family size, with estimated coefficients of 0.211, 0.292 and 0.018, respectively, and negatively correlated with the premium rate (-0.183), age of farmer (-0.058), land tenure (-0.800) and farm size (-0.167) (Ntukamazina et al. 2017). Index-based insurance has been recognized to potentially reduce insurance premiums and make insurance affordable to farmers (Al-Maruf et al. 2021;Yuzva et al. 2018). ...
Article
This research attempted to develop a damage-based crop insurance model using satellite remote sensing imagery and field surveys of flash flood regions in Bangladesh. A normalized difference water index (NDWI) was prepared from Landsat-8 Operational Land Imager (OLI) data, and inundated areas were delineated using a very high-resolution land use/land cover (LULC) map of a Survey of Bangladesh (SoB) to generate an accurate damage map for boro rice. The boro rice area damaged by flash floods in 2017 was estimated for the three most vulnerable flash flood-prone areas and sorted into high, moderate and marginal damage categories. The results of the accuracy assessment showed excellent classification performance for all classes of LULC. Analysis of the classification of the damaged area showed that the Gowainghat (44.60%) and Kulaura (69.80%) subdistricts were in the highest marginal damage category and that Tahirpur (52.92%) was in the moderate damage category. The future value of expected losses was calculated to be $536.25, $442.00, and $416.00 per hectare (ha) for high, moderate and marginal damage areas, respectively. Moreover, findings concerning the damaged-based crop insurance premium rate suggested that the higher the coverage levels were, the lower the insurance premium, and the lower the damaged class was, the lower the insurance premium rate. The lowest insurance premium rate was observed for areas with high coverage and moderate damage and was $23.82/ha, and the highest insurance premium rate was observed for areas with marginal coverage and high damage and was $39.49/ha. Evidence from the classification of damaged areas and from regression findings suggests that farmers’ socioeconomic features and environmental awareness (occupation, educational level, total income, bank account ownership and awareness of climate change) are relevant to the decision to adopt a damaged-based crop insurance system. The overall results show an empirical model for flash flood occurrence over both the temporal and spatial domains, which offers an effective measure for adopting a damaged-based crop insurance model.
... Though other studies have shown possibilities for positive insurance application (Ndagijimana et al., 2020), insurance institutions in Africa need much work to gain the trust of farmers. Besides, Ntukamazina et al. (2017) have recommended strong public-private partnerships, and improved quality as well as availability of weather data as options towards improving risk management strategies in Africa. ...
Article
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Increasing population pressure, coupled with the effects of climate change manifested by longer dry seasons, wildfires, and conflicts, threatens the food systems of minority communities. In the case of the Mbororo minority community of Northwest Region of Cameroon, these threats are exacerbated by already existing problems of marginalisation. This study assesses agricultural risks in the global context of food distribution and gross domestic product that also poses a specific threat to the food system of the Mbororo people. The study aims to (1) assess the types of agricultural risk encountered by the Mbororo community, (2) examine the likelihood and severity of these risks, and (3) appraise local risk management strategies adopted to minimise the negative impacts of these risks on the food system. The study makes use of a mixed method approach for data collection. Findings have revealed animal diseases (83 %), absence of infrastructures (83.6 %), price variation (76.6 %), and drought (75.8 %) as the most encountered risks in the case study area. Especially, drought, political insecurity, pest and rodent, farmer-grazer conflict, and crop and animal diseases emerged as the highest intensity or priority risks with the need for urgent management strategies intervention. Agricultural risk assessment is frequently used to assess and prioritize risks but has hardly been used in the case of minority groups such as the Mbororo community of Northwest Cameroon.
... Ndegwa, Shee [14] examined the effectiveness of insurance uptake when bundled with credit in Kenya. Ntukamazina, Onwonga [15] examined challenges, potentials and opportunities with insurance uptake of index-based insurance in sub-Saharan Africa. ...
Article
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Background Weather-related risks thwart agricultural productivity gains especially in the face of climate change. Agricultural insurance serves as a reliable risk mitigation instrument for coping with climate-related hazards. This notwithstanding, agricultural insurance penetration among smallholder farmers in the global south remains low. This study investigated the access and acceptability of agricultural insurance among smallholder food crop farmers in Ghana. Method The study employed a mixed-methods approach involving both quantitative and qualitative approaches. The study was carried out in the Northern, Volta and Western regions involving 7 communities in 5 districts. A total of 200 farmers were sampled through a multi-stage purposive sampling and interviewed. A cross-sectional survey involved 100 respondents under the quantitative approach whilst the qualitative study engaged additional 100 farmers. Results The results show that smallholder farmers’ access and acceptability of agricultural insurance is low (14%) and scarce but ironically considered useful by many (90%) as an effective tool to deal with agricultural risks. Inadequate knowledge about agricultural insurance products constituted the most stated reason (64%) for the scarce adoption rate, followed (23%) by the unavailability of insurance products in areas needed but absent. A few (5%) reported insurance to be expensive. Acceptability and accessibility of agricultural insurance are further influenced by gender, educational level, low knowledge, information asymmetry and wrong perception concerning agricultural insurance products. Sense of security and reduced impact of climate variabilities constituted important benefits guaranteed by agricultural insurance. Conclusions Agricultural insurance access and acceptability is constrained by limited knowledge of agricultural insurance products. It is recommended that more insurance companies be incentivized to augment already existing efforts by Ghana Agricultural Insurance Pool (GAIP) to enroll more smallholder farmers. The government can consider bundling existing insurance products with credit or inputs under the Planting for Food and Jobs Programme (PFJ) to improve uptake and accessibility of agricultural insurance.
... EO data can underpin diverse kinds of agriculture-related information, with examples including weather and climate forecasts, pest early warning and land degradation monitoring (Alexandridis et al., 2020). This information may be useful in itself or combined with other data sources to produce services such as famine early warning or index-based insurance (Baudoin et al., 2016;Ntukamazina et al., 2017). EO-derived information is being disseminated via diverse routes depending on the target users, including online platforms, bulletins, mobile phone apps, agricultural extension systems, and radio broadcasts (Hudson et al., 2017;Munthali et al., 2018). ...
Preprint
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The increasing availability of Earth Observation data could transform the use and governance of African rural landscapes, with major implications for the livelihoods and wellbeing of people living in those landscapes. Recent years have seen a rapid increase in the development of EO data applications targeted at stakeholders in African agricultural systems. But there is still relatively little critical scholarship questioning how EO data are accessed, presented, disseminated and used in different socio-political contexts, or of whether this increases or decreases the wellbeing of poorer and marginalized peoples. We highlight three neglected areas in existing EO-for-development research: (i) the imaginaries of 'ideal' future landscapes informing deployments of EO data; (ii) how power relationships in larger EO-for-development networks shape the distribution of costs and benefits; and (iii) how these larger-scale political dynamics interact with local-scale inequalities to influence the resilience of marginalised peoples. We then propose a framework for critical EO-for-development research drawing on recent thinking in critical data studies, ICT4D and political ecology.
... Weather-related shocks are a major threat to the livelihoods of vulnerable farmers in low-income, arid and semi-arid regions of the world (Jensen, Mude, & Barrett, 2018). In response, crop insurance products have been piloted in, for example, Sub-Saharan Africa (SSA) to protect low income farmers against climate related risks (Churchill, 2008, Ntukamazina et al., 2017. However, implementing traditional indemnity-based crop insurance schemes in a viable way with substantial outreach is hampered by information asymmetry (causing moral hazard problems and adverse selection) as well as associated transaction costs to address those problems. ...
Article
p>This paper analyses the links between index-based crop insurance (IBI) adoption and agricultural investments based on a cross-sectional sample of 40 crop insurance adopters and 40 non-adopters from two communes located in Gitega province in Burundi. Analysed agricultural investments variables included use of fertilizers, applying crop diversification, and use of land and crop management practices in the most recent year and in the year before IBI implementation started. The results from multivariate analysis indicate that adopters use 36% more chemical fertilizers and invest 18% more in chemical fertilizers than non-adopters (p≤0.01). Adopters apply more land management practices also, in which they invest 15% more than non-adopters (p≤0.01). Furthermore, adopters change crop management practices over time by 38% and their knowledge in crop management practices increased by 23% (p≤0.01). Differences between adopters and non-adopters are however not statistically significant for crop diversification strategies and for the use of organic fertilizers. Hence, in order to be more effective and beneficial to farmers, other actions are also needed to encourage farmers to invest in their farm. Particularly promising in Burundi in this respect is to empower and train farmers by means of the Integrated Farm Planning approach, as well as to enhance farm inputs availability and to promote smart agri-entrepreneurial programs. In order to enhance agricultural development, the Burundi government should have a more prominent role in fostering farmers’ agricultural investments and in supporting IBI adoption.</p
... Ndegwa, Shee [14] examined the effectiveness of insurance uptake when bundled with credit in Kenya. Ntukamazina, Onwonga [15] examined challenges, potentials and opportunities with insurance uptake of index-based insurance in sub-Saharan Africa. ...
Article
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Background Weather-related risks thwart agricultural productivity gains especially in the face of climate change. Agricultural insurance serves as a reliable risk mitigation instrument for coping with climate-related hazards. This notwithstanding, agricultural insurance penetration among smallholder farmers in the global south remains low. This study investigated the access and acceptability of agricultural insurance among smallholder food crop farmers in Ghana. Method The study employed a mixed-methods approach involving both quantitative and qualitative approaches. The study was carried out in the Northern, Volta and Western regions involving 7 communities in 5 districts. A total of 200 farmers were sampled through a multi-stage purposive sampling and interviewed. A cross-sectional survey involved 100 respondents under the quantitative approach whilst the qualitative study engaged additional 100 farmers. Results The results show that smallholder farmers’ access and acceptability of agricultural insurance is low (14%) and scarce but ironically considered useful by many (90%) as an effective tool to deal with agricultural risks. Inadequate knowledge about agricultural insurance products constituted the most stated reason (64%) for the scarce adoption rate, followed (23%) by the unavailability of insurance products in areas needed but absent. A few (5%) reported insurance to be expensive. Acceptability and accessibility of agricultural insurance are further influenced by gender, educational level, low knowledge, information asymmetry and wrong perception concerning agricultural insurance products. Sense of security and reduced impact of climate variabilities constituted important benefits guaranteed by agricultural insurance. Conclusions Agricultural insurance access and acceptability is constrained by limited knowledge of agricultural insurance products. It is recommended that more insurance companies be incentivized to augment already existing efforts by Ghana Agricultural Insurance Pool (GAIP) to enroll more smallholder farmers. The government can consider bundling existing insurance products with credit or inputs under the Planting for Food and Jobs Programme (PFJ) to improve uptake and accessibility of agricultural insurance.
... However, the increasing occurrence of weather shocks threatens agriculture, especially in Sub-Saharan Africa (SSA) where 95% of farmland is rain-fed [3][4][5]. In the past 10 to 15 years, attempts were made to support farmers through agricultural index insurance (AII), which acts as a safety net against the adverse effects of weather-induced crop failures [6][7][8]. Recent studies show that insurance encourages farmers to take risks and make more investments in productive inputs. In Bangladesh, for example, purchasing insurance led to the expansion of agricultural land and more investment in fertilizer, labor, irrigation, and pesticides [9]. ...
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Weather extremes pose substantial threats to food security in areas where the main source of livelihood is rain-fed crop production. In most of these areas, agricultural index insurance (AII) is recognized as being capable of securitizing food production by providing safety nets against weather-induced crop losses. Unfortunately, however, AII does not indemnify farmers for non-weather-related crop losses. This study investigates how this gap can be filled by exploring strategies through which AII can be linked with non-weather factors that influence crop production. We do this by using an improvised variable ranking methodology to identify these factors in the O.R. Tambo District Municipality, South Africa. Results show that key agrometeorological variables comprising surface moisture content, growing degree-days, and precipitation influence maize yield even under optimal weather conditions, while seed variety, fertilizer application rate, soil pH, and ownership of machinery play an equally important role. This finding is important because it demonstrates that although AII focuses more on weather elements, there are non-weather variables that may expose farmers to production risk even under optimal weather conditions. As such, linking AII with critical non-weather, yield-determining factors can be a better risk management strategy.
... The result is indicative that, the more credit access, farmers are more likely to participate in aquaculture insurance by about 18% and the corresponding amount intensity is increased by GH¢ 0.108 (US$ 0.018). The result is similar to these studies (Akter et al., 2008;Adeyonu et al., 2016) but at odds with Ntukamazina et al. (2017). Concerning amount intensity, the coefficient of stock size was positive and significantly different from zero (p < 0.1). ...
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Purpose Aquaculture insurance has the potential of redressing climate-change because it serves as an alternative source of finance in the event of unforeseen circumstances. To this end, the authors examine the prospects, determinants and profitability of aquaculture insurance among fish farmers in the Eastern region of Ghana. Design/methodology/approach A total of 140 fish farmers were sampled for the study. Thematic analysis was used to determine perceived aquaculture insurance prospects. The Heckman's two-stage model, profitability index (PI) and return on investment (ROI) was employed to respectively determine the factors influencing aquaculture insurance participation and amount intensity and the profitability of aquaculture. Findings The thematic analysis revealed three themes on the perception of aquaculture insurance prospects: loss recovery, farm renovation and promotes agriculture. Different sets of demographic and institutional factors have varying influences on aquaculture insurance participation and amount intensity. Profitability index (PI) and return on investment (ROI) were respectively 2.07 and 3.2%. Originality/value The research provides relevant information on perceived aquaculture insurance prospects, aquaculture insurance participation, and amount intensity and profitability of aquaculture which can contribute to enhancing aquaculture insurance and the aquaculture industry in Ghana.
... Adaptation planning in the form of insurance, with or without external support, is being tried in Kenya and Senegal . However, these products in general face low rates of adoption across SSA due to weakness of regulatory environment and financial facilities, basis risk, quality and availability of weather data, capacity building of stakeholders (farmer, insurer, and regulator), and lack of innovation for local adaptation and scalability (Ntukamazina et al. 2017). ...
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Climate change threatens development and economic growth in Africa. It increases risks for individuals and governments with unprecedented negative impacts on agriculture. Specifically, climate change presents a major threat to food security in Africa for the long term due to the low adaptive capacity to deal with successive climate shocks. There is a need for greater awareness of the trends of food crisis patterns and adaptive initiatives. The objective of this chapter was to analyze the trends of the food crisis in Africa within the past 10 years and adaptive initiatives. Quantitative data analyzed for food security indicators were obtained from the United Nations Food and Agriculture Organization (FAO) and World Development Indicators (WDI) available at the Environment and Climate Change data portal. Policy and adaptation measures related to climate change were reviewed in 26 countries in Africa, with the view to highlight their integrative nature in enhancing food security. High prevalence of undernourishment was observed in six countries, all in sub-Saharan Africa (SSA) including Chad, Liberia, Central African Republic, The Democratic Republic of the Congo, Zambia, and Zimbabwe. Countries with a high land acreage under cereal production recorded reduced undernourishment. Niger demonstrated effective adaptation for food security by registering the highest crop production index in extreme climate variability. However, Kenya appears to be the most predisposed by registering both high climate variability and below average crop production index. It is observed that diversification and technology adoption are key strategies applied across the countries for adaptation. However, the uptake of technology by smallholder farmers is still low across many countries in SSA.
... Weather-related shocks are a major threat to the livelihoods of vulnerable farmers in low-income, arid and semi-arid regions of the world (Jensen, Mude, & Barrett, 2018). In response, crop insurance products have been piloted in, for example, Sub-Saharan Africa (SSA) to protect low income farmers against climate related risks (Churchill, 2008, Ntukamazina et al., 2017. However, implementing traditional indemnity-based crop insurance schemes in a viable way with substantial outreach is hampered by information asymmetry (causing moral hazard problems and adverse selection) as well as associated transaction costs to address those problems. ...
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The Impact of Wine Grape Harvester on Labour in Western Cape Province of South Africa O’BRIEN JONATHAN PEREL , YONAS T. BAHTA and PETSO MOKHATLA Mechanization and technology in agriculture are becoming more and more evident, not only in developed countries, but also in African countries, and more specifically South Africa. The objectives of the study were to identify the factors that impact labourers when wine grape harvesters are used on farms in the Western Cape Province of South Africa by answering the research question of ‘‘Which factors affect labour usage on farms that use mechanical harvesters for harvesting grapes?’’ The study utilized a survey, secondary data, and a binomial logistic regression model. The study shows that increasing hectares used for the production of wine grapes, farmer’s age, machine output and average labour output has a significant impact on the reduction of seasonal labour as well as permanent labour on the farms. The study recommends that the government should intervene or introduce legislation to mitigate the effect of mechanical harvesting of grapes on labour. The government should encourage producers to keep farm workers, given technological advances, which discourage the retrenchment of farmers who apply technology advancement, but retain labourers. The government can also provide incentives to producers who apply technological advancement, but retain labourers. KEYWORDS: Labour; Wine grape harvester; Production; Seasonal labourers; Permanent labour; South Africa
... The second one is defining insurance on a very specific risk measured by indicators based on climatic values (rain, heat stress, temperature, vegetation, etc.) or on prices. The choice of the rainfall index is important (Westerhold et al., 2018) and allows an insurer to transfer the risk to reinsurers or on the financial markets, to reduce administrative costs (reimbursement is triggered without direct assessment of damage, use of lines of credit, adjustment of the level of insurance protection and therefore of premiums), and to manage all the insured in a zone at the same time (Hess and Sykora, 2005;Skees and Collier, 2008;Hazell et al., 2010;Carter et al., 2017;Chen et al., 2017;Ntukamazina et al., 2017). ...
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This article is a discussion of the concept of index‐based agricultural insurance and the possible role of real options to reduce the basic risk. Indeed, to address the consequences of variability of weather within climate, experiments based on indexed agricultural insurance have been implemented in recent years. However, this locally defined insurance scheme has a weak point called the basic risk, i.e., the difference between the reality of climatic shocks and the payment of compensation. Real options allow this gap to be filled by offering alternatives to farmers. This article is the first to discuss the use of real options in the basic risk management of index‐based climate agricultural insurance. The implications for farmers in developing countries, insurers, and local and institutional organizations and communities are important: better management of operating conditions, optimized financial management, and consideration of real climatic conditions.
... For example Acre Africa, an insurance intermediary, operating in in Kenya and Tanzania, sells index-based insurance products that provide a social safety net to farmers during periods of inclement weather [13 ]. Furthermore, companies selling improved cookstoves in rural Africa increase fuel yield of land, reduce emissions of greenhouse gases and thus build households' resilience to shocks [14], due to improved health and additional free time, especially for women and children whom collect firewood [15]. More indirect ways of creating climatesmart value include Mars International who is organizing and training cocoa smallholder farmers to diversify and thus build resilience to climate-related shocks in Cote d'Ivoire [16,17]; or Unilever partnering with small-scale farmers to sustainably harvest Allenblackia, a tree nut that can be used to produce high-quality margarine and support farmers' livelihood resilience [18]. ...
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Climate-smart business models target multiple Sustainable Development Goals by fostering agricultural productivity, supporting farm and farmer livelihood resilience, and encouraging climate mitigation. While many business models (cl)aiming to create climate-smart value already exist both in agricultural development and business practice, little scholarly attention has so far been directed toward their functioning. In this paper, we argue that business models need to be inclusive and adaptive to generate climate-smart value equitably for all stakeholders involved and sustainably over time. Inclusivity involves not only providing the poor at the Bottom-of-the-Pyramid (BoP) with access to resources (e.g. finance, technology, access to markets) in business models but also, according to some scholars, with guaranteeing their representation in decision-making over the use of these resources. Adaptability entails the capacity to smoohtly adjust structures and processes of enterprise-BoP partnerships that underlie business models. We suggest that building inclusive and adaptive climate-smart business models is non-trivial work which, in the future, will require rapid cycles of collective experimentation and reflection between decision-makers in climate-smart business models and researchers studying them.
... WII incentivizes the uptake of better agro-technology (Carter et al., 2016), and farmers' risk aversion significantly increases the probability of buying WII (Jin et al., 2016). Farmers' participation in WII reduces farm risk (Wairimu et al., 2016) and the adoption of WII significantly correlates with farm income and farmers literacy level (Ntukamazina et al., 2017). WII is an appropriate tool for encouraging agriculture technology adoption (Freudenreich and and WII demand falls with rising premium loading because of bounded rationality . ...
Article
Purpose The purpose of this paper is to review research on weather index insurance (WII) for mitigating the weather risk in agriculture and to identify research gaps in current available literature through integrative review. Design/methodology/approach This paper is based on the integrative review method as proposed by Whittemore and Knafl. QualSysts tool was adopted for assessing the quality appraisal of articles. Reporting followed the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) guidelines. Findings Detailed critical analysis of content reveals that WII studies are growing and shifting from traditional to the newest themes. Efficacy of WII is significantly influenced by the impacts of climate change. This paper generates a conceptual framework by synthesizing the published literature on WII. Research limitations/implications This paper will be used to improve the WII practices and influence public policy. It is also beneficial in research by contributing to the systematic body of knowledge and useful for researchers to analyze the past and present status with future prospects of further studies on WII. Originality/value The paper is the original work of the author. To the best of authors’ knowledge, this is the first paper on integrative review on the efficacy of WII. An attempt has been made in the current paper to critically examine the studies of WII.
... A number of empirical studies have shown that family size and on-farm income/savings have a positive impact on farmers' willingness to adopt index-based insurance (Abugri et al., 2015;Ntukamazina et al., 2017;Bogale, 2014). Koloma, (2015) also reported that higher family size helps to positively influence the decision on making investments like purchasing insurance contracts. ...
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Index-based livestock insurance has been introduced in Borena zone of southern Ethiopia by the International Livestock Research Institute working in partnership with Oromia Insurance Company and humanitarian agencies since 2012 as an instrument to help protect pastoralists’ herders against drought related mortality of livestock. Despite the some positive success to the concerted efforts, the continued adoption of index-based livestock insurance by pastoralists and agro-pastoralists has been limited. The current study highlighted the status, and determinants of index-based livestock insurance to managing risks resulted from the changing climate in the study area. The study used household surveys from 359 sampled households, key informant interviews, and focus group discussions to collect the data. Descriptive statistics (i.e. frequency, percentage, mean, and standard deviation), inferential tests (Chi-square test and t-test), and binary logit model were used to analyze the collected data. The results of the current study evidenced that the adoption of indexed insurance is below expectation. The results further indicated that several factors appeared to affect demand for index-based livestock insurance. Those households in a farming system with moisture stress, those who perceived climate risks, those who aware the insurance, who are better educated, who have access to credit and off-farm activity are more likely to adopt the index-based livestock insurance. Furthermore, households who have a membership to a large number of social organizations are more likely to purchase the insurance. However, households who are far from the weather station and old aged households are less likely to purchase index-based livestock insurance. Adaptation pathways to support the uptake of index-based livestock insurance must take in to account these critical factors influencing household’s decision to adopt the insurance scheme. It is also imperative to integrate the insurance into indigenous institutions and link it with the local development process.
... There are potential challenges if a comprehensive dataset is utilized because it is available rather than because of its relevance. For instance, although coffee production statistics are often available historically, many coffee producers are not as vulnerable to quantity changes in coffee; rather their losses are driven by changes in quality, for which datasets are much less available and reliable [31]. Therefore, if a yield dataset alone is used for index insurance design, but it is not related to the targeted loss, this may cause serious inconsistencies. ...
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A challenge in addressing climate risk in developing countries is that many regions have extremely limited formal data sets, so for these regions, people must rely on technologies like remote sensing for solutions. However, this means the necessary formal weather data to design and validate remote sensing solutions do not exist. Therefore, many projects use farmers’ reported perceptions and recollections of climate risk events, such as drought. However, if these are used to design risk management interventions such as insurance, there may be biases and limitations which could potentially lead to a problematic product. To better understand the value and validity of farmer perceptions, this paper explores two related questions: (1) Is there evidence that farmers reporting data have any information about actual drought events, and (2) is there evidence that it is valuable to address recollection and perception issues when using farmer-reported data? We investigated these questions by analyzing index insurance, in which remote sensing products trigger payments to farmers during loss years. Our case study is perhaps the largest participatory farmer remote sensing insurance project in Ethiopia. We tested the cross-consistency of farmer-reported seasonal vulnerabilities against the years reported as droughts by independent satellite data sources. We found evidence that farmer-reported events are independently reflected in multiple remote sensing datasets, suggesting that there is legitimate information in farmer reporting. Repeated community-based meetings over time and aggregating independent village reports over space lead to improved predictions, suggesting that it may be important to utilize methods to address potential biases.
... Complex models including numerous predictors and intricate model structures may be more suitable for long term yield forecasts (e.g. see Everingham et al., 2009;Everingham et al., 2016), but not necessarily for the development of climate index insurance, which needs to be simple and transparent so that it can be communicated to a range of stakeholders (Ntukamazina et al., 2017). ...
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Managing the risks of climate variability on crop production is central to ensuring financially viable farming systems and sustainable food production. Insurance provides a mechanism to manage and transfer climate risks. However, traditional multi-peril crop insurance (MCPI) is often too expensive and so other methods, such as index insurance, are being explored as a cheaper way to insure farmers against climate induced crop losses. Here we investigate the potential financial benefits of index insurance (protecting against excessive rainfall) for agricultural producers, namely sugar cane farmers in Tully, northern Australia. We used 80 years of historical climate and yield data to develop an excessive rainfall index. The index was developed and tested using generalized additive regression models (allowing for non-linear effects) and quantile regression, which allows relationships with lower quantiles (i.e. low yield events) to be assessed. From the regression models we derived relationships between the excessive rainfall index and sugar cane yield losses that were converted to insurance fair premiums (i.e. premiums that cover expected losses). Finally, we used efficiency analysis, based on Conditional Tail Expectation (CTE), Certainty Equivalence of Revenue (CER) and Mean Root Square Loss (MRSL), to quantify financial benefits to farmers if they purchased excessive rainfall index insurance. The regression model predicted sugar cane yields well (cross-validated R² of 0.65). The efficiency analysis indicated there could be financial benefit to sugar cane farmers if they were to use excessive rainfall index insurance. Index insurance (based on the assumption of a fair premium) could make farmers better off by $269.85 AUD/ha on average in years with excessive rainfall (i.e. years with rainfall over the 95th percentile). Index insurance could offer a viable method for managing the financial risks posed by excessive rainfall for sugar cane producers in northern Australia. We are not aware of any other study demonstrating the potential benefits of excessive rainfall index insurance in the literature, but our results suggest this type of insurance may be viable for sugar cane producers, and other crops, in parts of the world where extreme rainfall poses a risk to the financial sustainability of production.
... There are potential challenges if a comprehensive dataset is utilized because it is available rather than because of its relevance. For instance, although coffee production statistics are often available historically, many coffee producers are not as vulnerable to quantity changes in coffee; rather their losses are driven by changes in quality, for which datasets are much less available and reliable [31]. Therefore, if a yield dataset alone is used for index insurance design, but it is not related to the targeted loss, this may cause serious inconsistencies. ...
... This can partly be addressed by reducing the risks farmers face in their livelihoods, by identifying the key factors behind the varying agricultural output, and possibly by reducing the effect from the varying output by insurance schemes tailored against such factors. Successfully implementing insurance schemes however requires strong insurance regulative framework and financial facilities, precise and reliable data, high literacy rates, and financial capacity on the farmers' side (Ntukamazina et al., 2017), which are generally not found in Chad's rural sector. ...
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Changes to agricultural systems in Sub-Saharan Africa are subject to a wide range of drivers, often resulting in rapid and nonlinear dynamics. Such dynamics are however rarely recognized in studies of trends and drivers, which usually rely on assumptions of gradual progressions, and often using highly aggregated data. This paper addresses this lack of recognition and understanding of nonlinear processes in agricultural systems in Sub-Saharan Africa by statistically identifying breakpoints and trends in regional crop production data in Chad for 1983–2016, which also makes it the most extensive and detailed study of the agricultural sector in Chad to date. By summarizing and visualizing the identified breakpoints and trends of a large group of variables in a concise and informative way, the roles of both abrupt and gradual processes are made clear. Results show that the progressions in the data predominantly have been driven by abrupt changes with lasting effects rather than gradual changes, contrary to what analyses on higher levels of aggregation would conclude. The potency of the developed methodology lies in its capacity to identify and summarize nonlinear progressions in agricultural systems constituted by a large set of variables, by separating the influence of abrupt and gradual processes.
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Climate models, by accurately forecasting future weather events, can be a critical tool in developing countermeasures to reduce crop loss and decrease adverse effects on animal husbandry and fishing. In this paper, we investigate the efficacy of various regional versions of the climate models, RCMs, and the commonly available weather datasets in Kenya in predicting extreme weather patterns in northern and western Kenya. We identified two models that may be used to predict flood risks and potential drought events in these regions. The combination of artificial neural networks (ANNs) and weather station data was the most effective in predicting future drought occurrences in Turkana and Wajir with accuracies ranging from 78 to 90%. In the case of flood forecasting, isolation forests models using weather station data had the best overall performance. The above models and datasets may form the basis of an early warning system for use in Kenya’s agricultural sector.
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To sustain food security and crop condition monitoring, yield estimation must improve at local and global scales. The aim of this review was to give a background of satellite-based crop monitoring and crop yield estimation, including the use of crop models. Recently, most advances in remote sensing techniques, aimed at complimenting the traditional crop harvest surveys, have focused on high-production and information-rich areas. However, there is limited research in dynamic landscapes using these techniques at local scales in most Southern African countries. Models such as the Decision Support System Agro-Technology’s (DSSAT) CERES-model, and Agricultural Production Simulator (APSIM) have been used to simulate maize biophysical parameters and yield variability in a changing climate. Despite the successes, there is still need to consider yield prediction using simplified models that decision-makers can use to plan for food support and sales. The application of freely-available satellite data with focus on maize crop as a staple for Southern Africa, highlights some challenges such as heavy reliance on agro-meteorological estimations and regional estimations of crop yield. It also raises questions of predicting across large growing belts without consideration of diverse cropping patterns. Conversely, future opportunities in crop monitoring and yield estimation using remotely sensed-data still shed a light of hope. For instance, employing multi-model configurations or multi-model ensembles is one of the major missing gaps needing consideration by crop modeling research. Other simpler, but versatile opportunities are the use of crop –monitoring applications on smart phones by small holder farmers to provide phenological data to decision makers throughout a growing season.
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Agricultural insurance is a well-established and effective tool for increasing farmers' resilience in the face of various production risks. The objective of the study was to evaluate the challenges and prospects of agricultural insurance market development in achieving sustainable development goal (SDG) 8 in Nigeria. Qualitative and conceptual methods of data analysis were employed to achieve the objectives of the study. The empirical data reveals that agricultural insurance market development is not in a progressive trend as it experiences to rise and fall in the percentage of its premium income, claims and underwriting income, total asset, total liability and reserve etc. Challenges facing agricultural insurance development include; moral and adverse selection, post-disaster relief, absence of infrastructure support, intensive data collection; demand constraints caused low incomes for the vast majority of the population etc. This paper concludes that agricultural insurance market in Nigeria has not been fully developed and therefore needs urgent attention to ensure full economic growth. It recommends among others that the agriculture insurance sector in Nigeria should adopt the new form of insurance, known as index-based insurance, to be in tune with international best practice and investments in data collection systems, and in science-based index development.
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A household survey and focus group discussions were conducted to quantify the general determinants of an index-based crop insurance adoption under limited liabilities in Burundi, and specifically the effect of existing Village Savings and Loan Associations (VSLAs). The survey sample comprised of 40 crop insurance adopters, 40 non-adopters and 40 drop-outs in Bukirasazi and Makebuko communes of Gitega province. The results indicated that saving money (by VSLAs) for upcoming premium payments and regularly VSLA meetings attendance increase insurance adoption with relative risk ratio (RRR) = 0.21, p ≤ 0.001) and (RRR = 0.01, p ≤ 0.01), respectively. In addition, VSLAs' members with more knowledge in land management (RRR = 0.07, p ≤ 0.05), crop management (RRR = 0.05, p ≤ 0.001) and integrated farm planning (RRR = 0.03, p<0.05) were more likely to adopt the crop insurance. Furthermore, smallholders being aware and less appreciative limited liability were more likely inclined to adopt crop insurance with RRR = 0.12 (p ≤ 0.01) and RRR = 0.01 (p ≤ 0.001), respectively. Given the importance of VSLA in fostering crop insurance adoption, we recommend strengthening VSLAs in their operation, save for upcoming premium payments as jointly agreed and set in their constitution, and encourage smallholders to run their farms with integrated farm planning. Due to limited knowledge of smallholders about the mode of crop insurance operation, a more extensive capacity building coupled to a coaching by experts in this domain is more than a necessity.
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Index insurance has been heralded as a potential solution to risk management problems faced by smallholder farmers in developing countries. Despite its potential, demand for standalone index insurance contracts has remained low in early field trials. We investigate the willingness to pay for drought index insurance‐backed loans in northern Ghana using contingent valuation. We find that index insurance lowers overall demand for agricultural loans. We also compare micro‐level index insurance, provided directly to farmers, with meso‐level insurance, provided to the credit agency and find that farmers appear to prefer micro‐level insurance. Finally, farmers are willing to pay to avoid basis risk.
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Weather Index-based Crop Insurance (WII) scheme have been introduced as an innovative way of mitigating downside risk effects, especially for smallholder farmers in developing countries. The uptake and effectiveness of such a scheme, especially in Kenya is not well documented. A stratified random sampling procedure was employed to get a representative sample of 330 smallholder farm households. This paper uses a double hurdle model to establish factors influencing adoption and the eventual extent of uptake of a weather-based crop insurance, what in Kenya is referred to as Kilimo Salama meaning safe farming in English. The results show that, access to extension, perception and group membership had significant positive effects on adoption (at 1% level), household head education level (at 5% level) whilst, adoption was negatively influenced by distance to agrovet and distance to the extension agent office (at 1% level), farming experience, age of household head and size of cultivated land (at 10% level). Distance to agrovet negatively influenced extent of adoption at 1% level while distance to extension agent together with farm size positively influenced the extent of adoption at 5 and 10% level respectively. To enhance participation by farmers in Kilimo Salama insurance scheme and consequently reduce production risks in their farming business, interventions that would enable farmers access to agricultural information, membership to groups, reduction of transaction costs and training farmers on benefits of an insurance scheme should be encouraged.
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This paper reviews recent advances in, and challenges for, weather index insurance for managing drought risk in smallholder agriculture, with a focus on sub-Saharan Africa. Despite its promise to integrate local agricultural risk smoothing with insurance principles, there remain many challenges to its mainstreaming in low income countries. Scaling up of weather index insurance pilot projects is particularly constrained by high-basis risk, related to the divergence between the calculated weather index and actual productivity loss on the farm. Various options may be considered to enhance uptake of weather index insurance. Linking reliable weather data with location-specific crop and agronomic conditions using flexible geospatial crop modeling tools is one option to reduce the basis risk. The other option is interlinking weather index insurance with credit or safety nets. In the end, insurance should be offered as part of a wider set of business services that provide real value to smallholders. Finally, the review acknowledges that the suggested conceptual solutions, especially interlinking index based weather insurance with credit will require more empirical evidence on the extent to which insurance would reduce the cost of borrowing and make credit more accessible to the smallholder farmers.
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Purpose – The purpose of this paper is to explain the factors affecting farmers’ willingness to purchase weather index insurance for crops in China, in the Province of Hainan, and to also provide additional background information on weather index insurance. Design/methodology/approach – A survey of 134 farmers was undertaken in Hainan, China, regarding their willingness to purchase weather index insurance. A probit regression model was used, and a number of variables were included to explain willingness of farmers to purchase weather index insurance. Findings – In total, 11 of 15 variables in the model are found to be statistically significant in explaining farmers’ willingness to purchase weather index insurance. Research limitations/implications – First, farmers’ interest in weather index insurance may be limited due to basis risk. Second, some farmers may not sufficiently understand weather index insurance and so may not purchase it, and a considerable portion of farmers may also require a subsidy if they are to purchase weather insurance. Practical implications – Weather index insurance may provide a lower cost alternative than traditional crop insurance, however, basis risk remains a main challenge. Originality/value – This is the first study to quantitatively study the factors affecting the willingness of farmers to purchase weather index insurance for agriculture in the province of Hainan, China.
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Pakistan has become a poster child for extreme weather events such as floods and droughts in recent years. The frequency and severity of these events are expected to increase in the future due to predicted climatic changes. This scenario suggests the likelihood of increased crop damage in flood- or drought-prone areas, and hence the need for risk-reducing mechanisms. This paper attempts to determine whether crop insurance is an acceptable tool against flood and drought events in rural Pakistan. It also analyses the factors influencing a farmer's willingness to pay insurance premiums. In a rural farm-household survey, farmers were asked about their willingness to pay for a hypothetical crop insurance programme employing a “double-bounded dichotomous contingent valuation method”. The results revealed that around 30% of the respondents accepted the idea of crop insurance as a tool to reduce and mitigate the financial risks associated with floods and droughts. Our findings suggest that the frequency and severity of the previous weather-related extremes, socio-economic settings, farm typology and the farming communities’ ability to pay need to be taken into consideration when introducing crop insurance programmes against flood or drought in Pakistan. Furthermore, disseminating awareness among farming communities about the future climatic changes and the associated risks of the occurrence of extreme weather events is imperative. The government's willingness to share/subsidize insurance premiums may increase the demand for crop insurance among smallholders in Pakistan and protect them from the negative repercussions of these extreme weather events in order to sustain their livelihoods.
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We present results of experimental games with smallholder farmers in Tigray, Ethiopia, in 2010, in which participants in the games allocated money across risk management options. One of the options was index insurance that was the same as commercial products sold locally. Participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options, including high interest savings. The preference for higher frequency payouts is mirrored in commercial sales of the product, with commercial purchasers paying substantially higher premiums than the minimal, low frequency option available. This combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products.
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In the Sudano–Sahelian zone, which includes Northern Cameroon, the inter-annual variability of the rainy season is high and irrigation scarce. As a consequence, bad rainy seasons have a detrimental impact on crop yield. In this paper, we assess the risk mitigation capacity of weather index-based insurance for cotton farmers. We compare the ability of various indices, mainly based on daily rainfall, to increase the expected utility of a representative risk-averse farmer. We first give a tractable definition of basis risk and use it to show that weather index-based insurance is associated with a large basis risk, whatever the index considered. It has thus limited potential for income smoothing, a conclusion which is robust to the utility function. Second, in accordance with the existing agronomical literature we find that the length of the cotton growing cycle, in days, is the best performing index considered. Third, we show that using observed cotton sowing dates to define the length of the growing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we find that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations provided by the national cotton company. This casts doubt on the strategy of supporting weather–index insurances in cash crop sectors selling at international market prices without recommending any price stabilisation scheme.
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Individual crop insurance has been largely abandoned in developing countries and replaced by insurance pilots based on weather indices. These pilot schemes have encountered low demand. Research suggests that better-off farmers may already be insured via income diversification, their assets and social networks, and may achieve profit-maximising portfolios without formal insurance contracts. They would be interested in such contracts only if they reliably reduced their exposure to risk at lower costs than their self-insurance mechanisms. Conversely, poor farmers are not able to self-insure adequately, have to trade-off returns for reduced risk and could, therefore, benefit from a well-designed insurance. But they are cash/credit constrained and, therefore, cannot advance the money before sowing time to buy insurance that pays out only after the harvest. Index insurance, therefore, cannot be scaled up. Even if a few farmers purchase it, governments still will need to run relief programmes for the uninsured. Standard ways suggested to improve the index insurance, such as reducing basis risks, educating farmers and improving weather data, do not improve the ability of small farmers to purchase insurance and may not improve product design sufficiently to be competitive with self-insurance of the better-off farmers.
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India's crop insurance program is the world's largest with 25 million farmers insured. However, issues in design, particularly related to delays in claims settlement, have led to 95 million farmer households not being covered, despite significant government subsidy. To address this and other problems, the Government of India is piloting a modified National Agricultural Insurance Scheme, a market-based scheme with involvement from the private sector. Compared with the existing scheme, the new program has a design that can offer more timely, claim settlement, less distortion in the allocation of government subsidies and cross-subsidies between farmer groups, and reduced basis risk. Implementation and technical challenges lie ahead which can be addressed but will require a comprehensive strategy, innovative solutions, and timely roll out. This paper describes and analyzes both programs, and discusses lessons learned in developing and implementing the new program.
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Agriculture sector is subject to a great many uncertainties. Yet, more people in developing countries like India earn their livelihood from this sector than from all other economic sectors combined. Agriculture, particularly prone to systemic and co-variant risk, doesn’t easily lend itself to insurance. Lack of historical yield data, small sized farm holdings, low value crops and the relatively high cost of insurance, have further made it more difficult to design, a workable crop insurance scheme (Rao K N). Despite these constraints, India debated the feasibility of crop insurance schemes, since late nineteen forties, and could settle for ‘yield index’ based crop insurance on a country-wide basis since 1985.
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Multiple-risk crop insurance programmes have proven expensive to governments but have not lived up to their expectations. Many agricultural risks cannot be insured on a financially sound basis, but there is scope for increased insurance of farm assets, of the life and health of rural people, and of some specific perils that affect crop and livestock yields. Such insurance could be efficiently provided by the private sector if governments were to remove some of the important constraints impinging on commercial insurers. The greatest challenge is to find ways of insuring low-income rural households against natural hazards on a financially sound basis. Simple lottery schemes that provide insurance against catastrophic weather events (e.g. drought or flood) recorded at regional weather stations might prove effective.
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Climate related shocks are among the leading cause of production and efficiency losses in smallholder crop and livestock production in rural Africa. Consequently, the identification of tools to help manage the risks associated with climactic extremities is increasingly considered to be amongst the key pillars of any agenda to enhance agricultural growth and welfare in rural Africa. This paper describes the application of a promising innovation in insurance design – index‐based insurance – that seeks to bring the benefits of formal insurance to help manage the weather‐related risks faced by rural crop and livestock producers in low‐income countries. In particular, we highlight the research and development agenda of a comprehensive effort to design commercially viable index‐based livestock insurance aimed at protecting the pastoral populations of Northern Kenya from the considerable drought‐related livestock mortality risk that they face. Detailing the conditions that make the pastoral economy in Northern Kenya an ideal candidate for the provision of index‐based insurance products, the paper describes the contract design, defines its structure, offers analysis that indicates a high likelihood of commercial sustainability among the target market and describes the process of implementation leading up to the launch of a pilot in Marsabit district of Northern Kenya in early 2010.
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While significant progress in microcredit and microfinance has been made in low-income countries, lending for small farming enterprises has been limited. This article reviews how innovative index-based risk-transfer products (IBRTPs) can be used to transfer the correlated natural disaster risks that often hamper the development of farm-level microcredit. By linking lending to IBRTPs, access to microcredit can be enhanced while also providing opportunities to offer mutual sharing of the basis risk that remains after correlated risks are transferred into global markets. This opens the way for new thinking about developing agricultural insurance in low-income countries. Keywords: Agricultural finance, Agricultural insurance, Agricultural poverty, Disaster risk management/mitigation, Index-based risk transfer, Microcredit, Microfinance, Microinsurance, Rural credit markets
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This article compares risk reduction from MPCI and GRP crop insurance contracts. The analysis extends and improves on the existing area-yield insurance literature in four important respects. First, the geographical scope greatly exceeds that of previous work. Second, unlike previous efforts, the area is not assumed to consist only of those farms included in the analysis. Third, the analysis is based on the actual GRP indemnity function rather than the area-yield indemnity function commonly used in the literature. Fourth, the analysis avoids the questionable assumption that GRP scale can be optimized at the individual farm level. Even with a number of conservative assumptions favoring MPCI relative to GRP, results indicate that at least for some crops and regions GRP is aviable alternative to MPCI.
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Risk management plays a role in avoiding and escaping chronic poverty throughout the world, particularly for women, who are disproportionately negatively affected by shocks. Using three years of household survey data, administrative records and qualitative interviews, this paper examines the relationship between gender and demand for index-based livestock insurance (IBLI) among pastoralists in southern Ethiopia. IBLI appears to be equitably accessed by men and women alike and we find limited evidence of gender-differentiated demand for IBLI. We also find only modest differences associated with age and share of income from livestock.
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While index-based microinsurance has attracted considerable attention, uptake rates have been weak in many low-income countries. We explore the purchase patterns of index-based livestock insurance in southern Ethiopia, focusing on the role of accurate product comprehension and price. We find that randomly distributed learning kits improve subjects' knowledge of the products; however, we do not find strong evidence that the improved knowledge per se causes greater insurance uptake. We also find that reduced price due to randomly distributed discount coupons has an immediate, positive impact on uptake, without dampening subsequent period demand due to reference-dependence associated with price anchoring effects.
Article
Purpose – The purpose of this paper is to examine the aggregate demand for single- and multi-year crop insurance contracts and to discuss market potential for multi-year crop insurances. Design/methodology/approach – In this paper the authors develop a dynamic discrete choice model of insurance alternatives, in which single- and multi-year insurance contracts are offered to heterogeneous risk averse farmers. The farmers determine their insurances choices based on inter-temporal utilities. Findings – The results show that in a competitive insurance market with heterogeneous risk averse farmers, there is simultaneous demand for both insurance contracts. Moreover, the introduction of multi-year contracts enhances the market penetration of insurance products. Research limitations/implications – The effect of introducing multi-year crop insurance is moderate when applying the model to US corn production. In practice, however, the increase of insurance demand could be more pronounced because we did not consider marketing and administrative costs and thus ignore this cost reduction potential of multi-year insurance. Originality/value – This study adds to the literature analyzing the feasibility of multi-year crop insurance and also shows that there is market potential for multi-year crop insurance.
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Crop insurance in the Sahel enables farmers to take a higher risk by getting more fertilizers. Crop insurance in the Sahel stimulates the production of insured farmers compared with non-insured farmers. However, despite the apparent differences in fertilizers and production, the two groups get almost the same yield. Noninsured farmers seem to be more specialized in agriculture.
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Rational demand for index insurance products is shown to be fundamentally different to that for indemnity insurance products due to the presence of basis risk. In particular, optimal demand is zero for infinitely risk-averse individuals, and is nonmonotonic in risk aversion, wealth, and price. For a given belief, upper bounds are derived for the optimal demand from risk-averse and decreasing absolute risk-averse decision makers. A simple ratio for monitoring basis risk is presented and applied to explain the low level of demand for consumer hedging instruments as a rational response to deadweight costs and basis risk.
Article
Purpose – The purpose of this paper is to review some challenges of insuring weather risk in agriculture and to discuss potential remedies for these problems. Design/methodology/approach – The paper is developed as a narrative on weather insurance based largely on existing literature. Findings – Weather risks show characteristics that often violate classical requirements for insurability. First, some weather risks, particularly slowly emerging weather perils like drought, are spatially correlated and cause systemic risks. Second, climatic change may increase the volatility of weather variables and lead to non-stationary loss distributions, which causes difficulties in actuarial ratemaking. Third, limited availability of yield and weather data hinders the estimation of reliable loss distributions. Practical implications – Some of the approaches discussed in this review, such as time diversification, local test procedures and the augmentation of observational data by expert knowledge, can be useful for crop insurance companies to improve their risk management and product design. Originality/value – This study provides background and development information regarding weather insurance and also presents statistical tools and actuarial methods that support the assessment of weather risks as well as the design of weather and yield insurance products.
Article
Purpose – China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China. During these periods farmers' crops are at risk and for a largely poor population few can afford the turmoil to livelihoods that goes along with drought. The purpose of this paper is to investigate the willingness of Shaanxi and Gansu farmers to purchase weather insurance. Design/methodology/approach – This paper is based on surveyed results of 890 farm households in Shaanxi and Gansu provinces. The survey was designed specifically to extract willingness to pay for weather insurance. Factor affecting willingness to pay are explained using linear regression. Findings – The authors find strong evidence that the demand for drought insurance is downward sloping and also believe from the analysis that the demand is fairly elastic. This suggests that price matters and the results suggest that in order for wide spread adoption of weather insurance farmers will require a substantial premium, perhaps in the order of 80 per cent, as is being applied to current crop insurance initiatives. The authors find, as expected, that crop producers would be willing to pay more for insurance than livestock producers, but also find, as one would expect, that the key indicator is risk. Using a Pert distribution, the authors constructed from information gathered from farmers the expected values and standard deviations of gross revenues and yields of the most prominent crop and constructed the coefficient of variation. It was found in both cases that the higher the CV the greater the willingness to pay. Originality/value – The authors believe that this is the first willingness‐to‐pay study of weather insurance uptake in China. The authors used a unique “experimental” design and investigation technique to determine weather insurance demand.
Article
Does production risk suppress the demand for credit? We implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. The other half of farmers were offered a similar credit package, but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take-up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0% for farmers who were offered the uninsured loan. There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual's default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.
Article
The prediction of crop yield and harvest volume of about 700 thousand ha planted to dry bean in Zacatecas State will enable the implementation of strategies to decrease the degree of uncertainty of decisions pertaining to agriculture. The purpose of the present study was to predict bean yield under rainfed conditions using leaf area index (LAI), light interception (LI) by the canopy, and rainfall. LAI and LI of both black-grain and light-colored grain beans were determined at the beginning of flowering, at pod formation, at the beginning of pod filling, and at intermediate pod filling. The relationship yield: LAI/LI/rainfall as well as the verification of a model were examined by linear least-square regression. Maximal LI and its LAI for the various years were 70 % and 1.6 for 2002 and 75 % and 2.5 in 2003. For these years, LI as a function of LAI could be described by an exponential model. LAI and LI at pod formation and the beginning of pod filling were the phenological stages that better explained bean yield for all varieties. The empirical model relating bean yield: LAI/LI/rainfall accounted for 71 % of the variability of light-colored grain bean yield. The corresponding percentages of the variability in measured yields for black-grain beans were 68 % for Emiliano Zapata and Progreso and 74 % for Zaragoza and Miguel Auza. Even though the relationship LAI/LI/rainfall was affected due to the low plant population density, the many varieties employed, and the agroecological sites, the information from this kind of studies will be useful to decision makers and farmers to make decisions.
Article
Weather index insurance for agriculture and rural areas in lower-income countries have particular advantages. This include simplification of the sales process since the insurance contract is relatively straight-forward, there is no need to estimate the actual loss experienced by polyholder since indemnities are paid based exclusively on the realized value of the underlying index. In addition, there is no need to classify individual policyholders according to their risk exposure unlike traditional insurance products. Weather index insurance provide risk management opportunities for the rural poor and is based not on actual losses experienced by poplicyholder but on realizations of a weather index. By means of assisting with demand assessment, establishing an appropriate legal and regulatory framework, collecting and managing the required data, training insurance suppliers and providing objective information to potential users of weather index insurance, governments, donors and international financial institutions can facilitate the offering of weather index insurance.
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