Farmers Willingness to Pay for Crop Insurance: Evidence from Eastern Ghana
Subject Areas : Decision-making
1 - McGill University
Keywords: Willingness to pay, Contingent valuation, Heckman two stage analysis,
Abstract :
Crop insurance is a risk management tool with the potential of dealing with risk more efficiently, the study uses a dichotomous contingent valuation method to elicit the willingness to pay for crop insurance among cereal farmers in the Eastern region of Ghana. The study employed descriptive statistical techniques to analyse primary data obtained from 208 sampled farmers in the region. Approximately, 52.9% of the farmers expressed interest in crop insurance. A Heckman two stage approach was employed to estimate the factors influencing the WTP for crop insurance. The results revealed that farmers were willing to pay approximately GHc 69.6 per cropping season. The demand for insurance was found to be negatively correlated with the premium amounts suggesting that it is a normal good. The Probit model revealed that marital status, education, borrowing, and awareness of crop insurance influenced farmers willingness to purchase insurance. Farmers WTP amount estimated with the interval regression model was shown to be influenced by key variables such as age, crop type, farm size, farm experience, income, weather variation, savings and access to extension agents. Innovative insurance products and the appropriate distribution channels are also recommended to incite demand for crop insurance.
Abdullah, M. A., Auwal, A.G., Darham, S., & Radam, A. (2014). Farmers Willingness to Pay for Crop Insurance in North West Selangor Irrigated Agricultural Development Area (IADA), Malaysia. International Society for Southeast Asian Agricultural Science, 20 (2), 19-30.
Abebe, T. H., & Bogale, A. (2014). Willingness to pay for Rainfall based Insurance by Smallholder Farmers in Central Rift Valley of Ethiopia: The Case of Dugda and Mieso Woredas. Asia Pacific Journal of Energy and Environment, 1(2), 121-155.
Agyemang, M. (2010). The determinants of cocoa output: A case study of the Aowin Suaman District. American Journal of Environmental Sciences, 1(3), 194-201.
Aidoo, R., Mensah, J.O., Wie, P., & Awunyo-vitor, D. (2014). Prospect of Crop Insurance as a Risk Management Tool among Arable Crop Farmers in Ghana. Asian Economic and Financial Review, 4(3), 341-354.
Ali, A. (2013). Farmers’ Willingness to Pay for Index Based Crop Insurance in Pakistan: A Case Study on Food and Cash Crops of Rain-fed Areas. Agricultural Economics Research Review, 26(2), 241-248.
Arabsheibani, R., and L. Lau. 1999. Mind the Gap: An Analysis of Gender Wage Differentials in Russia. Labour 13(4), 761–774.
Armah, A.F., Odoi, J.O., Yengoh, G.T., Obiri, S., Yawson, D.O., & Afrifa, E.K.A. (2011). Food Security and climate change in drought-sensitive savanna zones of Ghana. Mitigation and Adaptation Strategies for Global Change, 16, 291–306.
Baquet, A., Hambleton, R., & Jose, D. (1997) Introduction to risk management. US Department of Agriculture, Risk Management Agency, USDA. Washington DC: USA.
Barnett, J.B., & Mahul, O. (2007). Weather index insurance for agriculture and rural areas in Lower- Income Countries. American Journal of Agricultural Economics, 89 (5), 1241-1247.
Cervantes-Godoy, D., Kimura, S., & Antón, J. (2013). Smallholder Risk Management in Developing Countries. OECD Food, Agriculture and Fisheries Papers, No. 61, OECD Publishing, Paris.
Chen, G., & Hamori, S. (2008). An empirical analysis of gender wage differentials in Urban China. Kobe University Economic Review, 54, 25- 34.
Danso-Abbeam, G., Addai, K.N., & Ehiakpor, D. (2014). Willingness to pay for farm insurance by smallholder cocoa farmers in Ghana. Journal of Social Science for Policy Implications, 2(1), 163-183.
Falola, A., Ayinde, A.E., & Agboola, B.O. (2013). Willingness to take agricultural insurance by cocoa farmers in Nigeria. International Journal of Food and Agricultural Economics, 1(1), 97-107.
Ghana Agricultural Insurance Programme (2013). Developing sustainable financial solutions to the challenge of climate change. GAIP, Accra, Ghana.
Ghana Statistical Service (2014). Poverty profile in Ghana (2005-2013). Ghana Living Standards Survey, Sixth Round Report (GLSS 6). Accra, Ghana.
Greene, H. W. (2002). Econometric Analysis, 5th ed. Upper Saddle River, NJ: Prentice Hall, New York University.
Gulseven, O. (2014). Estimating the demand factors and willingness to pay for agricultural insurance. Middle East Technical University, Turkey. Australian Journal of Engineering Research, 1(4), 13-18.
Hill, V. R., Hoddinott, J., & Kumar, N. (2013). Adoption of weather-index insurance: Learning from willingness to pay among a panel of households in Rural Ethiopia. International Food Policy Research Institute, Washington, DC, USA. Agricultural Economics, 44, 385–398.
Irfan, S. (2011). Modeling wages of females in the UK. International Journal of Business and Social Science, 2(11), 195-202.
ILO (2011). Social protection floor for a fair and inclusive globalization, Report of the Social Protection Floor Advisory Group. International Labor Office, Geneva.
IPCC (2007). Climate Change: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Parry, M. L., O. F. Canziani, J. P. Palutikof, P. J. van der Linden, C.E. Hanson, Eds., Cambridge University Press, Cambridge, UK.
Jones, R. J., Melton, H., & Spaulding, A. (2009). Enhancing sustainable access to capital for farmers in Ghana through index insurance. The Katie School of Insurance, Illinois State University.
Khitarishvilli, T. 2009. Explaining the Gender Wage Gap in Georgia. The Levy Economics Institute Working Paper Collection, No. 577, Bard College.
Kuoame, B. H. E., & Komenan, A.N. (2012). Risk preference and demand for insurance under price uncertainty: An Experimental Approach for Cocoa Farmers in Cote D’Ivoire. Research Paper No.13. Micro Insurance Innovation Facility, International Labor Office, Geneva.
Kurukulasuriya, P., Mendelsohn, R., Hassan, R., Benhin, J., Diop, M., Eid, M.H., Fosu,Y.K., Gbetibouo, G., Jain, S., Mahamadou, A., El-Marsafawy, S., Ouda, S., Ouedraogo, M., Sène,I., Maddision, D., Seo N., & Dinar A. (2006). Will African agriculture survive climate change? World Bank Economic Review, 20, 367–388.
Kwadzo, T-M. G., Kuwornu, J.K.M., & Amadu, I.S.B. (2013). Food crop farmers’ willingness to participate in market-based crop insurance scheme: Evidence from Ghana. Research in Applied Economics, 5(1), 1-21.
Long, Q. T., Minh, T.B., Manh, C.N., & Thanh, T.V. (2013).Farm households’ willingness to pay for crop (micro) insurance in Rural Vietnam: An investigation using contingent valuation method. East Asian Development Network (EADN) Working Paper No.64.
Machetta, F. (2011).On the Move Livelihood Strategies in Northern Ghana. CERDI, Etudes et Documents, 13. France. Retrieved April 22, 2015 from http:// halshs.archives-ouvertes.fr/ halshs-00591137 ).
Mfungwe, L. (2012). Assessing the impact and adoption of agroforestry food security programmes on the rural livelihoods: Evidence form Southern Malawi. Unpublished thesis, Department of Economics, Faculty of Social Science, University of Malawi.
Mjonono, M., Ngidi, M., & Hendriks, S.L. (2009). Investigating household food insecurity coping strategies and impact of crop production on food security using Coping Strategy Index (CSI). 17th International Farm Management Congress, Bloomington/Normal, Illinois, USA.
Munkaila, H. F. (2015). Cereal Farmers Willingness to pay for Weather- Based Index Insurance (WII) product as a risk management tool in the Eastern Region of Ghana. Unpublished thesis, Department of Agricultural Economics and Agribusiness, University of Ghana.
Nimoh, F., Baah, K., & Tham-Agyekum, E.K. (2011). Investigating the interest of farmers and insurance companies in Farm Insurance: The Case of Cocoa Farmers in Sekyere West Municipal of Ghana. Journal of Agricultural Science, 3(4), 126-135.
Obeng, K. F., & Assan, J. (2009). Environmental variability and vulnerable livelihoods: Minimising risks and optimising opportunities for poverty alleviation. Journal of International Development, 21(3), 403-418. doi: 10.1002/jid.1563
Ramasubramanian, A. J. (2012). Willingness to pay for index based crop microinsurance in India. NEUDC, Darmouth College, USA. Retrieved May 12, 2015 from http://www.dartmouth.edu/~neudc2012/docs/paper_19.pdf ).
Stutley, C. (2010). Crop insurance feasibility study. Innovative Insurance Products for the Adaptation to Climate Change Project Ghana (IIPACC). Ghana. Retrieved April 6, 2015 from http://seguros.riesgoycambioclimatico.org/DocInteres/eng/Ghana-Crop-Insurance.pdf. ).
Sundar, J., & Ramakrishnan, L. (2013). A Study on Farmers’ Awareness, Perception and Willing to Join and Pay for Crop Insurance. International Journal of Business and Management Invention, 2(1), 48-54..
Wu, L., Xu, L., Zhu, D., & Wang, X. (2011). Factors affecting consumer willingness to pay for certified traceable food in Jiangsu Province of China. Canadian Journal of Agricultural Economics, 60 (3), 317–333.