Willingness to pay for Rainfall based Insurance by Smallholder Farmers in Central Rift Valley of Ethiopia: The Case of Dugda and Mieso Woredas
DOI:
https://doi.org/10.18034/apjee.v1i2.216Keywords:
Rainfall based insurance, Willingness to pay, Small heolder farmers, TobitAbstract
Current climate variability is already imposing significant challenge to Ethiopia. Therefore, farmers have faced income variability in almost every production season. Problems associated with dependence on rain fed agriculture are common in Ethiopia. Smallholder farmers’ vulnerability from such income variability is also common. Over the years, a range of risk management strategies have been used to reduce, or to assist farmers to absorb, some of these risks. Since insurance is potentially an important instrument to transfer part of the risk, this study try to describe the nature of weather related risks faced by smallholder farmers, assess small holder farmers willingness to pay for the rainfall risk insurance and examine factors that affect the maximum farmers are willing to pay for the rainfall risk insurance. The data was collected from 161 sample households from the two woredas of the study area using closed ended value elicitation format followed by open ended follow up questions. The study uses Logit model to estimate the mean willingness to pay in the close ended format in addition with Tobit model to examine factors that affecting small holder farmer willingness to pay as well as intensity of payment. The mean willingness to pay values are found to be 129.98 and 183.41 birr per hectare for the open and close ended formats respectively. The total willingness to pay for the study area was found to be birr 5,740,244 per year. The tobit model shows six potential explanatory variables affect the willingness to pay value. Income of household and ownership of radio have positive and significant effect on the value of willingness to pay, whereas off-farm income, age of household head, number of livestock owning and availability of public and private gifts have negative and significant effect on willingness to pay value. If the rainfall risk insurance premium is affordable and households have enough information about the service they are willing to pay for the service. Eventually policy makers need to be aware that socio-economic and institutional characteristics of households influence the willingness to pay for rainfall risk insurance services.
Downloads
References
Addis Ababa University, 2001. Introductory geography of Ethiopia Geo,101. Teaching text, Department of Geography.
Alberini, A., and Cooper, J., 2000. Application of contingent valuation method in developing countries. Economic and social development paper. No. 146, FAO, Rome.
Anderson, D.R., 2001. All Risks Rating Within a Catastrophe Insurance System. Journal of Risk and Insurance. 43: 629-651.
Anderson, J. R., Dillon,J. L., and Hardaker, J.R., 1977. Agricultural decision analysis: Lowa State University press.
Assefa Demeke and G. Ramakrishna, 2002. An empirical analysis of food security in Ethiopia, the case of North Wollo. African Development Journal. 27 (1&2):127-144.
Bateman, I. J. H. Langford, A. P. Junes, G. B. Kerr and R. Scarpa, 2000. Bound and path effects in double and triple bounded dichotomous choice contingent valuation. A paper presented at the tenth annual conference of the European Association of Environmental Resources Economists (EAERE), Great Britain.
Binswanger, H.P., 1980. Attitudes towards risk. Experimental measurement in rural India. American Journal of Agricultural Economics. (62): 395-407.
Bryan, E., T. Deressa, G. Gbetibouo and C. Ringler (2009). Adaptation to climate change in Ethiopia and South Africa: options and constraints. Environmental Science and Policy, 12: 413-426.
Carson, R.T., 1991. Constructed Markets. In: J.Barden and C.Kolstad (eds). Measuring the Demand for Environmental Commodities. Amsterdam, North Holland.
Carson, R.T., N.E. Flores and N.F. Meade, 2001. Contingent Valuation: Controversies and Evidence. Environmental and Resource Economics, 19(2): 173-210.
Cooper, J. and T. Osborn, 1998. The Effect of Rental Rates on the Extension of Conservation Reserve Program Contracts. American Journal of Agricultural Economics 80, 184-194.
CSA (Central Statistics Authority), 2004. Agricultural sample survey report Federal Democratic Republic of Ethiopia, Addis Ababa, Ethiopia.
Dandekar, V.M. 1977. Crop insurance for developing countries. Teaching and Research Forum Paper No. 10. New York: Agricultural Development Council.
Dennis Holden, Peter Hazell, Anthony Pritchard, 1991. Risk in Agriculture. Proceedings of the Tenth Agriculture Sector Symposium. World Bank Washington, D.C. USA.
Dillon J.L and J.B. Hardaker, 1993. Farm management research for small farmers development. FAO Farm Management Series. FAO, Roma Italy. (6):302
Freeman, A.M., 2003. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.
Gautam, M., Hazell, P., and H. Alderman, 1994. Rural demand for drought insurance, world bank Policy Research Working Paper No. 1383.
Gine Xavier, Robert Towensend and James Vickery, 2007. Patterns of rainfall insurance participation in rural India, Policy research working paper. 4408.
Greene, W. H., 2003. Econometric Analysis. Fourth Edition, Prentice Hall International, Inc. USA.
Gujarti, D., 1999. Essential of Econometrics. Second edition, Mc-Graw hill companies.
Halcrow, H.G. 1948. The theory of crop insurance. Ph.D. diss. Chicago: University of Chicago.
Hanemann, W.M., 1991. Willingness to accept and willingness to pay and how much can they differ? American Economic Review, 81(3): 635-647.
Hanemman, W.M & Kanninen. B., 1998. The statistical analysis of discrete response data. Department of Agricultural, Resource Economics and Policy, Working paper No, 798 University of California, Berkeley.
Hardaker, J. Banri., Ruud B.M. Hurnie and Jock R.Anderson, 1997. Coping with risk in agriculture. CAB International London.1-10p.
Hauseman, J., 1993. Contingent Valuation: A critical Assessment, North Holland Publishing Co., Amsterdam.
Hazell, P, J. Anderson, N.Balzer, A.Hustarp Celmmensen, U.Hess and F.Rispoli. 2010.
Hazell, P.B.R., 1992. The appropriate role of agricultural insurance in developing countries. Journal of International Development. (4):567-581.
Hellmuth M.E., Osgood D.E., Hess U., Moorhead A. and Bhojwani H (eds), 2009. Index insurance and climate risk: Prospects for development and disaster management. Climate and Society No. 2. International Research Institute for Climate and Society (IRI), Colombia University, New York, USA.
IAC. 1986. Crop and rainfall insurance. Report No. 393. Canberra: published for the Industries Assistance Commission by the Australian Government Publishing Service.
IPMS (Improving Productivity and Market Success), 2006. Pilot searing site of Mieso woreda. IPMS, Adiss Ababa, Ethiopia. http//www. IPMS-Ethiopia.org.
Long, S., 1997. Regression Models for Categorical and Limited Dependent Variables. Saga Publications.
Maddala, G.S., 1992. Introduction on Econometric. Second edition . Macmillan Publishing Company, New York.
Maddala, G.S., 1997. Limited Dependent and Qualitative Variables in Econometrics. Cambridge University Press, Cambridge.
Marothia, D.K., 2001. Valuation of Day Use Recreation site: Application of Alternative Estimation Techniques. Indian journal of Agricultural Economics. University of Gulbarga. 56(3) 313-324.
Mbata, J., 2006. Estimating Household Willingness for Water Service in Rural Economy: the case of Kenya, Southern Botswana. Development of Southern Africa, 23 (1):29-43.
McCarthy, 2003. Demand for rainfall-index based insurance: A case study from Morocco International Food Policy Research Institute, U.S.A.
Mithcele, R.C. and T.R. Carson, 1989. Using survey to value public Goods: The contingent valuation method. Resources for the future, Washington, D.C.; The Johns HopkinsUniversity Press, Baltimore, U.S.A.
MoWR (Ministry of Water Resource of the Federal Democratic Republic of Ethiopia) 2007. Climate Change Adaptation Program of Action (NAPA) of Ethiopia. Addis Ababa, Ethiopia.
Patrick G. F., 1988. Mallee Wheat farmer’s demand for crop and rainfall insurance, Australia Journal of Agricultural Economics, 32 (1): 37-49.
Paulos, A., 2002. Determinants for Farmers' willingness to participate in soil conservation practices in the highlands of Bale: The case of Dinsho Farming System Area. M.Sc. Thesis Presented to the School of Graduate Studies of Alemaya Universty.
Potential for scale and sustainability in weather index insurance for agricultural and rural livelihood. International Fund for Agriculture Development and World Food Program, Roma.
Rahman MA. 2013. Comparative Study on the Efficiency of Bangladeshi Conventional and Islamic Life Insurance Industry: A Non-Parametric Approach Asian Business Review, 3, 88-99.
Sakurai, T and T. Reardon., 1997. Potential demand for drought insurance in Burkinafaso and its determinants. American Journal of Agricultural Economics. 79 (4):1193-1207.
Sarris, A. 2002. The demand for commodity insurance by developing country agricultural producers: Theory and an application to cocoa in Ghana. Working Paper, DECRG and RDV. Washington, D.C.
Siegel, P.B. and J. Alwang., 1999. An asset based approach to social risk management: A conceptual approach, Social Protection Discussion Paper 9926, World Bank, Washington DC.
Skees, Jerry R. 2001, The Bad Harvest, Regulation, the CATO Review of Business and Government, 24: 16-21.
Stern, N.H., 2007. The economics of climate change: the. Cambridge University Press.
Storck, H., Bezabih Emana, Berhanu Adnew , Borowiecki, A.A and Shimelis w/ Hawariat, 1991. Farming systems and Farm Management Practices of Small-holders in the Hararghe Highlands. Farming System and Resource Economics in the Tropics.11: Wissenschafts Varlag Vauk Kiel KG, Germany
Thornton, P.K., P.G. Jones, T.M. Owiyo, R.L. Kruska, M. Herero, P. Kristijanson, A. Notenbaert, N. Bekele, 2006. Mapping Climate Vulnerablity and Poverty in Africa. Report to the Department for International Development, ILRI, Nairobi.
Ulrich Hess and Joanna Syroka, 2005. Weather based insurance in Southern Africa, Malawi. Agricultural and rural development discussion paper 13.
Vince E. Showers, and Joyce. Shotick, 1994. The effect of household characteristics on demand for insurance; a tobit analysis. The Journal of Risk and insurance, Vol 61, (3): 492-502.
Walker, T.S and James G.Ryan, 1990. Village and household economies in India’s semi-arid tropics. Baltimore, Maryland, USA: The Johns Hopkins University Press.
World Bank, 2000. Mexico Rural Finance, Saving Mobilization Potential and Deposit Instruments in Marginal areas, Washington DC.
World Bank, 2005. Managing agricultural production risk innovation in developing countries. Report No. 32727-GLB. The International Bank for Reconstruction and Development. Washington , D.C.
World Bank, 2007. UN Department of Economic and social affairs division for sustainable development innovation briefs. Developing Index-based Insurance for Agriculture in Developing Countries, New York.
--0--
Downloads
Published
Issue
Section
License
How to Cite
