Willingness to participate and pay for index-based crop insurance in Ghana

Abstract

Purpose

The purpose of this paper is to assess farmers’ willingness to participate and pay for weather-based index insurance in the Upper East Region of Ghana, and what factors influence the participation and purchase of crop insurance schemes.

Design/methodology/approach

A survey of 200 farmers in the region was carried out in 2018 to measure demographic information, farm characteristics, risks and risk-management practices and attitudes to crop insurance programs. The survey also captured maximum willingness to pay (WTP) for crop insurance. The double-bounded contingent valuation technique was used to estimate the WTP for crop insurance and the variables that affected WTP.

Findings

Farmers, in general, had an indifferent attitude to crop insurance in the region, but were willing to participate in the crop insurance programme, and were willing to pay between 7.5 and 12.5 per cent of the cost of growing maize as a premium for crop insurance. Demographic and economic variables did not impact WTP, but attitude towards crop insurance, farm diversification and frequency of drought negatively impacted on the WTP for crop insurance.

Practical implications

Education programs could be undertaken to improve the attitude and understanding towards crop insurance, as some farmers perceived the programme as not trustworthy, and others did not truly understand the operation of the programme.

Social implications

Drought can have a significant impact on household welfare, particularly in food insecure countries or regions. Crop insurance can provide a method of securing income for farmers allowing them to purchase food rather than other choices, such as removing children from education to reduce household expenses, improving the long-term welfare of the farm household.

Originality/value

This paper considers willingness to participate and WTP for a crop insurance programme in Ghana, it is one of a small number of papers that consider attitude to, and willingness to participate and WTP for crop insurance in developing countries. The value of the research is the expanded understanding of farmer attitude to crop insurance and their lack of knowledge of crop insurance operations.

Citation

Adjabui, J.A., Tozer, P.R. and Gray, D.I. (2019), "Willingness to participate and pay for index-based crop insurance in Ghana", Agricultural Finance Review, Vol. 79 No. 4, pp. 491-507. https://doi.org/10.1108/AFR-01-2019-0001