Drivers of farmers’ cattle insurance decisions: evidence from smallholders in northern Ethiopia

Abstract

ABSTRACTThis empirical study investigates drivers of farmers’ hypothetical cattle insurance participation, and their intensity of participation, using the Heckman two-step model to control for selection bias. The data pertains to a survey of 356 cattle farmers from selected villages of Northern Ethiopia. Findings indicate that 94 per cent of the cattle owners were interested in procuring cattle insurance, and 77 per cent of them were willing to pay the benchmark annual premium of 4 per cent of the animal’s value. The average number of cattle that each farmer was willing to insure was nearly three. The findings further indicate that income and education levels of the respondents, among other factors, influence the farmers’ attitude towards participation in cattle insurance and the number of cattle to be insured by them. These findings suggest that educating farmers on the benefits of livestock insurance can stimulate this important risk management strategy. Public action may be required to incentivise insurance companies entering the market for the first time and to address the barriers to participation by poor households. Even though our study was restricted to some areas of northern Ethiopia, the findings can have a wider practical application for governmental and non-governmental institutions wishing to establish cattle insurance in developing countries.