Empirical analysis of factors influencing farmers crop insurance decisions in Pakistan: Evidence from Khyber Pakhtunkhwa province

Abstract

Pakistan is the world’s most susceptible country to extreme climatic events, such as floods. As such, for many years, the country has faced the risk of losses from natural calamities without crop insurance. However, in recent years, the national government has undertaken crop insurance initiatives in Pakistan. Consequently, there is limited knowledge available on the adoption of crop insurance in Pakistan. To fill this gap, this study aims to examine the factors influencing the adoption of crop insurance as a risk management strategy by Pakistani farmers. Primary data were collected from 400 farm households through a structured questionnaire in four flood-prone districts of the northwestern regions (Khyber Pakhtunkhwa). A probit model was used to analyze the relationships among dependent and independent variables. Risk attitude and risk perception of floods for each farm household were calculated and used as independent variables. Age, farming experience, education level, risk perception of floods, land ownership status, landholding size, access to credit, access to information sources, agricultural extension services, and distance from river were significantly associated with farm households’ decisions to purchase crop insurance. The findings of this study are expected to guide government, insurance companies, and policymakers in implementing crop insurance. Further the government should subsidize and frame a crop insurance policy and awareness about crop insurance should be improved for betterment of small farmers.