Farmers' willingness to pay for index based crop insurance in Pakistan: a case study on food and cash crops of rain-fed areas.

Abstract

In Pakistan, agriculture is vulnerable to multiple risks, especially in the rain-fed areas. The crop insurance can serve as a useful tool to manage risks in the rain-fed areas of Pakistan. This study has assessed farmers’ willingness to pay for insurance in the rain-fed areas of Pakistan by conducting a survey of 531 farmers in the Soon valley and Talagang areas of Pakistan. The farmers’ willingness to pay for the index based crop insurance has been studied by employing the different econometric models. It has been found that these rain-fed areas consider indexed based insurance to be an important risk management strategy. The empirical results have indicated that farmers’ economic status, household assets and membership of community organization are the important determinants of their willingness to pay a higher insurance premium. The propensity score matching results have revealed that farmers were satisfied with index based insurance and were also willing to increase the area under food as well as cash crops. This study has suggested that to make agricultural insurance scheme more successful, the government should provide subsidy which will help in increasing the area under food and cash crops and shall ensure food security in the region.