Abstract
Rural livelihoods in most developing countries are threatened by climate-related risks such as drought, flood, heat waves, storms, and so on. Although farmers have adopted several adaptation strategies, they have proven less effective than hoped. Hence, index-based livestock insurance, an innovation that significantly assists farmers to acclimatise to climate-related risks, has been proposed; and its adaptability has attracted a notable increase in other African countries. However, the success of its adoption is dependent on the inclination of the farmers to pay for the service. Accordingly, this study investigates their willingness to pay for index-based livestock insurance and its determinants, and the factors influencing the total livestock units to be insured in the North West province of South Africa. Cross-sectional data were obtained from 277 cattle farmers, drawn randomly from the study area. The contingent valuation method was applied to determine the farmers’ willingness to pay; and only 10.8% were willing to pay. Simultaneously, the Heckit sample selection model was used to analyse the data to identify the factors responsible for farmers’ willingness to pay and total livestock units to insure. The findings revealed that farmer’s experience, age, education, marital status, awareness of insurance and household dependents were statistically significant, and influenced the maximum price R600 ($42, max willingness to pay, WTP) of those who accepted index-based livestock insurance. However, by implication, the study concluded that to adopt index-based livestock insurance in the study area among the livestock farmers, there should be policies to cater for the aforementioned factors.
Highlights
Climate change and variables such as drought, extreme heat waves and the like pose a significant threat to agricultural development, including livestock production, which has been recognised to occupy a central position in food security in South Africa
The study is unique as it contributes to the body of knowledge on willingness to pay (WTP) for index-based livestock insurance (IBLI) by initiating a blueprint for how much a farmer is willing to pay for IBLI and how many total livestock units (TLUs) to be insured
The chi-square analysis in Table 5 presents the proportion of farmers who are willing to pay for IBLI and those who are not, with respect to their socioeconomic characteristics such as gender, marital status, education and other sources of income
Summary
Climate change and variables such as drought, extreme heat waves and the like pose a significant threat to agricultural development, including livestock production, which has been recognised to occupy a central position in food security in South Africa. Harsh and unpredictable weather conditions have led to a significant loss of livestock in the North West, and a similar situation was reported in the Limpopo province, with different levels of shocks such as drought and high level of livestock disease [2] This situation has worsened the already precarious food security situation in the region, an experience which has been noted in most developing countries, since climate change is a recognised global phenomenon; and developing countries are obviously more susceptible to the damaging effects due to poor adaptive capacity [3]. The adoption of insurance as a sui generis plan for the reduction of the damage that necessarily follows from climate change is interlaced with problems, such as rigorous indemnity payment procedures, which subsequently results in production failure and high administrative cost, and this is because insurers do not indemnify claims promptly Ergo, these factors have discouraged reliance on this insurance option
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