Willingness to pay for weather index-based insurance in semi-subsistence agriculture: evidence from northern Togo

Abstract

ABSTRACTThe effects of climate change on agricultural production are pushing countries to reconsider risk management policies in their development plans. Opportunities exist to increase agricultural production and improve the policy environment. However, policymakers lack local empirical evidence to provide local solutions to agricultural development in many developing countries, including Togo. This paper assesses farmers’ willingness to pay for weather index-based insurance (WII) as a market option for sharing climatic risks. A choice modeling approach is used based on data collected from 704 randomly selected households in northern Togo, West Africa. Statistical analysis of the data shows that dry spells are the major concern of farmers and maize is perceived as the most affected food crop. Results also indicate that respondents are willing to participate in a WII market and would prefer insuring crops, such as maize over sorghum and rice against drought by paying on average about $14.5 per hectare. The results show that WII should not be offered standalone, but interlinked with other factors such as providing drought tolerant and high yielding varieties; loans to organized farmers’ groups; and weather information through TV, radio and mobile phones in local languages, while encouraging education to enable the diffusion of more advisory services. These factors are likely to influence positively farmers’ preferences in participating in a WII market.Key policy insightsVery often, insurance is seen as a magic bullet in agricultural risk management policy discussions.A standalone WII could suffer from low adoption, a problem that calls for other policy options.As a climate change adaptation policy, WII could be bundled with other risk-reducing options for a better uptake and to improve farmers’ welfare.WII can be an effective channel for farm credit facilities and advisory services, as well as other agricultural risk management interventions.