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Factors influencing farmers’ willingness to pay for weather-indexed crop insurance policies in rural Ethiopia

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Abstract

Weather-indexed crop insurance is a vital tool for reducing weather-induced risks faced by smallholder farmers in Sub-Saharan Africa. This study explores the determinants of farmers’ participation in and willingness to pay (WTP) for this insurance scheme in northeastern Ethiopia, using data from 261 farming households. The study applies the contingent valuation method (WTP) and a zero-inflated ordered probit (ZIOProbit) model to estimate both the probability and intensity of farmers’ engagement. Empirical findings indicate that about 62% of respondents are willing to join, with an annual payment of $16.875 per hectare. The study finds that female household heads, larger land and livestock holdings, access to agricultural extension services, and awareness of weather-related risks positively influence the participation decision. Conversely, households with literate heads and those led by younger or older individuals are less likely to participate. Among the participants, educated heads and those with larger farms are willing to pay higher premiums, while larger household sizes and higher livestock holdings lower the premium levels. The study highlights the need for context-specific approaches, emphasizing the importance of designing sustainable insurance products that meet the needs and preferences of smallholder farmers in Sub-Saharan Africa. It also recommends increasing farmers’ awareness and knowledge of insurance products through information campaigns and training programs.

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Notes

  1. Kebele is the smallest administrative unit in Ethiopia.

  2. According to McKee et al. (1993), SPI-3 values > 2 is extreme wet; 1.50 to 1.99 is very wet; 1.00 to 1.49 is moderate wet; 0 to 1.0 is mild wet; −0.99 to 0 is mild drought; −1.49 to −1.00 is moderate drought; −1.99 to −1.50 is severe drought; ≤ −2.0 is extreme drought. The SPI-3 was calculated using historical records of monthly precipitation data obtained from the National Meteorological Services Agency of Ethiopia’s Gashena meteorological station, which is about 30 km from the Meket district.

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Authors and Affiliations

  1. College of Agriculture and Environmental Sciences, Bahir Dar University, Bahir Dar, Ethiopia

    Amare Wodaju, Zerihun Nigussie, Bosena Tegegne & Atalel Wubalem

  2. Amhara Regional Agricultural Research Institute, Bahir Dar, Ethiopia

    Asresu Yitayew

  3. Department of Sustainable Regional Management, University of Applied Forest Sciences, Rottenburg, Germany

    Steffen Abele

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  1. Amare Wodaju
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Wodaju, A., Nigussie, Z., Yitayew, A. et al. Factors influencing farmers’ willingness to pay for weather-indexed crop insurance policies in rural Ethiopia. Environ Dev Sustain (2023). https://doi.org/10.1007/s10668-023-04262-1

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