Impact of Weather Index Insurance on Groundnut Farmers’ Technical Efficient in Senegal: A Propensity Score Matching Approach

Abstract

Irregular and low rainfall levels and drought have become important sources of low agricultural yields and agricultural incomes in sub-Saharan Africa. Weather index insurance is a financial product for climate risk management aimed at securing farmers' incomes. This paper aims to evaluate the impact of a weather index insurance project piloted with groundnut farmers in Senegal in 2015-2016 agricultural season on farmer's technical efficiency (TE). A Stochastic Production Frontier model was used to estimate the TE scores. A matched group of beneficiaries and control farmers was determined using propensity score matching techniques to mitigate biases stemming from observed variables. The results showed that average TE is consistently higher for control farmers than the beneficiary group. Age, gender and education were found to be significantly related to technical efficiency, while membership in farmers' association, credit, improved seeds and extension contact were not significantly related to technical efficiency. From a policy perspective, we suggest that weather index insurance programs targeting smallholder farmers in developing countries, and particularly in sub-Saharan Africa, be accompanied with education services, provision of new technologies such as high yield seeds and other best farm management practices and credit to help farmers better adapt to weather shocks and secure their production and income.

Evaluation of the Effects of Introducing Risk Management Tools in Agricultural Development: The Case of PADAER Senegal

“…There are four specific risks in an agricultural enterprise: price, agricultural yield (i.e., quantity produced), quality, and production cost [4,5]. Risk management tools are essential to enabling farmers to anticipate, avoid and respond to shocks [6,7]. If effective, agricultural risk management systems can safeguard the standard of living of those who depend on agriculture, strengthen the viability of agricultural enterprises and create conditions that facilitate investment in the sector [8].…”

“…However, while much work has highlighted the positive impacts of insurance on agricultural development [9][10][11][12], few analyses have focused on index-based insurance in emerging and developing countries [6]. The work in [13] shows how index-based livestock insurance (IBLI) provides considerable risk coverage, as opposed to offering households access to a lottery.…”