Small farmers’ preferences for weather index insurance: insights from Kenya

Abstract

Background: Smallholder farmers in developing countries are particularly vulnerable to climate shocks but often lack access to agricultural insurance. Weather index insurance (WII) could reduce some of the problems associated with traditional, indemnity-based insurance programs, but uptake has been lower than expected. One reason is that WII contracts are not yet sufficiently tailored to the needs and preferences of smallholder farmers. This study combines survey and choice-experimental data from Kenya to analyze the experience with an existing WII program and how specific changes in the contractual design might encourage uptake.Results: Many smallholders struggle with fully understanding the functioning of the program, which undermines their confidence. Regular provision of relevant rainfall measurements and thresholds would significantly increase farmers' willingness to pay for WII. Mechanisms to reduce basis risk are also positively valued by farmers, although not to the same extent as higher levels of transparency. Finally, offering contracts to small groups rather than individual farmers could increase insurance uptake. Conclusions:Better training on WII and regular communication are needed. Group contracts may help to reduce transaction costs. Farmer groups can also be important platforms for learning about complex innovations, including novel risk transfer products. These concrete results are specific to Kenya; however, they provide some broader policyrelevant insights into typical issues of WII in a small-farm context.

Trait preference trade-offs among maize farmers in western Kenya

“…Choice experiments have been applied in diverse fields such as choice of modes of transportation ( Hensher et al, 2005 ), health ( Hole and Kolstad, 2012 ), marketing ( Feit et al, 2010 ; Louviere et al, 2010 ; Louviere and Woodworth, 1983 ), and environmental economics ( Veettil et al, 2011 ). More recently, CEs have been applied in agricultural value chains to evaluate the demand for nutritious foods and food safety ( Wanyama et al, 2019 ; Ortega et al, 2011 ), preferences for crop traits ( Kassie et al, 2017 ; Ward et al, 2013 ; Asrat et al, 2010 ), preferences for weather index insurance products ( Sibiko et al, 2018 ), and the design of sustainability standards ( Meemken et al, 2017 ). Others include system characteristics such as product marketing options and supply chain differentiation ( Ochieng et al, 2017 ; Schipmann and Qaim, 2011 ), and input support policy preferences ( Marenya et al, 2014 ).…”

A Case Study on Disaster Insurance in Kenya

“…They had been recorded to have made payouts of a sum of 12.3 million USD to their beneficiaries. (Sibiko, 2018) Kilimo Salama became an authorized company by the name of ACRE, or Agriculture and Climate Risk Enterprise, in the year 2014. Kilimo Salama, like most index-based insurance programs, monitors reports from reliable weather stations and records the cumulative rainfall index falling below a predetermined minimum threshold, which would trigger the program.…”

Measuring farmers’ preferences for weather index insurance in the Ayeyarwady Delta, Myanmar: a discrete choice experiment approach

“…Therefore, the DCE approach is suitable for our research. In fact, DCEs and CVs have been used to measure farmers' preferences or demands for WII in developing countries, including Bangladesh (Akter et al 2016), Ethiopia (McIntosh et al 2013Castellani et al 2014;Tadesse et al 2017), Ghana (Adjabui et al 2019), India (Ward and Makhija 2018), and Kenya (Sibiko et al 2018). 2 Previous studies have focused on a drought-based WII system for rice production in an area of India (Ward and Makhija 2018) and an inundation-and (hail or wind) storm-based WII system for maize production in a coastal area of Bangladesh (Akter et al 2016(Akter et al , 2017; however, farmers' preferences for these WII systems may not be suitable for the Ayeyarwady Delta area of Myanmar, where natural disasters such as saltwater and cyclone have affected farming.…”