Willingness to pay for rainfall risk insurance by smallholder farmers in Central Rift Valley of Ethiopia: The case of Dugda and Mieso Districts

Abstract

Current climate variability is already imposing significant challenge. Therefore, farmers have faced income variability in almost every production season. Problems associated with dependence on rain fed agriculture are common in Ethiopia. Smallholder farmers' vulnerability from such income variability is also common. Over the years, a range of risk management strategies have been used to reduce, or to assist farmers to absorb, some of these risks. Since insurance is potentially an important instrument to transfer part of the risk, the study tries to assess small holder farmer's willingness to pay for the rainfall risk insurance and examine factors that affect farmer's willingness to pay amount. The sample size 161 households using closed ended value elicitation format followed by open ended follow up questions. Logit model was used to estimate the mean willingness to pay in the close ended format in addition with Tobit model to examine factors that affect willingness to pay as well as intensity of payment. Six potential explanatory variables income, ownership of radio, off-farm income, age, number of livestock owning and availability of public and private gifts have negative and/or positive effect on WTP.