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An economic evaluation of a crop insurance programme for small-scale commercial farmers in South Africa

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  • Nieuwoudt, W. Lieb

Abstract

Hail insurance is provided by the private sector in South Africa but crop insurance (drought insurance) programmes, after a promising start, failed to attract customers. A crop insurance programme (drought) for small-scale commercial farmers, who are not yet paying tax, has been recommended to government. The purpose in this research is to study the economic viability of such a programme drawing on the US experience. The US programme is well developed but heavily subsidised. During 1998 US growers paid $900 million in premiums while during 1995- 98 the US government spent $1.2 billion per year on subsidies. An area insurance plan (farmers are insured as a group) is shown to be more appropriate for small farmers growing dryland field crops such as maize because risk is systemic (drought related) while adverse selection, moral hazard etc are overcome. Individual crop insurance will not be viable due to the cost of farm visits (verification of claims) and the non-availability of information. As a large part of the cost to government goes to administration of crop insurance it is recommended that an Income Equalisation Deposit (IED) scheme for small growers receive serious consideration with the government making a contribution as for example in Canada.

Suggested Citation

  • Nieuwoudt, W. Lieb, 2000. "An economic evaluation of a crop insurance programme for small-scale commercial farmers in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 39(3), pages 1-23, September.
    • Handle: RePEc:ags:agreko:54238
    DOI: 10.22004/ag.econ.54238
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    References listed on IDEAS

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    1. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
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    3. Steven D. Hanson & Robert J. Myers & J. Roy Black, 1998. "The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 806-820.
    4. Barry K. Goodwin, 1993. "An Empirical Analysis of the Demand for Multiple Peril Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 425-434.
    5. Mario J. Miranda, 1991. "Area-Yield Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 233-242.
    6. Vincent H. Smith & Alan E. Baquet, 1996. "The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 189-201.
    7. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
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    1. Mohammed, M.A. & Ortmann, Gerald F., 2005. "Factors influencing adoption of livestock insurance by commercial dairy farmers in three Zobatat of Eritrea," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(2), pages 1-15, June.
    2. Ashimwe, Olive, 2016. "An Economic Analysis Of Impact Of Weather Index-Based Crop Insurance On Household Income In Huye District Of Rwanda," Research Theses 265675, Collaborative Masters Program in Agricultural and Applied Economics.
    3. H. Holly Wang & Lu Liu & David L. Ortega & Yu Jiang & Qiujie Zheng, 2020. "Are smallholder farmers willing to pay for different types of crop insurance? An application of labelled choice experiments to Chinese corn growers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 86-110, January.
    4. Müller, Birgit & Quaas, Martin F. & Frank, Karin & Baumgärtner, Stefan, 2011. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Ecological Economics, Elsevier, vol. 70(11), pages 2137-2144, September.
    5. van Averbeke, W. & Mohamed, S.S., 2006. "Smallholder farming styles and development policy in South Africa: The case of Dzindi Irrigation Scheme," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 45(2), pages 1-22, June.
    6. Ashimwe, Olive, 2016. "An Economic Analysis Of Impact Of Weather Index-Based Crop Insurance On Household Income In Huye District Of Rwanda," Research Theses 276460, Collaborative Masters Program in Agricultural and Applied Economics.

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    Keywords

    Farm Management; Risk and Uncertainty;

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