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Crop index insurance as a tool for climate resilience: lessons from smallholder farmers in Nigeria

Author

Listed:
  • Ifedotun Aina

    (University of Cape Town
    University of Cape Town)

  • Opeyemi Ayinde

    (University of Ilorin)

  • Djiby Thiam

    (University of Cape Town
    University of Cape Town)

  • Mario Miranda

    (Ohio State University)

Abstract

Crop farmers in arid and semi-arid regions face a covariate risk that is of paramount importance, namely, the threat of catastrophic crop loss triggered by natural disasters and climate hazards. Such an occurrence not only jeopardizes the livelihoods of these farmers but may also lead to persistent poverty. Promoting sustainable development requires control over climate-related shocks, which negatively affect the most vulnerable population in the developing world. This study investigates the option of choosing crop area-yield index insurance to mitigate the adverse effects associated with climate stress. In addition, we assessed the amount farmers are willing to pay for an insurance product that insures yields below 70% of the local average in the study area. Our results show that access to extension services and economic association membership offers farmers social capital and encourages their decision to purchase index insurance. We also find that the long-run welfare impact of index insurance policy on vulnerable households could be significant as an alternative insurance mechanism to traditional insurance. This study contributes to filling the gaps on the uptake of index insurance and provide guidance to policymakers in their approach to mitigating the effects of climate change on crop production in Nigeria.

Suggested Citation

  • Ifedotun Aina & Opeyemi Ayinde & Djiby Thiam & Mario Miranda, 2024. "Crop index insurance as a tool for climate resilience: lessons from smallholder farmers in Nigeria," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 120(5), pages 4811-4828, March.
    • Handle: RePEc:spr:nathaz:v:120:y:2024:i:5:d:10.1007_s11069-023-06388-x
    DOI: 10.1007/s11069-023-06388-x
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    References listed on IDEAS

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    1. Antoine Leblois & Philippe Quirion & Agali Alhassane & Seydou Traoré, 2014. "Weather Index Drought Insurance: An Ex Ante Evaluation for Millet Growers in Niger," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(4), pages 527-551, April.
    2. Francesca Nicola, 2015. "The impact of weather insurance on consumption, investment, and welfare," Quantitative Economics, Econometric Society, vol. 6(3), pages 637-661, November.
    3. Takahashi, Kazushi & Ikegami, Munenobu & Sheahan, Megan & Barrett, Christopher B., 2016. "Experimental Evidence on the Drivers of Index-Based Livestock Insurance Demand in Southern Ethiopia," World Development, Elsevier, vol. 78(C), pages 324-340.
    4. Mario J. Miranda & Katie Farrin, 2012. "Index Insurance for Developing Countries," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 391-427.
    5. Erwin Bulte & Rein Haagsma, 2021. "The Welfare Effects of Index-Based Livestock Insurance: Livestock Herding on Communal Lands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 587-613, April.
    6. Nshakira-Rukundo, Emmanuel & Kamau, Juliet Wanjiku & Baumüller, Heike, 2021. "Determinants of uptake and strategies to improve agricultural insurance in Africa: a review," Environment and Development Economics, Cambridge University Press, vol. 26(5-6), pages 605-631, October.
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    8. Sommarat Chantarat & Andrew G. Mude & Christopher B. Barrett & Michael R. Carter, 2013. "Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(1), pages 205-237, March.
    9. Caroline Steigenberger & Magdalena Flatscher-Thoeni & Uwe Siebert & Andrea M. Leiter, 2022. "Determinants of willingness to pay for health services: a systematic review of contingent valuation studies," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(9), pages 1455-1482, December.
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