IDEAS home Printed from
   My bibliography  Save this paper

Optimal rainfall insurance contracts for maize producers in Ghana’s Northern Region


  • Muamba, Francis M.
  • Ulimwengu, John M.


The risk of food insecurity due to climate change in developing countries has encouraged development partners to seek new approaches to improve the resilience of subsistence agriculture to covariate shocks. Such innovative approaches include investment in safety nets such as rainfall insurance. However, a policy question remains: How does one determine the practicality of rainfall insurance for a particular district? This paper attempts to fill this gap by assessing the viability of rainfall insurance contracts for agricultural production in Ghana’s Northern Region. Using a stop-loss framework, an optimal contract is determined by choosing its parameters by maximizing the objective function in the form of covariance between crop loss and indemnity payment, the objective function given a predetermined fair premium rate. The theoretical contract is implemented using monthly rainfall and annual maize crop yield data from 1998 to 2004 from 12 districts in the Northern Region under varying premium rates. We conclude that rainfall insurance may not be viable for all districts in the Northern Region; however, the contracts are likely to be viable in districts that exhibit a positive Pearson correlation coefficient between maize yield loss and indemnity payments.

Suggested Citation

  • Muamba, Francis M. & Ulimwengu, John M., 2010. "Optimal rainfall insurance contracts for maize producers in Ghana’s Northern Region," IFPRI discussion papers 1016, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifprid:1016

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
    2. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
    3. Skees, Jerry & Hazell, P. B. R. & Miranda, Mario, 1999. "New approaches to crop yield insurance in developing countries:," EPTD discussion papers 55, International Food Policy Research Institute (IFPRI).
    4. Mario J. Miranda & Claudio Gonzalez-Vega, 2010. "Systemic Risk, Index Insurance, and Optimal Management of Agricultural Loan Portfolios in Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 399-406.
    5. Nelson, Gerald C. & Rosegrant, Mark W. & Koo, Jawoo & Robertson, Richard & Sulser, Timothy & Zhu, Tingju & Ringler, Claudia & Msangi, Siwa & Palazzo, Amanda & Batka, Miroslav & Magalhaes, Marilia & Va, 2009. "Climate change: Impact on agriculture and costs of adaptation," Food policy reports 21, International Food Policy Research Institute (IFPRI).
    6. Sommarat Chantarat & Christopher B. Barrett & Andrew G. Mude & Calum G. Turvey, 2007. "Using Weather Index Insurance to Improve Drought Response for Famine Prevention," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1262-1268.
    7. Jerry R. Skees & Barry J. Barnett, 2006. "Enhancing microfinance using index-based risk-transfer products," Agricultural Finance Review, Emerald Group Publishing, vol. 66(2), pages 235-250, September.
    8. Kochar, Anjini, 1995. "Explaining Household Vulnerability to Idiosyncratic Income Shocks," American Economic Review, American Economic Association, vol. 85(2), pages 159-164, May.
    9. Jerry R. Skees, 2008. "Challenges for use of index-based weather insurance in lower income countries," Agricultural Finance Review, Emerald Group Publishing, vol. 68(1), pages 197-217, May.
    10. Seo, S. Niggol & Mendelsohn, Robert, 2008. "A structural ricardian analysis of climate change impacts and adaptations in African agriculture," Policy Research Working Paper Series 4603, The World Bank.
    11. Sommarat Chantarat & Calum G. Turvey & Andrew G. Mude & Christopher B. Barrett, 2008. "Improving humanitarian response to slow-onset disasters using famine-indexed weather derivatives," Agricultural Finance Review, Emerald Group Publishing, vol. 68(1), pages 169-195, May.
    12. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Climate change; maize yield; rainfall insurance;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fpr:ifprid:1016. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.