Preferences for index-based crop insurance in South Africa

Abstract

The main reason cited for the low participation rate in indexed insurance in Africa is the lack of farmers’ involvement in the initial conception. The main aim of this article was, therefore, to design an improved participatory methodology that would help farmers in South Africa gather information on the value they place in new crop insurance initiatives based on weather indices. The main objective of this study was to determine their willingness to pay (WTP) crop insurance in the Eastern Cape. The study adopted a cross-sectional design, and the respondents were selected by using a probability sampling procedure. A sample of 150 respondents was selected. The results from descriptive statistics showed that 62% of the smallholder irrigation scheme farmers were between 52 and above years of age, male and female: 87% and 13%, respectively. The results from the probit model revealed that out of nine variables included in the model, only four namely, logAge square, gender, marital status and age were significantly influencing the WTP index-based crop insurance at 1%, 5% and 10%, respectively. However, age was found to reduce the chances of participating in crop-based insurance. A large proportion of those who were willing to pay insurance had not previously experienced losses because of natural hazards. Therefore, it recommended that the government should use existing extension officers to educate the farmers and promote the importance and benefits of insurance products. Contribution: The results are expected to contribute to the local government to improve disaster resilience through strengthening regional financial funding.

Keywords

• index-base insurance
• probit model
• willingness to participate
• natural hazards
• eastern cape.