Effect of index-based livestock insurance on herd offtake: Evidence from the Borena zone of southern Ethiopia

Abstract

When weather shocks strike in agrarian economies, households may often utilize offtake of their productive livestock as a major risk coping strategy. However, a distressful asset offtake could lead to difficulties in recovering after the shock; consequently, the macro economy of a subsistence agriculture-dependent country could remain slow for an extended period. In this paper, we analysed the effect of index-based livestock insurance on the herd offtake behaviour of herders in the Borena zone, which is the southernmost area of Ethiopia, using three rounds of panel data. Using fixed effect model analysis, our results shows that households that purchased index-based livestock insurance coverage are less likely to offtake their herds. Empirically, this finding appeared to have a positive and significant effect on reducing the herd offtake behaviour of the households. This finding suggests that the coverage can help in reducing the fear and worry of the herding households regarding the possible incidence of covariate herd loss. Consequently, distressful herd offtake can be reduced, thereby sustaining the household’s economic growth. Keywords: Index-based livestock insurance, Herd offtake, Borena zone