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Farmers' demand for weather-based crop insurance contracts: the case of maize in south africa

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  • H. Holly Wang
  • Raphael N. Karuaihe
  • Douglas L. Young
  • Yuehua Zhang

Abstract

Weather index-based crop insurance offers farmers a way to mitigate production risk without the moral hazard, adverse selection and high administrative cost problems that plague conventional loss-based crop insurance. This is especially important for developing countries that lack government subsidised crop insurance programmes and high quality yield records. In this paper, we analyse weather-based crop insurance theoretically and provide an empirical application to South African maize producers. We examine several weather indices, investigate the farmers' demand with and without loaded premiums, and evaluate the benefits of weather index-based insurance to farmers with alternative risk preferences. Results show that the risk management efficiency of a contract has direct bearing on how well the index describes the production variability, especially a combination of two weather variables tend to describe production risk better than any single variable.

Suggested Citation

  • H. Holly Wang & Raphael N. Karuaihe & Douglas L. Young & Yuehua Zhang, 2013. "Farmers' demand for weather-based crop insurance contracts: the case of maize in south africa," Agrekon, Taylor & Francis Journals, vol. 52(1), pages 87-110, March.
    • Handle: RePEc:taf:ragrxx:v:52:y:2013:i:1:p:87-110
    DOI: 10.1080/03031853.2013.778468
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    References listed on IDEAS

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    1. Skees, Jerry R.*Enkh-Amgalan, Ayurzana, 2002. "Examining the feasibility of livestock insurance in Mongolia," Policy Research Working Paper Series 2886, The World Bank.
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    3. Hill, Ruth Vargas & Robles, Miguel, 2011. "Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia," IFPRI discussion papers 1092, International Food Policy Research Institute (IFPRI).
    4. 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).
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    Cited by:

    1. Afriyie-Kraft, Lydia & Zabel, Astrid & Damnyag, Lawrence, 2020. "Index-based weather insurance for perennial crops: A case study on insurance supply and demand for cocoa farmers in Ghana," World Development Perspectives, Elsevier, vol. 20(C).
    2. 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.
    3. Moser, Rafael Magnus Barbosa & Gonzalez, Lauro, 2016. "Green microfiance: a new frontier to inclusive financial service," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 56(2), March.
    4. Bokusheva, Raushan, 2014. "Improving the Effectiveness of Weather-based Insurance: An Application of Copula Approach," MPRA Paper 62339, University Library of Munich, Germany.

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