Factors influencing farmers’ willingness to pay for weather-indexed crop insurance policies in rural Ethiopia

Weather-indexed crop insurance is a vital tool for reducing weather-induced risks faced by smallholder farmers in Sub-Saharan Africa. This study explores the determinants of farmers’ participation in and willingness to pay (WTP) for this insurance scheme in northeastern Ethiopia, using data from 261 farming households. The study applies the contingent valuation method (WTP) and a zero-inflated ordered probit (ZIOProbit) model to estimate both the probability and intensity of farmers’ engagement. Empirical findings indicate that about 62% of respondents are willing to join, with an annual payment of $16.875 per hectare. The study finds that female household heads, larger land and livestock holdings, access to agricultural extension services, and awareness of weather-related risks positively influence the participation decision. Conversely, households with literate heads and those led by younger or older individuals are less likely to participate. Among the participants, educated heads and those with larger farms are willing to pay higher premiums, while larger household sizes and higher livestock holdings lower the premium levels. The study highlights the need for context-specific approaches, emphasizing the importance of designing sustainable insurance products that meet the needs and preferences of smallholder farmers in Sub-Saharan Africa. It also recommends increasing farmers’ awareness and knowledge of insurance products through information campaigns and training programs.