Abstract
There has been increase in both the
frequency of extreme weather events and the number of vulnerable human
population. Converging results from climate model simulations projected
that extreme climatic events will result in a long-term income losses
and by 2020, half of the Nigeria‘s agro-ecological zones will be food
insecure. Failures of traditional crop insurance programmes to provide
financial protection and exclusion from formal financial services have
further increased farmers exposure to more severe impact of extreme
weather risk events and poverty trap.
With ideal levels of
adaptation, some residual impacts would still lead to economic losses.
Parametric weather insurance is a global consensus to transfer farmers‘
risks and increase supports for agricultural lending in developing
economies. This study focus on modelling of future demand for weather
index insurance as an adaptation instrument to drought risk events in
Central-West Nigeria. Results show that monthly rainfall uncertainties
keep expanding significantly during the most critical maize growth
period threatening crop performance. Radiation index of dryness of
1.394, at an evaporation rate of 949 mm/year and rainfall deficit of 366
mm/year signal that the region is rapidly shifting towards aridity.
About 65% of respondents are willing to insure in weather index
insurance. The marginal effects from heckman ordered probit selection
model indicated that increase in farmers‘ experience, farm size
cultivated, access to farmers‘ groups and linkages, income, extension
services and awareness of agricultural insurance will significantly
increase farmers‘ willingness to insure.
Socioeconomic drivers
of willingness to pay for weather insurance policy are access to early
seasonal weather forecast, farm income livelihood and dependence on rain
water collection will significantly increase farmers‘ decision to buy
rainfall insurance product. Interval regression estimated mean WTP as
N457.28 per mm of rainfall deficit (std. err. 27.951) per farmer with a
significant log pseudolikelihood function of -36.56. The market demand
for rainfall index insurance is elastic. Mode of insurance uptake
reveals that 72.5% would buy after-harvest lumpsum weather insurance,
55.7% opted for group insurance and after initial take up, only 31.1%
would continue if there is no payout for next 5 years. Rainfall index
insurance is economically feasible with an annual economic profit of
N323million and commercially viable with a sustainability index of 0.19
in expected economic benefit (EEB) at 10% interest rate.
Economic
loss is triggered at rainfall below 377mm threshold during crop
development stage while loss is triggered at below 140 mm rainfall in
the reproduction stage of maize growth by crossing these critical
thresholds of rainfall requirements.
The prototype weather index maize insurance contract designed for the most critical crop growth phases payout indemnity capable of securing income losses and build farmers‘ resilience.