Demand for a labor‐based drought insurance scheme in Ethiopia: a stated choice experiment approach

Index‐based weather insurance is increasingly used to manage weather‐related risks in smallholder agriculture. However, cash‐constrained smallholders often lack the resources to pay an insurance premium, which may undermine its wider adoption. This article investigates alternative insurance payment methods that may help to enhance the adoption of index‐based weather insurance. We use a choice experiment to elicit smallholders’ willingness to pay in cash or labor for index‐based weather insurance in four districts in the south‐central highlands of Ethiopia. The insurance schemes were created using a fractional factorial design with three factors: work, cash, and payout rate. We analyze the choice data using a random parameter mixed logit model. We find that the average participants need a subsidy to pay cash for insurance because their willingness to pay is less than the expected cost of the insurance. On average, they are willing to pay only 0.81 ETB (Ethiopian currency) to get an expected yearly payout of 1 ETB. However, most are willing to participate in work‐for‐insurance programs at lower daily wage rates than is common for other work programs in Ethiopia.     

Productivity,credit, risk,and the demand for weather index insurance in smallholder agriculture in Ethiopia

The article explores the relationship between fertilizer use and the demand for weather index insurance (WII) among smallholder farmers in Ethiopia. We examine whether fertilizer use is profitable under current smallholder production conditions, whether risk‐related factors affect fertilizer use, and we estimate the returns to inputs in the agricultural production function in the absence of insurance. We then study how these primitives of agricultural production functions relate to insurance demand. The study compares a survey‐based estimate of willingness to pay with actual uptake for the weather insurance, finding the stated and actual demand to be almost completely uncorrelated. While those with high marginal returns to inputs say they would purchase insurance, only those with low marginal returns actually do, consistent with the stated purpose of the product as input insurance. Insurance demand proves to be highly responsive to the existence and amount of randomly allocated insurance vouchers.     

农户气象感知对购买天气指数保险意愿的影响——以山西岢岚和江苏南通430食用豆户为例

目的 综合已有研究发现,学者忽略了农户的气象认知对其天气指数保险购买意愿的影响。方法 文章基于山西省岢岚和江苏省南通市430食用豆种植户的实地问卷调查数据,运用Probit模型分析食用豆种植户对气象（如平均气温、平均降雨、干旱、霜冻等的发生次数及严重程度）的感知对其购买天气指数保险意愿的影响。结果 （1）食用豆种植户的气象感知显著地影响其购买天气指数保险的意愿。此外,食用豆种植户的村干部经历和兼业户身份对其购买天气指数保险产生正向且显著的影响;（2）而家庭人口数以及是否有专门的食用豆贮藏场所等对食用豆种植户购买天气指数保险产生负向且显著的影响。结论 因此,在食用豆种植户中推广天气指数保险应关注到其气候的感知,可以通过多种方式（例如公益宣传片、教育培训等,线上线下、网络电视手机、书籍宣传册等）宣传气候变化对食用豆种植的危害,强化食用豆种植户的风险管理意识,进而提高其购买天气指数保险的意愿。     

Demand for temperature and rainfall index insurance in India

Weather index insurance has been attracting considerable attention from academics and policymakers. This study investigates the demand for two types of index insurance sold in India: temperature index insurance for dry season and rainfall index insurance for subsequent monsoon season. Using data from randomized subsidy experiments, we separate purchase and quantity decisions and investigate how demand for rainfall insurance is correlated with demand for temperature insurance sold in the previous season. We find that the price (premium) does not influence purchase decisions per se but does significantly influence quantity decisions. The quantity demanded is less price‐sensitive for subsequent rainfall insurance than it is for temperature insurance. We also find that purchasers of temperature insurance tend to buy rainfall insurance more often than nonpurchasers do. However, a one‐time subsidy does not influence on subsequent demand, suggesting no price‐anchoring effect.     

Willingness to Pay for Insured Loans in Northern Ghana

Index insurance has been heralded as a potential solution to risk management problems faced by smallholder farmers in developing countries. Despite its potential, demand for standalone index insurance contracts has remained low in early field trials. We investigate the willingness to pay for drought index insurance‐backed loans in northern Ghana using contingent valuation. We find that index insurance lowers overall demand for agricultural loans. We also compare micro‐level index insurance, provided directly to farmers, with meso‐level insurance, provided to the credit agency and find that farmers appear to prefer micro‐level insurance. Finally, farmers are willing to pay to avoid basis risk.     

Tailored to the extremes: Quantile regression for index‐based insurance contract design

A new approach for weather index‐based insurance design based on Quantile Regression (QR) to condition the yield‐index dependency is developed and compared to standard regression technique. Three conceptual different risk measures, i.e., Expected Utility, Expected Shortfall and a Spectral Risk Measure, are used to evaluate the risk reducing properties of these contracts. Our findings show that QR is much more powerful in establishing the yield‐index dependency and lead for all risk measures to a higher risk reduction than the standard technique ordinary least squares (OLS). Thus, QR leads to a more efficient contract design, which is beneficial for both, the insurer (smaller remaining risk) and the insured (higher demand and willingness to pay). Our empirical application is based on a 31 years long time series of wheat yield data from Northern Kazakhstan.     

Managing basis risk with multiscale index insurance

Agricultural index insurance indemnifies a farmer against losses based on an index that is correlated with, but not identical to, her or his individual outcomes. In practice, the level of correlation may be modest, exposing insured farmers to residual, basis risk. In this article, we study the impact of basis risk on the demand for index insurance under risk and compound risk aversion. We simulate the impact of basis risk on the demand for index insurance by Malian cotton farmers using data from field experiments that reveal the distributions of risk and compound risk aversion. The analysis shows that compound risk aversion depresses demand for a conventional index insurance contract some 13 percentage points below what would be predicted based on risk aversion alone. We then analyze an innovative multiscale index insurance contract that reduces basis risk relative to conventional, single‐scale index insurance contract. Simulations indicate that demand for this multiscale contract would be some 40% higher than the demand for an equivalently priced conventional contract in the population of Malian cotton farmers. Finally, we report and discuss the actual uptake of a multiscale contract introduced in Mali.     

Demand for Crop Insurance in Developing Countries: New Evidence from India

Determining farmers’ real demand for crop insurance is difficult, especially in developing countries, where there is a lack of formal financial sector integration and a high reliance on informal risk mitigation options. We provide some new estimates of farmers’ willingness‐to‐pay for insurance in the context of a large‐scale subsidised programme in India. We conducted a discrete choice experiment with agricultural households across four states in India, enabling us to estimate preferences for specific insurance policy attributes such as coverage period, method of loss assessment, timing of indemnity payments and the cost of insurance. Our results suggest that farmers do value crop insurance under certain conditions and some are willing to pay a premium for such coverage in excess of the subsidised rates they are currently required to pay under this programme. In particular, farmers value the assurances that they will receive timely payouts when they incur losses, and may not have a strong preference for the method with which losses are assessed. On the other hand, farmers are quite sensitive to coverage periods. Our baseline assessment shows that when optimised to farmer requirements, there can be a sizeable demand for crop insurance by developing country farmers.     

Consumer valuation of safety‐labeled free‐range chicken: results of a field experiment in Hanoi

This article presents results of a field experiment designed to assess willingness to pay for safely produced free‐range chicken in Hanoi, the capital of Vietnam. Improved safety of chicken production and trading is suggested as an important component of avian influenza control strategy, which aims to address the direct costs of avian influenza as well as the global public health externality. However, consumer demand for safely produced free‐range chicken is unknown. Products that have credible food labeling are not common in traditional markets where the majority of free‐range chicken is purchased. Valuing characteristics of products sold in informal markets is a major challenge that our experiment overcomes. As part of the experiment, we provided several vendors from these markets with safety‐labeled free‐range chicken. Consumer valuation of safety labeling was elicited through having experiment participants, who were representative of potential consumers, select between discount coupons for either safety‐labeled chicken or regular chicken. Results indicate that consumers will pay at least $0.50, or a 10–15% premium, per chicken purchase for safety labeling, which emphasizes safe production, processing, and transport conditions. This premium is smaller than the premium currently paid for traditional chicken varieties that are considered to be tastier. Consumers with more education have higher valuation of safety labeling. Hence, safety labeling for high‐quality free‐range chicken can play a role in controlling livestock disease and improving public health.     

Heterogeneous Demand and Supply for an Insurance‐linked Credit Product in Kenya: A Stated Choice Experiment Approach

We employ a discrete choice experiment to elicit demand and supply side preferences for insurance‐linked credit, a promising market‐based tool for managing agricultural weather risks and providing access to credit for farmers. We estimate preference heterogeneity using primary data from smallholder farmers and managers of lenders/insurers combined with household socio‐economic survey data in Kenya. We analyse the choice data using maximum simulated likelihood and Hierarchical Bayes estimation of a mixed logit model. Although there are some similarities, we find that there is conflicting demand and supply side preferences for credit terms, collateral requirements, and loan use flexibility. We also analyse willingness to buy and willingness to offer for farmers and suppliers, respectively, for the risk premium for different attributes and their levels. Identifying the preferred attributes and levels for both farmers and financial institutions can guide optimal packaging of insurance and credit providing market participation and adoption motivation for insurance‐bundled credit product.     

Using an economic experiment to estimate willingness‐to‐pay for a new maternal nutrient supplement in Ghana

Scaling up access to supplements designed to prevent undernutrition, such as new small‐quantity lipid‐based nutrient supplements (SQ‐LNS), may require distribution via both public channels and retail markets. The viability of SQ‐LNS retail markets will hinge on household‐level demand. We use an economic experiment to characterize initial willingness‐to‐pay (WTP) for a maternal SQ‐LNS product in Ghana. WTP is positive for most participants, though below the estimated cost of production for many. WTP varies depending on income, assets, and parity status. These findings have implications for the design of public health policy and hybrid public–private delivery mechanisms.     

Consumer Behavior Toward Eco-Labeled Minimally Processed Fruit Product

The authors proposed an analysis of the determinants of purchase intentions and willingness to pay for minimally processed fruit. For this purpose, on-field research was conducted that involved 589 consumers. A questionnaire, gathered in Italy and based on a Likert scale, was administered to investigate intentions to purchase minimally processed fruit from environmentally sustainable farms, simulating a minimally processed product with an eco-label. Via structural equation modeling, the authors develop propositions representing a theoretical approach in the context of purchasing food products. By analyzing two different types of consciousness (health and green), the deduced managerial implications make it possible to assess that the green consciousness influences the attitude and affects the choices and behaviors of consumers. The potential adoption of an eco-label on this kind of food product could be seen as a useful marketing tool for new markets.     

Access to markets,weather risk,and livestock production decisions: Evidence from Ethiopia

Despite several studies showing the effect of access to markets and weather conditions on crop production, we know quite little on whether and how livestock production systems respond to variation in weather risk and access to markets. In this paper, we study whether and how livestock production responds to (access to) markets and varying weather risk. We also explore whether such responses vary across livelihood zones and livestock production systems. We study these research questions using households’ livestock production, ownership, and marketing decisions of households in Ethiopia. We find that households living close to markets are more likely to engage in market-oriented livestock production and use modern livestock inputs. We also find that households exposed to more unpredictable weather are less likely to engage in livestock production for markets, rather they are more likely to engage in livestock production for precautionary savings and insurance. Furthermore, greater rainfall uncertainty influences livestock portfolio allocation toward those which can be easily liquidated while also discouraging investment in modern livestock inputs. However, these responses and patterns vary across livelihood zones and production systems; most of these stylized responses and impacts are more pronounced and significant in the arid and semi-arid lands of Ethiopia, where livestock herding remains a dominant source of livelihood. Those households relying only on livestock production seem more sensitive and responsive to weather risk and weather shocks. The heterogeneity in responses and impacts of weather risk among farming systems and livelihoods highlights the need for more tailored livestock sector policies and interventions.     

Consumers' Willingness to Pay for Quality and Safety in Clams

The aim of the research is to estimate the potential demand for certified clams in Italy and to investigate the determinants of maximum amount that respondents are willing to pay for this product. Quantitative analysis was used based on 1,067 face-to-face interviews collected in 3 Italian regions in the north bordering the Adriatic Sea (Friuli-Venezia Giulia, Veneto, and Emilia-Romagna) carried out during 2008. The consumers' willingness to pay (WTP) is measured using a contingent valuation method. In order to estimate separately the determinants of the probability that respondents are willing to pay and the maximum that they are willing to pay, a generalization of Tobit model was adopted. The results indicate that consumers are willing to pay a premium price mainly to purchase better quality products. The research provides some initial insight into consumers' WTP that can be useful for certified fish farming.     

An assessment of the current structure of food demand in urban China

We evaluate the current structure of food demand in urban China by using household expenditure survey data from five provinces. Two complementary analyses are undertaken. First, an aggregate analysis based on a fractional logit model is used to examine how households allocate food expenditures across the food‐at‐home (FAH) and food‐away‐from‐home (FAFH) categories. This is followed by a disaggregated analysis of how households allocated their FAH expenditures across 12 commodity categories. A Quadratic Almost Ideal Demand System (QUAIDS) is used. We find evidence of significant food purchase substitution and complementarity.     

Distress rentals and the land rental market as a safety net: contract choice evidence from Tigray,Ethiopia

Rural households in the semiarid Northern Ethiopian highlands are net buyers of food. Crop failure due to erratic and unpredictable rainfall occurs frequently and leads to food shortages and income shocks. The renting out of land may be one of the coping responses of households exposed to shocks. We developed a theoretical household model for poor landlord households capturing their contract choice response to downside production shocks. We tested econometrically whether contract choice may depend on poverty, capital constraints, production risk and random shocks. The multinomial logit model estimates show that poor households experiencing random shocks are more likely to choose fixed‐rent contracts as a distress response to shocks, suggesting that fixed‐rent contracts may be used to meet immediate needs, but at the expense of future incomes. We also found that fixed‐rent contracts are preferred when ex ante production risk is low, while sharecropping is more likely where production risk is high. Finally, we found an indication that the choice of a fixed‐rent contract as a coping response to shocks comes as a last resort after all other means of coping are exhausted.     

The efficiency of composite weather index insurance in hedging rice yield risk: evidence from China

As an economic and market‐transparent program, weather index insurance is expected to mitigate asymmetric problem. Capturing the relationship between yield and weather factor(s) is the basis of index insurance, but remains a challenge for weather index schemes. Meanwhile, composite weather index insurance is needed by farmers when their agricultural activities involve several risks, but is rarely studied. We aim to design a composite weather index insurance model and evaluate its efficiency in hedging yield risk by using the case of rice production in China. We divide the whole growth cycle of rice into six stages on the basis of agronomic knowledge, and use the average value of each weather factor in each stage to design a weather index. Then, the efficiency of composite weather index insurance is evaluated by mean‐semivariance and value‐at‐risk methods. First, we find that subdivision of the growth cycle helps to better capture the subtle relationship between rice yield and weather factors. Second, composite weather index insurance evidently reduces yield risk. Our findings help further adoption of weather index insurance in agricultural fields.     

农村土地流转的供求意愿及其流转效率的评价研究

研究目的:研究农村土地流转的农户供求意愿,定量评价土地流转的经济效率。研究方法:通过设置的土地流转意愿度指标分析农户土地流转的供给意愿,通过农户实际土地经营规模和最适土地经营规模的比较分析农户的需求意愿,利用市场供求模型估算土地流转带来的供求双方农户经济福利。研究结果:中部6省的农户供给意愿在0.18—0.52之间,农户实际土地经营规模为0.27—0.73 hm2/户,最适土地经营规模0.61—1.08 hm2/户,以100—300元/亩流转交易价实行土地流转后,中部6省中各省供给方农户的经济福利可达到1.1—9.2亿元,需求方农户的经济福利可达到2.2—12.2亿元。研究结论:从供给角度看,当前农户的土地流转意愿低;从需求角度看,农户有土地流转的意愿。土地流转交易使土地资源和劳动力资源得到重新配置,增进了土地供给者和土地需求者的福利,提高了经济效率。     

Contract farming: opportunity cost and trade‐offs

An important literature has established that participation in contract farming leads to higher incomes and has a number of other beneficial effects on the welfare of participating households. Yet no one has looked at the opportunity cost of and the various trade‐offs involved in participating in contract farming. I look at the relationship between participation in contract farming and income from (i) livestock, (ii) labor markets, (iii) nonfarm businesses, and (iv) agricultural sources other than livestock and contract farming and (v) unearned income. Using data from Madagascar, I find that participation in contract farming is associated with a 79% decrease in how much income per capita the average household derives from labor markets and a 47% decrease in how much income per capita it derives from nonfarm businesses, but also with a 51% increase in how much income per capita the average household derives from agricultural sources other than livestock and contract farming, possibly due to technological spillovers. Thus, even though contract farming has been shown to improve welfare in multiple ways in this context, it looks as though those gains come at the cost of an “agricultural involution” on the part of participating households, who seem to turn away from non‐agricultural activities. This has important implications for structural transformation narratives.     

Cattle sharing and rental contracts in an Agrarian economy: evidence from Ethiopia

Empirical evidence on the role of cattle sharing and rental contracts in agrarian economies is limited. This article is an investigation of different types of cattle sharing and rental contracts producers in rural Ethiopia adopt. It also investigates why households in rural Ethiopia rely on these contracts that are vulnerable and therefore subject to potential moral hazard problems described in earlier literature. We apply random effect probit and control function econometric methods to household panel data collected in 2005 and 2007 from two agro‐ecological zones in Ethiopia. Controlling for the endogeneity of access to livestock credit, we find that contracts are spatially fragmented and better developed where population density is high and credit and insurance markets are poorly developed. We also find that contracts help cash poor and credit constrained households to improve their herd dynamics, to get access to nonlivestock resources (land, labor and cash) and share risks that could have been difficult without the contract. We show that contracts are rational responses of residents in rural communities characterized by imperfect credit and insurance services, since households with better access to credit are less likely to rely on contracts.