Dissertation/Thesis Abstract

Do Seasonal Climate Forecasts and Crop Insurance Matter for Smallholder Farmers in Zimbabwe?: Using Contingent Valuation Method and Remote Sensing Applications
by Makaudze, Ephias M., Ph.D., The Ohio State University, 2005, 168; 10834916
Abstract (Summary)

As smallholder farmers in Zimbabwe face inevitable drought, the need to develop drought-mitigation strategies and risk transfer mechanisms becomes an important and challenging task for policy makers. Rather than treating drought as a natural disaster that warrants emergency declarations whenever it strikes, countries in Southern Africa could alter their policy to embrace drought as an integral part of their national policy framework. Although drought cannot be eliminated, its impact can be reduced through implementation of pro-active and pro-poor risk management policy programs. This study explored two potential policy programs. One program proposes wide-scale adoption of improved seasonal forecasts by smallholder farmers as a drought mitigation strategy, and the second program proposes implementation of area-yield drought-indexed insurance as a risk-transfer and risk-protection mechanism for the smallholder farmers.

To investigate whether adoption of seasonal forecasts and drought insurance is possible in Zimbabwe this dissertation explored three hypotheses: First, do seasonal forecasts really matter to smallholder farmers in Zimbabwe? Second, given the prevalence of food-aid in Zimbabwe, does drought insurance really matter for smallholder farmers? Third, given drought is a catastrophic risk, will a drought-index insurance scheme intended for smallholder farmers be viable and/or feasible?

The first two questions were empirically investigated via surveys based on the contingency valuation method (CVM). More than 1,000 smallholder farmers were surveyed throughout Zimbabwe's agro-ecological regions II-V where willingness-to-pay (WTP) for the proposed programs was elicited. With respect to the first hypothesis, results showed that for the improved seasonal forecasts program, estimated WTP (Z$) based on a single-bound model ranged from Z$2,427 to Z$4,676. For a double-bound model, WTP ranged from Z$2,532 to Z$4,225. A distinct differential pattern in WTP was observed across districts and natural regions, where households in wet districts revealed WTP that was consistently lower than those in drier districts. In fact WTP for households in natural region II was 36% and 30% lower than in regions IV and V, respectively. A similar pattern was observed for households in natural region III whose WTP was 17% and 9.3% lower than in regions IV and V, respectively. Because the perceived drought risk is more ominous in drier regions (IV and V) than in wet regions (II and III), households in the former are willing to sacrifice more for the provision of improved seasonal forecasts.

With respect to the second hypothesis, results showed that in the presence of food-aid, WTP or rather potential demand for drought insurance decreases by more than 35% for households in regions IV and V, while for regions II and III it decreases by 10.6%. The results imply that disincentive to purchase insurance in the presence of food-aid is greatest in drier regions IV and V and least in wet regions II and III. Across all regions/districts the demand for insurance is likely to decrease by more than 20% in the presence of food-aid. Thus, food-aid will discourage farmers from seeking more efficient drought risk protection mechanisms such as formal drought insurance.

With respect to the third hypothesis, results indicate that VCI showed appreciably high correlation with crop yields sufficient to consistently track yield losses and these results were fairly comparable with rainfall index. In addition, reasonable premium rates were recovered that are actuarially sound and inexpensive enough to attract participation of the rural poor. In as far as hedging against extreme drought events is concerned, a VCI-based contract could be sufficient. Basis risk becomes an issue, if the index is used to protect drought events of moderate intensity.

Indexing (document details)
Advisor: Sohngen, Brent
School: The Ohio State University
Department: Agricultural, Environmental and Development Economics
School Location: United States -- Ohio
Source: DAI-A 79/09(E), Dissertation Abstracts International
Subjects: Agricultural economics
Keywords: Agricultural risk, Contingent valuation method and willingness-to-pay (wtp), Food insecurity and drought index insurance, Remote sensing and vegetation condition index (vci)
Publication Number: 10834916
ISBN: 9780355946963
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