Participation of Farmers in Weather-Index-Based Crop Micro insurance Scheme: A Case Study of Farmers at Shashemene District, Oromia Region, Ethiopia

Abstract

Weather-Index-based Crop Insurance scheme has emerged as a risk pooling mechanism by both international NGOs and financial institutions in Ethiopia. However, the take up rate without subsidy is very minimal and even some were terminated after a pilot period; commercial viability of the product is not yet driving the supply that is pioneered by some Insurance companies. Demand side study, in this regard, is scarce. Hence, this study deals with determinants of Willingness to Join (WTJ) and Willingness to Pay (WTP) for Weather-index-based crop microinsurance on 150 sample respondents, at Shashemene district using Double Bounded Dichotomous Choice Contingent Valuation Method. Heckman two-stage econometric estimation procedure was employed to identify the determinants. It was found that some households prefer either to stay away from participating in microinsurance scheme or pay lesser amount of premium. Those who did not want to pay the premiumhad claimed that they expect the service to be provided either by the government or donors. On average,only 12.9% of farmers were willing to pay for the service, which is below the average actuarial premium rate of the area. Study findings imply that there is a need for the government and other stakeholders to exert more effort towards farmers’ awareness and product literacy so that the current take up rate improves. It also implies that, policy on farm land leasing might have an important role on the product adoption rate.