FARMERS’ PERCEPTION AND WILLINGNESS TO PAY FOR WEATHER INDEX BASED INSURANCE IN CENTRAL RIFT VALLEY OF ETHIOPIA: THE CASE OF ADAMITULU JIDOKOMBOLCHA AND BORA DISTRICTS

Abstract

The impact of climate change and variability on livelihoods of smallholder farmers in Ethiopia has become severer than ever before. As a result, weather index based insurance has been advocated as one of the recommended risk transfer mechanisms to support farmers in coping with production risks. The objectives of this study were to assess the risk coping mechanisms, the willingness to pay for weather index based insurance, and the factors influencing smallholder farmers’ willingness to pay for weather index based insurance in the central Rift Valley of Ethiopia. The data were collected from Adamitulu Jidokombolcha and Bora districts from 147 sample household heads for the time January to December 2015. Descriptive and ordered probit model were used to analyze the data. Results from descriptive analysis showed that 87.1% of the respondents were willing to pay for the weather index based insurance technology either positively or negatively. The farmers used different type of risk coping and management strategies where sale of livestock and borrowing money were dominant for risk coping and use of chemical and drought tolerant variety were widely used for managing risks. The ordered probit econometric model results revealed that age of the household head, family size, farm size, crop index, owning radio, and money saving were significant determining factors of the WTP for weather index based insurance technology. Whereas land certification and access to credit had significant effect only on the second category of willingness to pay. Policy makers need to be aware that different socio-economic and institutional characteristics of households influence the willingness to pay for weather index based insurance services differently. In addition, they should understand that farmers risk coping and management strategies.