Effects Of Area - Yield Index Crop Insurance (AYII) On Food Security

Abstract

Achieving food security in developing countries is the main objective of every country especially those whose economy is largely controlled by the agricultural sector. Nevertheless, the escalating impacts of climate change are compromising the achievement of this objective due to dwindling agricultural output. This has necessitated the institution of a number of policy reforms and initiatives guide to effectively address food insecurity problems and ensure a healthy labour force. Some of the initiatives include a number of pilot programs for index insurance that has increased massively in recent years, but little has been done to estimate the effects and overall performance. Although crop insurance has been promoted as a prospective tool to suffice production risks associated with weather variability, its uptake evidence is limited, thus, this study sought to unpin the drivers of adoption decisions, resultant effects and suggest alternatives for improving the scheme. Data was collected from 233 small-scale farmers where AYII had been promoted. Results indicated that the uptake rate for crop insurance is relatively low and decreasing, as farmers do not understand the concept of AYII well due to its complexity. Additionally, basis risk hinders the uptake as farmers displayed discontent with their compensation claims due to loss. Furthermore, the size of land under maize, nearness to the motorable road, age, membership to a farming group and awareness significantly increase the probability of engaging in crop insurance. In terms of the effects of participating in AYII and the vulnerability of being food insecure, the study revealed that participating in crop insurance reduces the food insecurity index thus making households better off with insurance than without. Therefore, the results highlight the necessity to train farmers about the concepts of insurance and related goods since insurance is one of the risk management mechanisms. Similarly, the selection of target crop enterprises and designing of crop insurance products need to include all relevant participants to boost uptake. Keywords: Area yield index, crop insurance, food security, risk management, and basis risk.