An assessment of Maize farmers’ preferences for crop insurance features in Trans-Nzoia County, Kenya

Abstract

Agricultural risk management is very important in protecting farmers against the vagaries of weather. The initial stage in risk management is the identification of the perceived risk followed by application of various agricultural mitigation strategies. The risk mitigation strategies available to farmers fall under three categories, focusing on financial, production and marketing aspects. While production risk management involves enterprise diversification and appropriate farm management practices, the marketing aspect involves forward contracting, hedging on futures markets, and selling price and minimum price contract. The financial facet of risk management comprises offfarm employment and crop insurance. Besides these, other alternatives including diversification of enterprises such as relying on public assistance or dependence on income outside agriculture are used.In Kenya, agricultural insurance is still at a pilot stage after an unsustainable effort in the 1970’s. Despite the noble intervention to develop the crop insurance industry in Kenya, there exists an empirical gap in knowledge on farmers’ preferences for the service. In order to address the aforementioned knowledge gap, the study employed the Choice Experiment (CE) method to assess farmers’ preferences for crop insurance design features. The application of CE facilitated the estimation of willingness to pay (WTP) and policy scenarios that represent a useful method to inform policy design in a developing country context. The study site was Trans-Nzoia County, a major maize producing region in Kenya. The analysis employed a random parameter logit model (RPL). The results show that farmers are willing to pay for various features of crop insurance. Some of the important attributes were level of coverage, compensation, content design, risk cover, nature of coverage and price. Further, small scale farmers had higher WTP values than those of their large scale counterparts. This was a plausible expectation considering that small scale farmers are relatively more prone to vagaries of nature and resource constraints that hinder their diversification efforts compared to the large scale farmers. The insights on farmers’ preferences are important in informing ex-ante design and improvement of crop insurance programmes in Kenya and other countries that face climate-related challenges and other agricultural risks.