An Economic Analysis of Impact of Weather Index-based Crop Insurance on Household Income in Huye District of Rwanda
Agriculture remains a major source of livelihood in Rwanda. However, the sector is faced by many covariate risks. A major component of covariate risk in Rwandan agriculture is weather-related production risk. Weather index-based crop insurance is one tool used to improve risk management practices in many drought-prone countries including Rwanda. Despite the existence of crop insurance as a mechanism to mitigate weather-related losses, its impact on household income in Rwanda remains unknown. This study assessed the impact of farmer participation in a crop insurance scheme on household income in Huye District. A multi-stage random sampling strategy was used to collect primary data using a semi-structured questionnaire administered to a sample of 246 households. Descriptive statistics were used to characterize the patterns of farmer participation and uptake of crop insurance in the study area. Propensity score matching (PSM) was then used to assess the impact of farmer participation in crop insurance on household income. This involved an analysis of factors influencing farmer participation in the insurance scheme using a logit model. The results of the logit model showed that cooperative membership (p=0.001), use of irrigation (p=0.060), crop diversification (p=0.001), years of experience with crop insurance (p=0.000), distance to a paved road (p=0.01), and wealthy category (p=0.004) significantly influenced farmer participation in the crop insurance in Huye District. The Nearest Neighbor Matching, Radius Matching and Kernel-Based Matching algorithms showed that the matching process was justified among participants and non-participants in the insurance scheme. An average treatment effect of US$100 was found as the difference between participant and non-participant household income. This shows that the weather index-based insurance had a positive impact on participants‟ incomes in Huye District. Accordingly, the study recommends the promotion of the crop insurance among non-participants through educational and awareness campaigns by the Ministry of Agriculture and insurance companies. The government of Rwanda in partnership with Rwanda Cooperative Agency should persuade more farmers to join cooperatives through regular and targeted campaigns.
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