A double-hurdle model estimation of cocoa farmers’ willingness to pay for crop insurance in Ghana

Abstract

Agriculture is an important sector in Ghana’s economy, however, with high risk due to natural factors like climate change, pests and diseases and bush fires among others. Farmers in the Brong-Ahafo region of Ghana which is known as one of the major cocoa producing regions, face these risks which sometimes results in crop failure. The need for farmers to therefore insure their farms against crop loss is crucial. Insurance has been a measure to guard against risk. The aim of this study was to assess cocoa farmers’ willingness to access crop insurance, the factors affecting willingness to pay (WTP) for crop insurance scheme and insurance companies’ willingness to provide crop insurance to cocoa farmers. Multi-stage sampling technique was used to sample 240 farmers from four communities in the Dormaa West District in Brong-Ahafo Region. The double-hurdle model shows that age, marital status and education significantly and positively influenced cocoa farmer’s willingness to insure their farms whiles household size and cropped area negatively influenced farmers’ willingness to insure their farms. Similarly, age, household size and cropped area significantly and positively influenced the premium cocoa farmers were willing to pay whiles marital status and cocoa income negatively influenced the premium farmers were willing to pay. The contingent valuation method shows that the maximum, minimum and average amounts cocoa farmers are willing to pay for crop insurance per production cost per acre was GH¢128.40, GH¢32.10 and GH¢49.32 respectively. Insurance companies do not have crop insurance policy but willing to provide crop insurance policy to cocoa farmers on a condition that farmers adopt modern cultivation practices to reduce the level of risk. The study recommends that cocoa farmers should be well educated on crop insurance and should be involved in planning the crop insurance scheme in order to conclude on the premium to be paid by them.