Assessment of agriculture insurance linked to contract farming and government input subsidy scheme in Zambia

3ie evidence programme:  Agricultural Insurance Evidence Programme
Author(s): Nancy McCarthy, Agrotosh Mookerjee, Ulrich Hess, Saskia Kuhn
Institutional affiliation(s): LEAD Analytics, Risk Shield Consultants, GIZ, GIZ
Grant-holding institution: LEAD Analytics
Main implementing agency: LEAD Analytics
Sex disaggregation: No
Gender analysis: No
Equity focus: Yes
Study type: Process evaluation

Context

In Zambia, only 16 per cent  of smallholder famers’ households had access to irrigation and the rest are dependent on rainfed agriculture. Despite undertaking measures to reduce potential losses, weather shocks are the major cause for farm households’ losses to both crop production and overall income.  For the 2016–2017 season, an insurance product was available for all 46,346 farmers who typically contract with NWK, a cotton agro-processor in Zambia , but only 4,338 signed up.This study explores the feasibility and acceptability of a successfully marketed strategy of combined insurance package that included weather index-based crop insurance.

Intervention design

This study assessed the feasibility and acceptability of  weather index-based insurance (WII) products. Smallholder cotton farmers sign up voluntarily for the insurance coverage at the beginning of the season, when they also receive their input packages from NWK.

The intervention encompasses two phases. During phase 1, the team focused on developing an ‘encouragement’ design to be implemented in Phase 2. In this phase, a review of the literature was conducted to identify lessons learned by other WII projects and an analysis of a rural household dataset to understand current exposure to weather risks, and current risk management and coping strategies. Marketing and outreach activities were implemented to obtain information on farmers’ comprehension of the insurance product and inform dissemination strategies. Outreach activities included training, using videos, posters and other literature with local shed managers, and periodically touching base with farmers via SMS messages.

During phase 2 of the intervention, the WII product was marketed to smallholder cotton growers.

The study hypothesised farmer encouragement activities with outreach and dissemination strategies would increase the uptake of WII.  This hypothesis was based on the primary assumption:

1. Generate a sufficient amount of information that will generate an effective encouragement design.

Evaluation design and methodology

This was a mixed-methods study conducted in Southern, Central, Eastern, and Copperbelt provinces in Zambia. For the quantitative component, nationally representative administrative data from the Rural Agricultural Livelihood Survey were analysed. Qualitative methods included two rounds of focus group discussions and key informant interviews.

Primary evaluation questions

The study addressed the following questions:

1. Can current training materials be improved to increase farmers’ attention to, and comprehension of, the WII product?
2. What mechanisms and/or materials are effective at addressing some of the key barriers thought to hinder adoption of WII products, such as lack of trust of the insurer, concerns with basis risk and lack of experience with the real value of payouts on the part of the farmers?
3. How often should farmers be contacted throughout the year, and via what mechanisms?

Primary findings

Very few risk management or risk coping mechanisms are effective at mitigating the impacts of rainfall shocks, therefore there is ample scope to develop a WII product that complements existing risk management and coping mechanisms. The team also found that more educated farm households are more likely to invest in sustainable land management techniques and to have access to a wider range of risk-coping mechanisms.

Farmers stressed the need to make outreach materials available in local languages. Also, they reported that farmers stressed the need for more contact throughout the year to maintain a comprehension of the WII product and to sustain interest. While many participants had attended training on the WII product, the comprehension was often limited many months after the training.

Comprehension was quite good when testing farmers about half an hour after the introductory presentation.

Implications

Given the study findings, the training, outreach and marketing strategies can be developed and refined to increase uptake of the WII product by smallholder cotton farmers in rural Zambia.

The research team found that farmers are interested in WII products in general, but that information on the WII product can be more effective and consistently provided through a wide variety of mechanisms.