Assessing Factors Influencing Farmers’ Willingness to Pay for Index-based Insurance Products for Common Bean in Huye District, Rwanda

Abstract

Common bean (Phaseolus vulgaris) is one of the most important food crops to Rwandese and cash crop for smallholder farmers in Rwanda. Due to the weather shocks that negatively affect bean productivity, index-based insurance has been identified as one of the most important coping mechanisms climate related risks for crop production. Most of the bean farmers are resource-poor farmers hence cannot afford to pay insurance premiums for the full coverage. Researchers are therefore promoting the adoption of insurance product that is based on critical bean growth stages. This study focused on farmers’ WTP for index-based bean insurance for different bean growth stages. The study sought to understand farmers’ perception towards index based crop insurance in Rwanda, their willingness to pay and the factors affecting their willingness to pay. The study was conducted in Huye district of Rwanda in Mbazi sector. Stratified random sampling method was utilized to select a representative sample of bean farmers in Mbazi sector, where 285 bean farmers who insure their crop were selected while 143 bean farmers who do not insure their beans were also selected. The study was anchored on the Random Utility Theory (RUT) and utilized the multivariate probit model to estimate the factors affecting willing to pay. Contingent Valuation Method (CVM) was used and bidding game to elicit the maximum amount that bean farmers were willing to pay for the products. Results showed that majority of the farmers were aware of the index based insurance product available in Rwanda (95.6%). However, the farmers had negative perception towards the insurance products and the providers of the same. Flowering stage was identified by 65% of the farmers as the most critical growth stage under drought conditions. Multivariate probit model showed that farmers bought insurance through inputs, on MAC44 climbing bean type no variable was significant to influence farmers’ willingness to pay. RWR2245 bush bean type, age of the household head, education level, farming experience and extension service are the factors influencing farmers’ willingness to pay and premium to pay to insure bean most critical growth stage. The findings have shown that farmers are aware of the index based insurance in Rwanda and are WTP for the product. The study recommends that product developers should target critical bean growth stages for insurance. Group membership and extension should also be emphasized to ensure increased willingness for farmers to pay for index based crop insurance products.