The Influence of Agricultural Insurance as a Risk Management Tool on Large Scale Maize Farmers’ Performance in Kesses Subcounty,uasin Gishu County, Kenya

Abstract

In spite of agriculture being an important source of income growth and a potential source of investment opportunities in Kenya, farmers face numerous production risks including climate variability and change. Whilst traditionally farmers have historically devised a diverse portfolio of risk avoidance and reduction mechanisms such as reduced input application, use of drought resistant varieties and diversification of crop or income portfolio to self-insure against agricultural risks, a pool of research show that traditional risk minimization strategies are unfavorable to some extent and that cannot adequately absorb the resultant economic shocks hence this can lead to poverty trap. Literature suggests that crop insurance as a risk management tool has the potential to unlock other key services in the agricultural sector that are important in enhancing productivity. This study sought to assess effectiveness of agriculture insurance among large scale farmers in Kenya with view of linking to performance as opposed to non-insurance. This paper analyzed the actual impact of insurance products on the economic performance of maize farmers by linking the economic performance model with the insurance demand model. For this analysis, a simultaneous equation system is solved. Agricultural insurance schemes are a potential tool to cope with income losses through indemnity payments and therefore stabilize income and economic performance of farms. Data was collected from 30 maize-producing farmers in Kesses county where maize is cash crop to many farmers among other counties in Kenya. Purposive statistics results show that agriculture insurance uptake is very low but the few farmers who have insured gain more than those who have not insured. Agriculture insurance is also not well understood by farmers and therefore the uptake is low. The insured farmers have indeed gained and maintain their income in spite of loss occurrences as opposed to uninsured farmers. The finding therefore shows that farmers with insurance in place as risk mitigation tool perform better that those with other forms of loss mitigation tools. Famers are therefore encouraged to take up agriculture insurance to maintain their production for consistency of income