| dc.description.abstract | Livelihoods of rural households in developing countries are threatened by climatic risks. The
poor and vulnerable agricultural households, who are generally subsistence farmers, feel the
most intense effects of these risks. Farmers, in their attempt to cope with climate variability,
have adopted a number of coping strategies. However, these coping strategies often prove to
be ineffective. Financial instruments like insurance facilities can help cushion farmers against
these risks. The challenge, however, is that insurance markets are underdeveloped and often
non-existent in low income countries mainly due to problems of adverse selection, moral
hazards, high monitoring and administration costs. For this reason, one innovation, known as
index based insurance (IBI), has attracted significant consideration to help farmers better
adapt to climate change. Several countries in Africa have implemented the use of IBI. However,
South Africa, despite the available evidence of farmers affected by natural risks is yet to
introduce IBI. Furthermore, apart from attempts to study the possibility of introducing IBI in
South Africa, no empirical evidence has been provided on the acceptability of index based
insurance by local farmers who happen to be the key stakeholders in such interventions. To
this end, the study investigated the smallholder farmers’ willingness to buy IBI, identified
livestock farmers’ perception on sources of risk and their managerial responses and examine
factors underlying farmers’ willingness to buy IBI. The used data was collected from Ngaka
Modiri Molema district municipality with a sample of 330 livestock farmers collected through
the use of a questionnaire survey. To elicit farmers’ willingness to buy IBI, farmers were given
a brief background of the concept before there were asked if they would be willing to buy IBI
or not. About 14.55% of the sampled farmers were not willing to buy index based insurance. A
larger proportion of 85.45% was willing to buy index based insurance of whom 65.45% were
less willing, while 13.64% and 6.36% were moderately and more willing, respectively.
Farmers’ perception on sources of risk and their managerial responses to risk were identified
through the use of Principal Component Analyses. Ordered logistic regression model was used
to examine factors influencing farmers’ willingness to buy IBI. The results revealed that
farmers’ willingness to buy IBI was significantly associated with age of household head,
gender of household head, education level, dependency ratio, the extent of livestock
diversification, household size, land tenure, experience of loss, financial and marketing risks,
elimination of government support and sources of income. Further insight into the factors
influencing farmers’ willingness to buy IBI stands to benefit policy makers, current, and
prospective insurance providers in their design for IBI. Based on the conclusion drawn from
the study, it is recommended that the government should make an effort to sponsor IBI under
the provision of a subsidy, workshops and surveys that focus on the elements of trust in the
designing and implementation of IBI should take place and that greater priority should be in
promoting programs to better educate farmers on how to assess risk management tools. | en_US |
