Farmers’ Willingness to Purchase Weather Index Crop Insurance: Evidence from Battambang, Cambodia

Abstract

The weather index crop insurance (WICI) scheme was introduced under a pilot project for rice in Cambodia in 2021. The adoption rate was low and the loss ratio was higher than 200%. The increase in farmers’ participation would help reduce the loss ratio, which can sustain the WICI scheme. This study, therefore, examines Cambodian rice farmers’ willingness to purchase WICI in Cambodia. The hypothesis is that the low adoption rate is due to a lack of awareness, lack of understanding of WICI, lack of trust in weather stations, and the problem of basis risk. This study would like to test the influence of those factors on the willingness to purchase in Cambodia. Battambang Province was chosen as the study area as it is the largest area for rice production and has the largest take-up rate of farmers buying WICI. Detailed interviews of 232 farmers were conducted in the districts of Bavel and Moung Ruessei. The probit regression model was used to identify factors that significantly impact farmers’ willingness to purchase WICI. The results indicate that land size, level of trust in weather stations, level of farmers’ understanding of WICI, and joining the WICI awareness program have positive effects on the probability of farmers’ willingness to buy WICI, whereas the number of household laborers and expectation of floods have negative influences. The probability of willingness to purchase by farmers who attended the awareness program on WICI was 38% higher than those who did not. The size of farmland, level of trust in weather stations, and level of understanding of WICI increase in one unit affecting the probability of willingness to purchase WICI by 4%, 16%, and 25%, respectively. On the other hand, the increase in the number of household laborers in the rice field by one person and the increase in the probability of expected flood increase by 0.1 drag back the probability of farmers’ willingness to purchase by 16% and 5%, respectively. The results suggest the government to raise the insurance awareness and understanding of WICI. Development of weather station infrastructure, as well as maintenance of weather stations, is needed to guarantee the accuracy of data generated from the weather station.