Determinants of Khat Farmers' Willingness to Pay for Agricultural Insurance

Abstract

Khat farming is an important source of revenue and a possible source of potential investment in Kenya. Despite the benefits, various production and marketing risks, which negatively influence productivity, profitability, economic growth and farmers' livelihood, remains a challenge. Insurance for agricultural enterprises has the ability to open up access to essential services that boost productivity and marketing. This study aimed at determining the effect of socio-economic and institutional factors on khat farmers' willingness to pay for agricultural insurance. The data used in this study was obtained from khat farmers in Meru County, Kenya, from a sample of 323 farmers. The study employed the utility maximization theory and the double-bounded dichotomous choice model. Empirical results propose that the household size, size of land owned, awareness of agricultural insurance, credit access and the amount of khat bushes possessed by the family positively and significantly affected willingness to pay. The farmer's age and income earned from khat production negatively and significantly influenced willingness to pay. This study concluded that awareness of agricultural insurance and credit access greatly influence khat farmers' willingness to pay. The study recommends improving farmers' credit facilities to allow them access more financial capability since the study showed that the willingness to pay for insurance was proportional to credit access. The study further recommends strengthening on awareness on the importance of agricultural insurance to enhance khat farmers' involvement in agricultural insurance scheme. The results of this study will equip decision-makers with evidence-based tools to excellently market and establish demand-driven insurance products to meet the demands of khat farmers.