Institutional Factors and Crop Farmer’s Participation in Agricultural Insurance Scheme: Evidence from South Western Nigeria
Abstract
The paper investigated the effect of institutional factors on crop farmer’sparticipation in agricultural insurance schemes in South Western, Nigeria. Specifically, the study described the socio-economic characteristics of crop farmers in the study area, examined the level of awareness of the crop farmers, analyzed the factors influencing the participation of crop farmers and intensity of use of the agricultural insurance policy and compare the income between the participating and non-participating crop farmers in the study area. Multistage sampling techniques were used to select 240 respondents in the study area. Primary data were used for the study, which was sourced from a cross-sectional survey of crop farmers in the study area with the aid of a well-structured questionnaire. The data were analyzed using descriptive, Cragg’s (double-hurdle) model, and t-test. The result of the descriptive analysis showed that the mean age of participant and non-participant was 49.47 (±16.36) and 48.19(±15.41) respectively, where the mean years of formal education for participants and non-participant were 10.23(±5.46) and 10.54(±5.72) respectively. The result of Cragg’smodel in the first hurdle (Probit model) showed that variables such as education, access to credit, farm size, membership of association, and awareness significantly influence the decision of crop farmers to participate in agricultural insurance scheme. In the second hurdle (truncated regression), access to credit, income, risk assessment, and contact with extension was significant to intensity of participation in agricultural insurance scheme in the study area. The result of the t-test showed that there is a significant difference in the income of participants and those that do not participate in agricultural insurances scheme in the study area. Even though a considerable proportion of respondents sampled were aware of agricultural insurance, there is still a need to increase awareness among the farmers so that more farmers can participate in the scheme in other to stabilize their income.
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Introduction
Prior to the discovery of petroleum in Nigeria, Agricultural was the mainstay of the country‟seconomy. Agriculture alone contributes about 57% to the GDP during this period (Oluyole and Sanusi, 2009). Crops like cocoa, groundnut, cotton, oil palm and livestock including cattle and goats were the major crops and livestock being produce during this period. However, Nigeria agriculture has witnessed many phases of policies till date even though those policies are yet to revive the stumbling situation of the agricultural sector in present day Nigeria. In Nigeria today, Agriculture provides employment for nothing less than 70% of the total workforce (Obatolu, Fashina and Olaiya, 2003). Although majority of them being produce on a small scale. The agricultural sector is an important sector to Nigeria economy as it contributes substantially to the economy after the oil sector.
However, agriculture in Nigeria faces myriads of problems including pest and disease infestation, drought, flooding etc.(Obatolu, Fashina and Olaiya, 2003; Oluyole and Sanusi, 2009; Villalobos, 1989; Wood, 1985; Wright, 1993). Agriculture as an enterprise is faced with risk and uncertainties which has affected the productivity of farmers overtime (Oluyole and Sanusi, 2009). Although, farmers have developed different strategies to cope with this unforeseen circumstances and events that might affect their production and output from their respective farms. One of the important strategies to cope with risk and uncertainties experienced on farm is agricultural insurance. Agricultural insurance, in its widest sense may be defined as the stabilization of income, employment, price and supplies of agricultural products by means of regular and deliberate savings and accumulation of funds in small installments by many in favorable time periods to defend some or few of the participants in bad time periods (Arene, 2005).The term “insurance” is simply “a risk management strategy”. The primary motive of any agricultural insurance policy is to serve as a security for losses resulting from natural disasters. Agricultural insurance is therefore the most important available device for minimizing the adverse effects of natural hazards. Nigerian farmers suffered various losses on their investment and had no means of going back to production. The frustration made them to move into cities in droves in search of easy means of livelihood. This situation led to depletion of farming populace, which was a serious threat to food security. The Federal Government was disturbed by the ugly trend, hence the establishment of Nigerian Agricultural Insurance Corporation (NAIC) to address the need of farmers. The need for a specialized Agricultural Insurance Company to provide insurance cover to farmers was informed by Government'sconcern over the vacuum created due to the unwillingness of conventional Insurers to accept Agricultural risks, which they considered too risky. This led to the establishment of the Nigerian Agricultural Insurance Scheme on 15th of November, 1987.The implementation of the Scheme was initially vested on the Nigerian Agricultural Insurance Company Limited, which was later incorporated in June, 1988 but later turned into a Corporation in 1993 by the enabling Act 37 of 1993. Nigerian Agricultural Insurance Corporation is therefore a wholly-owned Federal Government of Nigeria insurance company set up specifically to provide Agricultural risks insurance cover to Nigerian farmers, the name which later changed to Nigerian Agricultural Insurance Scheme (NAIS). The Nigerian Agricultural Insurance Scheme (NAIS) is to protect the Nigerian farmer from the effects of natural hazards by introducing measures which shall ensure a prompt payment of appropriate indemnity (compensation) sufficient to keep the farmer in business after suffering a loss Many studies (Akinola, 2014; Falola et al., 2013; Ajiboye et al, 2018; Oluwatusin et al., 2018 and Akintunde, 2015)have been conducted to assess the situation of agricultural insurance policy use, acceptance and adoption by farmers in Nigeria. According to Akinola (2014), farmers‟ adoption of agricultural insurance will increase if there is increase informal and extension education, higher level of awareness of insurance policy, more perception and concern for past experience with risk and less indifference resulting from too much confidence in their years of experience and alternative risk management strategies. According to Ajiboye et al. (2018), most of the farmers were influenced by the financial institutions (Bank of Agriculture (BoA)) compelling them to acquire insurance policy as a precondition for obtaining loans or as a practical response to some risks which they were faced within the immediate preceding season. Akintude (2015) ascertained that Stock size, rearing system, access to extension services and poultry rearing experience were significant variables that influenced the participation of the poultry farmers in livestock insurance policy.
However, majority of these studies used logit regression model to analyzed the determinants of the use and adoption of agricultural insurance policy among the farmers in Nigeria. None of the studies on use of insurance policy in Nigeria had address the situation at hand using double-hurdle regression (Cragg‟smodel) in other to further ascertain the intensity of the use of insurance policy among the participating farmers in Nigeria taking into consideration the effect of institutional factors. In this study, the institutional factors considered includes, access to credit, contact with extension agent and membership of association. Specifically, the study described the socio-economic characteristics of crop farmers in the study area, examined the level of awareness of the crop farmers, analyzed the factors influencing the participation of crop farmers and intensity of use of the agricultural insurance policy and compare the income between the participating and non-participating crop farmers in the study area.
Conclusion
The study concluded that crop farmers in the study area were in their active age, literate and had the necessary experience in carryout their farming activities. In addition, the study concluded that farmers who participated in agricultural insurance scheme had access to credit and had more contact with extension agents. Considerable proportions of crop farmers were aware of agricultural insurance scheme in the study area. Furthermore, in the first hurdle (Probit model), variables such as education, access to credit, farm size, membership of association and awareness significant influence the decision of crop farmers to participate in agricultural insurance scheme. In the second hurdle (truncated regression), access to credit, income, risk assessment and contact with extension was significant to intensity (continuous) participation in agricultural insurance scheme in the study area. The result of the t-test showed that there is a significant difference in the income of participants and those that does not participate in agricultural insurances scheme in the study area. Therefore, based on the findings of the study, the following recommendations were made in other to encourage farmers to participate in agricultural insurance scheme; i. Farmers should be encouraged to get more education inform of training which will increase their chances of participating in agricultural insurance scheme in other for their income to be stabilized. ii. Credit facilities should be made available to the farmers so as to increase their level of production which will instigate them to participate in agricultural insurance scheme. iii. Farmers should be encouraged to join more association which will benefit them in many ways such as assessing loans which eventually instigate them to participate in agricultural insurance scheme. iv. Despite the fact that considerable proportions of respondents sampled were aware of agricultural insurance scheme, there is still a need to increase awareness among the farmers so that more farmers can participate in the scheme in other to stabilize their income.