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Producer Demand and Welfare Benefits of Rainfall Insurance in Tanzania

Published by:
Publication date
Number of Pages
Type of Publication:
Focus Region:
Sub-Saharan Africa
Focus Topic:
Climate / Weather / Environment
Type of Risk:
Weather & Climate related
Type of Risk Managment Option:
Risk transfer
Alexander Sarris, Panayiotis Karfakis, and Luc Christiaensen
The Food and Agriculture Organization of the United Nations (FAO)

This paper explores empirically the issue of the demand, namely the willingness to pay (WTP), for rainfall-based insurance, in the context of a poor agrarian economy, with rural households significantly dependent on agricultural commodity risks. Using data from recent household surveys in the Kilimanjaro and Ruvuma regions of the United Republic of Tanzania, both important agricultural producing regions, the paper ascertains the nature of the weather related risks faced by smallholder growers in the context of their overall risk environment. It then estimates their desirability for weather-based income insurance as well as their demand for it by utilizing contingent valuation (CV) techniques. The results indicate that producer households are affected by a variety of shocks, of which weather related ones are very important. The paper estimates the demand for weather-based crop insurance in each of the two regions, and indicates that there seem to be considerable welfare benefits (net of costs) for such insurance, but differentiated according to regional rainfall instability, as well as producer incomes.