Are subsidies to weather-index insurance the best use of public funds? A bio-economic farm model applied to the Senegalese groundnut basin

While crop yields in Sub-Saharan Africa are low compared to most other parts of the world, weather-index insurance is often presented as a promising tool, which could help resource-poor farmers in developing countries to invest and adopt yield-enhancing technologies. Here, we test this hypothesis on...

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Bibliographic Details
Published in:Agricultural systems 2017-09, Vol.156, p.149-176
Main Authors: Ricome, Aymeric, Affholder, François, Gérard, Françoise, Muller, Bertrand, Poeydebat, Charlotte, Quirion, Philippe, Sall, Moussa
Format: Article
Language:English
Subjects:
Crop intensification
Drought insurance
Economics and Finance
Humanities and Social Sciences
Index insurance
Senegal
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Summary:While crop yields in Sub-Saharan Africa are low compared to most other parts of the world, weather-index insurance is often presented as a promising tool, which could help resource-poor farmers in developing countries to invest and adopt yield-enhancing technologies. Here, we test this hypothesis on two contrasting areas (in terms of rainfall scarcity) of the Senegalese groundnut basin through the use of a bio-economic farm model, coupling the crop growth model CELSIUS with the economic model ANDERS, both specifically designed for this purpose. We introduce a weather-index insurance whose index is currently being used for pilot projects in Senegal and West Africa. Results show that insurance leads to a welfare gain only for those farmers located in the driest area. These farmers respond to insurance mostly by increasing the amount of cow fattening, which leads to higher crop yields thanks to the larger production of manure. We also find that subsidizing insurance is not the best possible use of public funds: for a given level of public funding, reducing credit rates, subsidizing fertilizers, or just transferring cash as a lump-sum generally brings a higher expected utility to farmers and leads to a higher increase in grain production levels. •We developed a coupled crop-farm simulation model for semi-arid West Africa.•We assessed the soundness at farm scale of policies supporting cereal intensification.•Weather-index insurance reduces risks and increases expected income only for certain farms.•Subsidies to credit or unconditional cash-transfers increase expected income and production more than subsidies to insurance.•Unsubsidized insurance combined with subsidized credit best favors cereal intensification.
ISSN:0308-521X
1873-2267
DOI:10.1016/j.agsy.2017.05.015