ethiopian project on interlinking weather index insurance with credit to improve agricultural...

Degnet Abebaw(Ethiopian Economics Association)

IFPRI-2020 Conference on “Building Resilience for Food and Nutrition Security”

15-17 May 2014, Addis Ababa, Ethiopia

• Agriculture is the main productive sector.

• Agriculture accounts for a little under 50 percent of GDP, 80

percent of employment, 90 percent of export earnings and

supplies about 70 percent of the country’s raw material to

secondary activities.

• Crop production contributes on average around 60 percent,

livestock accounts for around 27 percent and forestry and other

subsectors around 13 percent of the total agricultural value.

• Over 95 percent of the cultivated land is under smallholder

peasant agriculture.

• Agricultural productivity remains very low.

• For instance, yield of major cereals is around 2 tons/ha

• Limited use of improved agricultural technologies

• Most crop production relies on weather, rainfed

• Weather risks pose major constraints to crop production

• The presence of large correlated risks prevents caused by weather hinder:

– Farmers from adopting improved technologies even if they may be profitable

– Banks from lending to smallholder agriculture

to test impact of rainfall insurance in drought-exposed farming populations in Amhara region of Ethiopia.

to understand the extent to which interlinking credit and insurance can unlock demand for inputs in smallholder agriculture

40 kebeles= control

40 kebeles=standalone (insurance only)

40 kebeles= Interlinked (insurance +credit)

Randomly assigned 120 kebeles chosen from four zones of Amhara Regional State, Ethiopia

Research Design • Randomized Controlled Trial (RCT)

• Collaborator Institutions:University of California San Diego, University of Athens, Greece, FAO, EEA, NISCO, Dashen Bank, Cooperative Unions

Year 1 Insurance sales

2011 2012 2013

Year 2 Insurance sales

2014

Year 3 Insurance sales

Sold through primary (village-level) cooperatives to members at time of purchasing inputs.

Framed as input insurance, meaning that it would cover cost of inputs if rain fails.

Insured crops included maize, sorghum, teff, and wheat.

Only households in villages whose center is less than 15km from an insured rainfall station offered insurance.

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Cooperative Unions (CU) are used as credit intermediaries.

Each CU signs single loan contract with Dashen.

A farmer can only get the interlinked loan if insurance is purchased, but he/she can choose standalone product also in interlinked arm.

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Lessons Learned and wayforward

There seems to be unrealized potential for agricultural productivity growth in Ethiopia among smallholders.

Among the factors that condition fertilizer use by farmers, risk factors as well as credit constrain factors are significant, supporting the underlying hypotheses of the effort to promote WII as a means to expand agricultural credit.

Year 1 sales window: Offered subsidies to the study sample in treatment

kebeles Insurance sales were later in the planting season than

intended; this mitigates against positive impact. Uptake among those offered subsidies was 34% Uptake rate in unsubsidized sample <.5%.

Year 2 sales window: Offered subsidies to the study sample in the treatment

kebeles Insurance sold in a more timely fashion, but

interlinking still not achieved Uptake rate in subsidized sample ~ 41% Uptake rate in unsubsidized sample ~ 3%.

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Some evidence that increasing the voucher amount increases the intensity of fertilizer use per hectare.

Slight uptake in use of agricultural credit

Small increases in yields for the less important crops (wheat and sorghum), but a sizeable & almost significant drop in the yields on the most important one (teff).

WII uptake among farmers who were not offered subsidies were negligible.

Subsidy vouchers, even at very small cash amounts, are a very effective way of driving uptake for WII.

Promotion and subsidy will be necessary for a more widespread adoption of WII at the farmer level.

Databases from subsequent recent rounds of this pilot will hopefully yield much cleaner & robust conclusions.

We also hope that Dashen-CUs have signed agreements in the context of EPIICA and that the interlinking arm of this pilot experiment are implemented in this year .

Thank you