Project Abstract

<p> </p><div><p>climate change. Agricultural<br>insurance is seen as one of the best strategies to address farm risks and<br>encourage the affected farmers to get back to business and achieve better and<br>quality yields. This study assessed the effect of climate change on crop<br>insurance payout method of the Nigerian Agricultural Insurance Corporation<br>(NAIC). The framework used in this study consists of crop yield models, crop<br>yield variance and the insurance payout estimation methods to be employed to<br>get the affected farmers back to business.</p><p>Primary and secondary data were<br>used for this study. Two broad categories of respondents were surveyed to<br>obtain the primary data. A sample of 120 insured and 120 uninsured farmers were<br>randomly selected and interviewed using structured questionnaires. The insured<br>farmers were randomly selected from the insurance policy register of NAIC while<br>the uninsured farmers were selected from the Oyo State Agricultural Development<br>Program (OYSADEP) farmer’s register. The secondary data includes climate<br>variables and crop yield data in Oyo State from 1990 to 2010. The data were<br>collected from the Nigerian Meteorological Station (NIMET) and OYSADEP</p><p>The results showed that the mean<br>age of the insured and uninsured farmers are 51.5 and 48.2 respectively which<br>is significant at (t = 8.36), education level, year of experience and farm size<br>are significant at (t= 2.19, 6.00 and 3.10 respectively). Changes in climate<br>affects crop yield levels and variability, rainfall and temperature increases<br>are found to increase yield level and variability. On the other hand, rainfall<br>and temperature are individually found to have negative effects on some yield<br>levels and variability. The increase in yield was derived from a significant<br>reduction in rainfall; on the other hand, the decrease in yield was caused by<br>heat stress and the shortening of the growth period induced by the temperature<br>rise. The results also identified that the insured farmers are less productive<br>than the uninsured farmers in term of crop production in the study area. This<br>shows that the insured farmers took an insurance policy as a pre- requisite to<br>obtain credit from the financial</p><p>5</p></div><p>institution which might have been<br>diversified into another thing. An adjusted R2 indicated the proportion of the<br>variation in output of both insured and uninsured farmers. A value of 93.52%<br>was obtained for the specify function of the insured farmer as compare to<br>84.38% of the uninsured farmer and 90.66% for the pooled result of the two<br>groups of farmers.</p><p>To encourage the uninsured<br>farmers to take an insurance policy to address farm risk and the insured<br>farmers to maximize their insurance cover to improve their productivity, the<br>study therefore simulate a payout method for NAIC to help the farmers address<br>the incidence of yield loss due to climate change incidence and make them more<br>productive and efficient</p> <br><p></p>

Project Overview

<p> </p><div><p><b>Introduction</b></p><p><b>1.1</b>&nbsp; &nbsp; &nbsp; &nbsp; <b>Background to the Study</b></p><p>Mean temperatures in Africa over<br>the last 30 years showed a pronounced upward thread and were above the long<br>term average of the past 100 years. The five warmest years in Africa in the<br>last century all occurs since 1988 and 1995 being the two warmest years<br>(Desanker and Magadza 2001). Since 1968, the average rainfall in West Africa<br>has been decreasing and fluctuating around a notably lower mean (UNEP, 1999).<br>This had led to shortened rainy seasons in many areas thereby aggravating the<br>insufficient water supply available for agricultural production since many West<br>African countries receives less than 500mm of rainfall and thus considered dry<br>lands (UNEP, 2006). In addition, inter-annual rainfall variability is great<br>over most of Africa and for some regions, most notably the Sahel, multi-decadal<br>variability in rainfall has also been substantial.</p><p>The rainfall trends of the continent through the 20th century drying up to 2.5% per<br>decade or more in some Western and Eastern parts of the Sahel (Hume et al;<br>2001). This reduced mean rainfall is expected to persist as a result of climate<br>change. In recent years, the pattern of rainfall has tended towards the<br>extremes, with increasing severity and frequency of drought and floods. Many<br>countries, including Botswana, Burkina Faso, Chad, Ethiopia, Kenya Mauritania<br>Mozambique and Nigeria experiences drought at mean rainfall over the most of<br>the continent. The East African flood of 1988, the Mozambique floods of 2000<br>and the recent floods in West Africa (Ghana, Benin, Togo and Burkina Faso) in<br>2007 and recently the devastating floods in Nigeria 2011, which occurs in the<br>Western parts of the country led to loss of much farmland, damage to transport<br>networks, diseases outbreak and loss of human life. The continent already<br>experiences a major deficit in food and animal production in many areas, and<br>potential further declines in soil moistures or inundation of crop lands has<br>been an</p><p>12</p></div><div><p>added burden. One of the ways to address this form<br>of agricultural risk has been the use of agricultural insurance.</p><p>The need for a specialized Agricultural insurance<br>company to provide insurance cover to farmers was informed by Government’s<br>concern over the vacuum created due to the unwillingness of conventional<br>Insurers to accept Agricultural risks, which they considered too risky. In<br>Nigeria, the implementation of the scheme was thus initially vested in the<br>Nigerian Agricultural Insurance Company limited, which later turned into a<br>Corporation in 1993 by the enabling decree No. 37 of 1993, which was planned by<br>the government to boost agricultural production, but it is constrained by the<br>inability of the average farmer to provide the necessary required rules to<br>purchase an insurance cover.</p><p><b>1.2</b>&nbsp; &nbsp; &nbsp; &nbsp; <b>Problem statement and research questions</b></p><p>Climate change problem in Nigeria indicate the ways in which climate<br>change has affected crop producing farmers. These include: increased likelihood<br>of crop failure; increase in diseases and mortality of livestock, and/or forced<br>sales of livestock at disadvantageous prices; increased livelihood insecurity,<br>resulting in assets sale, indebtedness, out-migration and dependency on food<br>aid; and downward spiral in human development indicators, such as health and<br>education. Such impacts will further aggravate the stresses already associated<br>with subsistence production, such as isolated location, small farm size,<br>informal land tenure, low levels of technology and narrow employment options.</p><p>Most Nigerian Cities are facing major stresses on water availability.<br>Particular stress related to issues of supply scarcity, contamination and salt<br>water infiltration (Enete, 2008; Enete and Ezenwaji, 2011), higher demands, and<br>growing dependency on external supply. The impacts of climate change on health<br>are another area of concern, including air pollution, heat island effects, and<br>spread of disease vectors. The consequences on human settlements due to<br>sea-level rise or coastal and inland flooding are a further concern that could<br>lead to</p><p>13</p></div><div><p>serious disruption in the transportation and infrastructure service<br>(Enete, 2008). Increase in global temperatures, rising energy demands (Enete<br>and Alabi, 2011) and increased heat island effects (Enete and Ijioma, 2011),<br>are identified as other issues of primary concern. It is considered very likely<br>that increasing global temperatures will lead to higher maximum temperatures,<br>more heat waves and fewer cold days over most land areas. Disruption of<br>sensitive ecosystems, loss of biodiversity and food security problems will have<br>been witnessed. Wildfire is dramatically escalating in frequency and extent.<br>Forest could be lost due to frequent and more intense fires (Reid et al.,<br>2007). Other climate change impacts include shifting ranges and seasonal behaviors,<br>changes in growth rates, in the relative abundance of species and in processes<br>like water and nutrient cycling and in the risk of disturbance from fire,<br>insects and invasive species (Johnson and Moghori, 2008).</p><p>Adaptation can be both autonomous and planned. Autonomous adaptation is<br>the ongoing implementation of existing knowledge and technology in response to<br>the changes in climate experienced; and planned adaptation is the increase in<br>adaptive capacity by mobilizing institutions and policies to establish or<br>strengthen conditions that are favourable to effective adaptation and<br>investment in new technologies and infrastructure. Autonomous adaptations are<br>highly relevant for smallholder farmers. Mostly located in areas of ecological<br>fragility, they tend to have an extensive knowledge base to draw upon in coping<br>with adverse environmental conditions and shocks. Autonomous adaptation options<br>can be, for example: changing inputs such as crop varieties and/or species and<br>using inputs with increased resistance to heat shock and drought; altering<br>fertilizer rates to maintain grain or fruit quality consistent with the<br>climate; and altering amounts and timing of irrigation and other water<br>management practices; making wider use of technologies to ‘harvest’ water, to conserve<br>soil moisture (e.g. crop residue retention) and to use water more effectively<br>in areas where there is a decrease in rainfall; utilizing water management to<br>prevent water logging, erosion and</p><p>14</p></div><div><p>nutrient leaching in areas where there is an increase in rainfall;<br>altering the timing or location of cropping activities; diversifying income by<br>integrating into farming activities additional activities such as livestock<br>raising; and using seasonal climate forecasting to reduce production risk. However,<br>while many of these measures are effective against a degree of climatic<br>variability, they may become insufficient in the face of accelerating climate<br>change, therefore a longer-term planned approach for adaptation is therefore<br>needed to secure sustainable livelihoods of farmers. It has to incorporate<br>additional information, technologies and investments, infrastructures and<br>institutions and integrate them with the decision-making environment.<br>Insurances, safety nets and cash transfers to reduce vulnerability to shocks<br>are also part of the solution.</p><p>Despite the evidence of climate change and the need to adapt to it,<br>there has not been any evidence of change in the payout technique adopted by<br>the Nigerian Agricultural Insurance Corporation; as adaptation need additional<br>financial resources. Unfortunately, financial support for smallholder farmers<br>for implementing adaptation has been too little and too slow in reaching them. Only<br>500,000 of Nigeria’s agricultural producers have access to insurance where only<br>Oyo state has 415,030 farm families (Oysadep 2012). This implies that The<br>Nigerian Agricultural Insurance Corporation has not been able to improve their<br>quality of products, coverage, liberalize insurance market, allow private<br>players to enter and spur competition and restructuring the mode of their<br>payout due to the incidence of climate change and uncertainty.</p><p>The<br>research questions that follow the above problem statements are:</p><p>1. &nbsp; &nbsp; <br>What are the the socio economic<br>characteristics of insured farmers and uninsured farmers in Oyo state</p><p>2. &nbsp; &nbsp; How does<br>climate change and its risk affects food crops production in Oyo state</p><p>15</p></div><div><p>3. &nbsp; &nbsp; What are<br>the factor(s) affecting farmer’s crop insurance decision</p><p>4. &nbsp; &nbsp; <br>What are the effect of climate<br>change on payout of agricultural insurance corporation in Oyo State</p><p><b>1.3</b>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<b>Objectives of the Study</b></p><p>The general objective of this study is to evaluate the impact of climate<br>change on crop insurance in Oyo state.</p><p><b>The specific objectives are to;</b></p><p>1. &nbsp; To compare the socio economic characteristics of insured farmers<br>and uninsured farmers in Oyo state</p><p>2. &nbsp; &nbsp; To<br>analyze how climate change and its risk affects food crops production in Oyo<br>state</p><p>3. &nbsp; &nbsp; To<br>determine the factors affecting farmer’s crop insurance decision</p><p>4. &nbsp; To estimate the effect of climate change on payout of agricultural<br>insurance corporation in Oyo State</p><p><b>1.4</b>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<b>Hypotheses of the study</b></p><p>Ho1: There<br>is no significant difference between the socio-economic characteristics of the<br>insured and uninsured farmers in the study area.</p><p>Ho2: There<br>is no structural difference between the production function of the insured and<br>uninsured farmers.</p><p>Ho3:<br>Productivity of the farmers does not have any significant impact on their crop<br>insurance decision.</p><p>Ho4: Climate<br>will not have any significant impact on payout of Agricultural Insurance<br>Corporation in Oyo State.</p><p>16</p></div><div><p><b>1.5</b>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <b>Justification of the study</b></p><p>Farmers have a long history of<br>responding to climate variability. Traditional and newly introduced adaptation<br>practices can help farmers to cope with both current climate variability and<br>future climate change. However, the debate about the adaptation of small-scale<br>farmers in Africa to climate change has occurred in the absence of knowledge<br>about existing and potential adaptation practices. Because prevailing ideas<br>about adaptation are vague, conducting focused research on potential adaptation<br>practices and formulating appropriate advice for implementing new practices is<br>difficult, therefore it is pertinent to examine the impact climate change on<br>payout techniques of Agricultural insurance corporation</p><p>Even without climate change,<br>there are serious concerns about agriculture in Nigeria because of water supply<br>variability, soil degradation, and recurring drought events. A number of<br>Countries face semi-arid conditions that make agriculture challenging. Further,<br>development efforts have been particularly difficult to sustain. African<br>agriculture has the slowest record of Productivity increase in the world.</p><p>Experts are concerned that the<br>agriculture sector in Nigeria will be especially sensitive to future climate<br>change and any increase in climate variability. The current climate is already<br>marginal with respect to precipitation in many parts of Africa. Further warming<br>in these semiarid locations is likely to be devastating to agriculture there.<br>Even in the moist tropics, increased heat is expected to reduce crop yields.<br>Agronomic studies suggest that yields could fall quite dramatically in the<br>absence of costly adaptation measures. The current farming technology is basic,<br>and incomes low, suggesting that farmers will have few options to adapt.<br>Presently, public infrastructure such as roads, long-term weather forecasts,<br>and agricultural research and extension are inadequate to secure appropriate<br>adaptation. Unfortunately, none of the empirical studies of climate impacts in<br>Africa have explored what</p><p>17</p></div><p>adaptations would be efficient for either African<br>farmers or African governments. This is a serious deficiency in African impact<br>research, given the importance of efficient adaptation (Mendelsohn 2000).</p><p>Although there are<br>well-established concerns about climate change effects in Africa, there is<br>little quantitative information concerning how serious these effects will be.<br>Existing studies cover only a small fraction of Nigeria and few of the African<br>studies include data of actual farmer behavior (adaptation includes responses<br>such as planting dates, harvest dates, use of fertilizer, and crop choice).<br>Hence there is need to examine the impact of climate change in the payout<br>techniques of Nigerian Agricultural Insurance Corporation.In addition, the<br>result of this study will help the government to understand great loss of crop<br>yield as results of climate change variability, and help provide farmers with<br>an effective adaptation measure, and the need to address the payout methods of<br>the Agricultural Insurance policy.</p> <br><p></p>