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climate change. Agricultural insurance is seen as one of the best strategies to address farm risks and encourage the affected farmers to get back to business and achieve better and quality yields. This study assessed the effect of climate change on crop insurance payout method of the Nigerian Agricultural Insurance Corporation (NAIC). The framework used in this study consists of crop yield models, crop yield variance and the insurance payout estimation methods to be employed to get the affected farmers back to business.
Primary and secondary data were used for this study. Two broad categories of respondents were surveyed to obtain the primary data. A sample of 120 insured and 120 uninsured farmers were randomly selected and interviewed using structured questionnaires. The insured farmers were randomly selected from the insurance policy register of NAIC while the uninsured farmers were selected from the Oyo State Agricultural Development Program (OYSADEP) farmer’s register. The secondary data includes climate variables and crop yield data in Oyo State from 1990 to 2010. The data were collected from the Nigerian Meteorological Station (NIMET) and OYSADEP
The results showed that the mean age of the insured and uninsured farmers are 51.5 and 48.2 respectively which is significant at (t = 8.36), education level, year of experience and farm size are significant at (t= 2.19, 6.00 and 3.10 respectively). Changes in climate affects crop yield levels and variability, rainfall and temperature increases are found to increase yield level and variability. On the other hand, rainfall and temperature are individually found to have negative effects on some yield levels and variability. The increase in yield was derived from a significant reduction in rainfall; on the other hand, the decrease in yield was caused by heat stress and the shortening of the growth period induced by the temperature rise. The results also identified that the insured farmers are less productive than the uninsured farmers in term of crop production in the study area. This shows that the insured farmers took an insurance policy as a pre- requisite to obtain credit from the financial
institution which might have been diversified into another thing. An adjusted R2 indicated the proportion of the variation in output of both insured and uninsured farmers. A value of 93.52% was obtained for the specify function of the insured farmer as compare to 84.38% of the uninsured farmer and 90.66% for the pooled result of the two groups of farmers.
To encourage the uninsured farmers to take an insurance policy to address farm risk and the insured farmers to maximize their insurance cover to improve their productivity, the study therefore simulate a payout method for NAIC to help the farmers address the incidence of yield loss due to climate change incidence and make them more productive and efficient
1.1 Background to the Study
Mean temperatures in Africa over the last 30 years showed a pronounced upward thread and were above the long term average of the past 100 years. The five warmest years in Africa in the last century all occurs since 1988 and 1995 being the two warmest years (Desanker and Magadza 2001). Since 1968, the average rainfall in West Africa has been decreasing and fluctuating around a notably lower mean (UNEP, 1999). This had led to shortened rainy seasons in many areas thereby aggravating the insufficient water supply available for agricultural production since many West African countries receives less than 500mm of rainfall and thus considered dry lands (UNEP, 2006). In addition, inter-annual rainfall variability is great over most of Africa and for some regions, most notably the Sahel, multi-decadal variability in rainfall has also been substantial.
The rainfall trends of the continent through the 20th century drying up to 2.5% per decade or more in some Western and Eastern parts of the Sahel (Hume et al; 2001). This reduced mean rainfall is expected to persist as a result of climate change. In recent years, the pattern of rainfall has tended towards the extremes, with increasing severity and frequency of drought and floods. Many countries, including Botswana, Burkina Faso, Chad, Ethiopia, Kenya Mauritania Mozambique and Nigeria experiences drought at mean rainfall over the most of the continent. The East African flood of 1988, the Mozambique floods of 2000 and the recent floods in West Africa (Ghana, Benin, Togo and Burkina Faso) in 2007 and recently the devastating floods in Nigeria 2011, which occurs in the Western parts of the country led to loss of much farmland, damage to transport networks, diseases outbreak and loss of human life. The continent already experiences a major deficit in food and animal production in many areas, and potential further declines in soil moistures or inundation of crop lands has been an
added burden. One of the ways to address this form of agricultural risk has been the use of agricultural insurance.
The need for a specialized Agricultural insurance company to provide insurance cover to farmers was informed by Government’s concern over the vacuum created due to the unwillingness of conventional Insurers to accept Agricultural risks, which they considered too risky. In Nigeria, the implementation of the scheme was thus initially vested in the Nigerian Agricultural Insurance Company limited, which later turned into a Corporation in 1993 by the enabling decree No. 37 of 1993, which was planned by the government to boost agricultural production, but it is constrained by the inability of the average farmer to provide the necessary required rules to purchase an insurance cover.
1.2 Problem statement and research questions
Climate change problem in Nigeria indicate the ways in which climate change has affected crop producing farmers. These include: increased likelihood of crop failure; increase in diseases and mortality of livestock, and/or forced sales of livestock at disadvantageous prices; increased livelihood insecurity, resulting in assets sale, indebtedness, out-migration and dependency on food aid; and downward spiral in human development indicators, such as health and education. Such impacts will further aggravate the stresses already associated with subsistence production, such as isolated location, small farm size, informal land tenure, low levels of technology and narrow employment options.
Most Nigerian Cities are facing major stresses on water availability. Particular stress related to issues of supply scarcity, contamination and salt water infiltration (Enete, 2008; Enete and Ezenwaji, 2011), higher demands, and growing dependency on external supply. The impacts of climate change on health are another area of concern, including air pollution, heat island effects, and spread of disease vectors. The consequences on human settlements due to sea-level rise or coastal and inland flooding are a further concern that could lead to
serious disruption in the transportation and infrastructure service (Enete, 2008). Increase in global temperatures, rising energy demands (Enete and Alabi, 2011) and increased heat island effects (Enete and Ijioma, 2011), are identified as other issues of primary concern. It is considered very likely that increasing global temperatures will lead to higher maximum temperatures, more heat waves and fewer cold days over most land areas. Disruption of sensitive ecosystems, loss of biodiversity and food security problems will have been witnessed. Wildfire is dramatically escalating in frequency and extent. Forest could be lost due to frequent and more intense fires (Reid et al., 2007). Other climate change impacts include shifting ranges and seasonal behaviors, changes in growth rates, in the relative abundance of species and in processes like water and nutrient cycling and in the risk of disturbance from fire, insects and invasive species (Johnson and Moghori, 2008).
Adaptation can be both autonomous and planned. Autonomous adaptation is the ongoing implementation of existing knowledge and technology in response to the changes in climate experienced; and planned adaptation is the increase in adaptive capacity by mobilizing institutions and policies to establish or strengthen conditions that are favourable to effective adaptation and investment in new technologies and infrastructure. Autonomous adaptations are highly relevant for smallholder farmers. Mostly located in areas of ecological fragility, they tend to have an extensive knowledge base to draw upon in coping with adverse environmental conditions and shocks. Autonomous adaptation options can be, for example: changing inputs such as crop varieties and/or species and using inputs with increased resistance to heat shock and drought; altering fertilizer rates to maintain grain or fruit quality consistent with the climate; and altering amounts and timing of irrigation and other water management practices; making wider use of technologies to ‘harvest’ water, to conserve soil moisture (e.g. crop residue retention) and to use water more effectively in areas where there is a decrease in rainfall; utilizing water management to prevent water logging, erosion and
nutrient leaching in areas where there is an increase in rainfall; altering the timing or location of cropping activities; diversifying income by integrating into farming activities additional activities such as livestock raising; and using seasonal climate forecasting to reduce production risk. However, while many of these measures are effective against a degree of climatic variability, they may become insufficient in the face of accelerating climate change, therefore a longer-term planned approach for adaptation is therefore needed to secure sustainable livelihoods of farmers. It has to incorporate additional information, technologies and investments, infrastructures and institutions and integrate them with the decision-making environment. Insurances, safety nets and cash transfers to reduce vulnerability to shocks are also part of the solution.
Despite the evidence of climate change and the need to adapt to it, there has not been any evidence of change in the payout technique adopted by the Nigerian Agricultural Insurance Corporation; as adaptation need additional financial resources. Unfortunately, financial support for smallholder farmers for implementing adaptation has been too little and too slow in reaching them. Only 500,000 of Nigeria’s agricultural producers have access to insurance where only Oyo state has 415,030 farm families (Oysadep 2012). This implies that The Nigerian Agricultural Insurance Corporation has not been able to improve their quality of products, coverage, liberalize insurance market, allow private players to enter and spur competition and restructuring the mode of their payout due to the incidence of climate change and uncertainty.
The research questions that follow the above problem statements are:
1. What are the the socio economic characteristics of insured farmers and uninsured farmers in Oyo state
2. How does climate change and its risk affects food crops production in Oyo state
3. What are the factor(s) affecting farmer’s crop insurance decision
4. What are the effect of climate change on payout of agricultural insurance corporation in Oyo State
1.3 Objectives of the Study
The general objective of this study is to evaluate the impact of climate change on crop insurance in Oyo state.
The specific objectives are to;
1. To compare the socio economic characteristics of insured farmers and uninsured farmers in Oyo state
2. To analyze how climate change and its risk affects food crops production in Oyo state
3. To determine the factors affecting farmer’s crop insurance decision
4. To estimate the effect of climate change on payout of agricultural insurance corporation in Oyo State
1.4 Hypotheses of the study
Ho1: There is no significant difference between the socio-economic characteristics of the insured and uninsured farmers in the study area.
Ho2: There is no structural difference between the production function of the insured and uninsured farmers.
Ho3: Productivity of the farmers does not have any significant impact on their crop insurance decision.
Ho4: Climate will not have any significant impact on payout of Agricultural Insurance Corporation in Oyo State.
1.5 Justification of the study
Farmers have a long history of responding to climate variability. Traditional and newly introduced adaptation practices can help farmers to cope with both current climate variability and future climate change. However, the debate about the adaptation of small-scale farmers in Africa to climate change has occurred in the absence of knowledge about existing and potential adaptation practices. Because prevailing ideas about adaptation are vague, conducting focused research on potential adaptation practices and formulating appropriate advice for implementing new practices is difficult, therefore it is pertinent to examine the impact climate change on payout techniques of Agricultural insurance corporation
Even without climate change, there are serious concerns about agriculture in Nigeria because of water supply variability, soil degradation, and recurring drought events. A number of Countries face semi-arid conditions that make agriculture challenging. Further, development efforts have been particularly difficult to sustain. African agriculture has the slowest record of Productivity increase in the world.
Experts are concerned that the agriculture sector in Nigeria will be especially sensitive to future climate change and any increase in climate variability. The current climate is already marginal with respect to precipitation in many parts of Africa. Further warming in these semiarid locations is likely to be devastating to agriculture there. Even in the moist tropics, increased heat is expected to reduce crop yields. Agronomic studies suggest that yields could fall quite dramatically in the absence of costly adaptation measures. The current farming technology is basic, and incomes low, suggesting that farmers will have few options to adapt. Presently, public infrastructure such as roads, long-term weather forecasts, and agricultural research and extension are inadequate to secure appropriate adaptation. Unfortunately, none of the empirical studies of climate impacts in Africa have explored what
adaptations would be efficient for either African farmers or African governments. This is a serious deficiency in African impact research, given the importance of efficient adaptation (Mendelsohn 2000).
Although there are well-established concerns about climate change effects in Africa, there is little quantitative information concerning how serious these effects will be. Existing studies cover only a small fraction of Nigeria and few of the African studies include data of actual farmer behavior (adaptation includes responses such as planting dates, harvest dates, use of fertilizer, and crop choice). Hence there is need to examine the impact of climate change in the payout techniques of Nigerian Agricultural Insurance Corporation.In addition, the result of this study will help the government to understand great loss of crop yield as results of climate change variability, and help provide farmers with an effective adaptation measure, and the need to address the payout methods of the Agricultural Insurance policy.
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