Looking out for a better mitigation strategy: smallholder farmers’ willingness to pay for drought-index crop insurance premium in the Northern Region of Ghana

The impact of climate change and variability on livelihoods of smallholder farmers in Northern Ghana has become severer than ever before. As a result, crop insurance has been advocated as one of the recommended risk transfer mechanisms to support farmers in coping with production risks. We used a multistage sampling procedure to select a sample of 315 farmers from 15 farming communities in the Northern Region of Ghana and obtained from this sample the data needed for the analysis. We then applied the contingent valuation method to the data and evaluated the premium amount maize farmers in the study area are willing to pay for crop insurance under a hypothetical market-based drought-index insurance regime. In addition, we used the binary probit model to identify the drivers of farmers’ willingness to pay (WTP). The results revealed that the premium a maize farmer is willing to pay for crop drought-index insurance is GHS175.25/ha (circa USD39/ha). And while variables such as sex, level of education and perception index unexpectedly reduce farmers’ WTP for weather-index crop insurance, others such as women’s contributions to agriculture, previous farm income and landownership are significant drivers that enhance farmers’ WTP. It is concluded that the premium that maize farmers in the northern region are willing to pay annually per ha of a maize farm is GHS175.25 (USD). The results of the binary probit model revealed that sex, age, education, insurance awareness, regular payment of insurance premium, land ownership, farming methods, farm risk level, the nature of damage caused by an event, women contribution, income and mean perception index of crop insurance are factors that significantly influence the WTP amount for crop drought-index insurance.