Developing Advanced Index Insurance for Small-Scale Farmers in Ghana
In Ghana, small-scale farmers who rely on rain to grow their crops are increasingly at risk of drought. It’s also this risk of drought that keeps farmers from producing bigger crops even when the rains are good.
The Feed the Future Innovation Lab for Assets and Market Access has just launched a new project in partnership with the Ghana Agricultural Insurance Pool (GAIP) to improve the quality of agricultural index insurance available to the nation’s small-scale farmers. The improved insurance could improve crop yields, incomes and livelihoods for farmers who produce a majority of the nation’s food.
“Improved index insurance could help to promote the adoption of advanced production technologies, access to credit and overall welfare for small-scale farming families,” said Richard Gallenstein, an assistant professor of economics at The Catholic University of America and the project’s principal investigator.
The Potential for Improved Index Insurance in Ghana
Agricultural index insurance has shown significant promise as a way for small-scale and subsistence farmers to guard themselves against a drought or flood that wipes out their crops. Index insurance avoids the cost of verifying losses by basing payouts on an easy-to-measure index of factors, such as weather or average yields, that predict individual losses.
As a tool for development, research has shown that agricultural index insurance works in two ways. First, it provides a safety net so farmers who lose their crops can avoid cutting meals or selling assets. Second, farmers who know they are protected by the insurance tend to invest more for higher yields and income in good years.
To build improved index insurance products for Ghana, Gallenstein and his team will draw from prior Innovation Lab projects led from The Ohio State University by Mario Miranda and from Yale University by Chris Udry, who is now at Northwestern University. Those projects produced detailed household data and historic market prices that will establish the accuracy of the new index insurance products.
The team will also partner with remote-sensing experts at UC Davis and The Ohio State University who are at work on an initiative to improve index insurance quality across East Africa.
Piloting Improved Index Insurance in Ghana
In addition to improved index insurance products, the team will work with GAIP to pilot the new index insurance to small-scale farmers. GAIP, the exclusive private-sector provider of agricultural index insurance policies in Ghana, has offered drought index insurance to northern small-scale farmers since 2011. In June 2018, GAIP paid nearly $133,000 to insured farmers to pay off loans for inputs they otherwise would owe despite losing their crops.
“For several years we had discussions with GAIP about the strides they have been making with index insurance,” said Tara Chiu, assistant director of the Innovation Lab. “We are excited to partner with them to innovate the best possible products for small-scale farmers in Ghana."
The project, “Developing Advanced Index-insurance Products for Ghanaian Smallholder Farmers,” is an initiative of the Innovation Lab’s USAID-supported award “G8 Enabling Action on Risk: Advancing Index Insurance.”