Performance of crop insurance and farmers’ willingness to pay: A case of cotton farmers in Tamil Nadu, India

Performance of crop insurance and farmers’ willingness to pay: A case of cotton farmers in Tamil Nadu, India

The agricultural sector in India faces significant challenges due to its vulnerability to climate change and dependence on weather conditions, posing significant economic implications. 49% of the total net-sown area in the country is rainfed, increasing the risks associated with agricultural endeavours. Small and marginal farmers, constituting approximately 80 per cent of the agricultural community, are highly susceptible to farm risks. This often leads to considerable debt accumulation and negative impacts on the overall farm economy. While crop insurance has been identified as a potential solution to manage these risks, an interesting fact is that its adoption remains low due to several reasons. The main objectives of this study were 1) To study the farmers’ awareness and perception of crop insurance and the constraints faced by the insured farmers; 2) To analyse the impact of crop insurance on the technical efficiency of crop production among farmers; and 3) To determine the farmers’ willingness to pay the premium for the index-based insurance. The study surveyed 350 cotton farmers in the Virudhunagar district located in the southern zone of Tamil Nadu, India. The findings revealed that farmers have a basic understanding of crop insurance, however, negative perceptions exist, particularly concerning delayed claims and high premium rates. In addition, the study highlighted the influence of education, organisational membership, and media exposure on farmers' awareness of crop insurance. An inputoriented data envelopment analysis (DEA) reveals that the mean technical efficiency (TE) of the sampled cotton farms was about 66 per cent. The average treatment effects (ATE) highlighted a significant enhancement in TE resulting from the adoption of crop insurance. Insured farmers exhibited a notable 15.3 to 17.3 per cent increase in TE compared to their uninsured counterparts. The multiple price list (MPL) experiment highlighted the prevalence of risk-averse behaviour among the respondents (75%), and 12 per cent of the respondents exhibited a risk-seeking attitude. The results from the risk matrix further emphasised the importance of addressing drought and rainfall as major risks compared to pests and diseases. In addition, the outcomes indicated that 65 per cent of the respondents exhibited a positive disposition towards adopting weather index insurance (WII) as a means to mitigate the financial risks associated with weather parameters. Further, the logit model results revealed that risk attitude and risk perception significantly influence the willingness to participate in WII. The double-bound dichotomous choice (DB-DC) model estimated the mean WTP at Rs. 498 per acre, which increased to Rs. 517 per acre when covariates were included. This study recommends improving communication and outreach, streamlining insurance processes, and leveraging technology to ensure timely claim settlements. Access to microfinance and its integration with insurance systems could empower farmers to invest in advanced technologies. Moreover, the study emphasises the crucial role of farmer groups and grassroots organisations in disseminating information and collectively managing risks.

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