Coping with risk and climate change in farming: exploring an Index-based crop Insurance in Burundi

Summary

A large part of the Burundian population lives in rural areas with nearly 90% of the population depending on agriculture for food and income. Land productivity has been declining over time due to the depletion of soil fertility and increasing soil erosion. Climatic hazards, mainly excessive rainfall, droughts, pests and diseases cause large losses in agricultural production that affect the living conditions of both producers and consumers. The main challenge is how to manage land more sustainably and enable farmers to cope with these risks that undermine their agricultural production, as such finding strategies that stimulate agricultural investments.

Facing this challenge, the objective of this thesis is to shed light on factors influencing investments in sustainable land management (SLM) and to what extent an index-based crop insurance (IBI) helps farmers to overcome risks associated to farming. To reach this objective, four research questions were formulated and the results are presented in six chapters.

The introductory chapter 1 sets the scene and delineates the problem statement. It briefly explains the land degradation problem in Burundi, potential SLM investments (i.e., practices) farmers can undertake, the risks related to farming, and conceptual aspects of crop insurance and an IBI in particular.

Chapter 2 examines the factors influencing the SLM investments using a multinomial logistic regression (MLR) model. The results indicate that farmers from the study area experience severe land degradation which is manifested by soil erosion and soil fertility depletion. The results of the MLR model show that the occurrence of soil erosion, access to credit, time spent by the household head in farming, and age of the household head, all increase investments of households in SLM. Hence, in order to enhance farmers’ investments in SLM practices and more effectively cope with land degradation, this chapter suggests that decision makers should particularly focus on improving farmers’ access to credit markets and on strengthening their management skills.

Chapter 3 analyses the risks associated with farming and households’ coping strategies, using a path analysis model. The results of the risk perception index (RPI) indicate that droughts (0.59), flooding (RPI=0.49), and pests and diseases affecting both crops (RPI=0.50) and stored products (RPI=0.34) are perceived as most severe in the study area. In terms of households’ coping strategies, the ex-post coping strategies are the dominant mechanisms in the study area. However, most of these coping strategies are survival mechanisms with limited mid and long-term effects, such as sale of assets (e.g., radio, television, phones, jewellery). This chapter suggests that in order to support farmers to adapt to long-term climate variability it is crucial to provide them with information and train farmers on better risk management strategies.

Chapter 4 assesses the effect of the village savings and loan associations (VSLAs) on IBI adoption under limited liabilities. It highlights the determinants of IBI adoption using difference-in-difference and multinomial logistic regression models. The results show that VSLAs are the key entrance financial structures in fostering IBI adoption and as a result members of VSLAs who save money collectively for premium payments and who regularly attend VSLA meetings were more likely to adopt crop insurance. In addition, VSLA members trained on both land and crop management and those running their farm with the integrated farm planning (PIP) approach are more open to IBI adoption. However, the limited liability associated with the IBI as designed in this study slows down the level of adoption. This chapter suggests that given the unprecedented role of VSLAs in fostering IBI adoption, their mode of operation should be enhanced with a particular emphasis on collective savings for insurance payments.

Chapter 5 analyses the links between IBI adoption and agricultural investments, using a multivariate regression model. The analysis compares IBI adopters and non-adopters. The results indicate that adopters invest much more in chemical fertilizers and land and crop management practices than non-adopters. In addition, the average treatment effect for adopting an IBI amounts to US$ 10.19 per season and per farmer for chemical fertilizers, and to US$ 3.99 for land management. However, the results did not show differences between IBI adopters and non-adopters concerning crop diversification and the use of organic fertilizers. This chapter suggests that – next to promoting IBI adoption – additional activities (such as enhancing farm inputs availability and improving access to credit for low-income farmers) are needed to further and more quickly transform Burundian agricultural towards sustainability.

Chapter 6 provides the synthesis of the thesis. This chapter discusses and summarizes the main findings and it highlights the limitations and research contribution to both science and society. It concludes that Burundian agricultural faces enormous risks related to climate change and that farmers have been resorting to survival mechanisms for a long time due to the lack of adequate strategies. The newly introduced IBI approach has enabled farmers to cope with risks that were previously out of farmers’ control, although the adoption rate is relatively low, especially for those farmers with low incomes. The VSLAs were found to be essential community-based financial structures in stimulating the IBI adoption. Furthermore, expenditures incurred in the implementation and maintenance of certain SLM practices in dealing with land degradation remain major challenges faced by farmers in the study area. To support farmers’ investments in more resilient and productive agriculture, this thesis suggests that VSLAs should be strengthened and supported, particularly with regard to saving collectively for premium payments, and by means of subsidized risk premiums for low-income farmers.