Cocoa life insurance
Former Humboldt fellow Dr Victor Owusu wants to improve the welfare of Ghanaian cocoa farmers. Innovative crop insurance products can help them overcome income fluctuations and production risks.
Dr. Victor Owusu
Although cocoa contributes much to the domestic economy, it remains a kind of black hole in research regarding economic incentives that would protect farmers against crop losses, as Owusu explains: “We decided to concentrate on cocoa because it is one of Ghana’s most important export goods. But it is still an area people have not actually looked at.” In Ghana and most parts of sub-Saharan Africa, smallholder farmers face a lot of weather uncertainties and production risks, which affect prices and yields.
For instance, farmers from the northern part of Ghana are highly vulnerable to unfavourable climatic conditions. Owusu asserts: “It´s very dry in the north and they only have one rainy season, compared to farmers in the south who have two rainy seasons and can harvest twice a year.” As cocoa trees grow best in a humid environment, farmers in the south have an advantage. Apart from the problem of basic risk, simple rainfall index insurance may not be suitable for cocoa farmers. “Instead of focusing on indexed crop insurance, it would be better to specifically design suitable crop insurance products which could minimise the problems of moral hazards and adverse selection”, Owusu sums up his experience.
“Agriculture forms the backbone of the economy of Ghana. If you improve agriculture, you improve the whole Ghanaian life.“
Since crop insurance is currently not developed in Ghana, the problems need to be addressed from the individual farmer’s perspective. Owusu’s approach was to present different crop insurance programme scenarios to randomly selected cocoa farmers in two cocoa producing regions in Ghana. He designed three insurance types, changed the price and mode of payment, the duration and the kind of insurance agency.
“Our survey showed that farmers in Ghana are very heterogeneous in their preferences.” After interviewing several hundred farmers, Owusu identified factors that would influence cocoa farmers’ participation in crop insurance programmes. “We found out that the more educated and wealthier farmers are more likely to participate. The same goes for farmers with other employment apart from farming. Production risks and credit constraints, as well as the usage of chemicals also influence the likelihood”, says Owusu.
After returning to Kwame Nkrumah University of Science and Technology in Ghana, the next step is to promote the novel findings from his research. Owusu is going to make recommendations to relevant stakeholders in the cocoa subsector in Ghana, including policy makers, relevant institutions and nongovernmental organisations: “My hopes are very high but the effort depends on the important stakeholders – and how they embrace the results. We need their support to develop and promote innovative crop insurance products for the farmers.”
In Kiel, he was able to rely on the support of the university admini stration and the people, Owusu remembers: “My life in Kiel was very pleasant and exciting, especially when my children visited me. They enjoyed the time as guest students here. Germans are very friendly and things are well structured and organized.” Owusu is now looking forward to spending more time with his family and to continuing with research and teaching at his home university. Professor Awudu Abdulai and Dr Victor Owusu have been collaborating for some time now and they will be continuing their work on improving the welfare of Ghanaian farmers. “Coming back to Ghana is like skill and knowledge transfer. My students, academicians and the entire nation are going to benefit a lot.”
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