Quantification of basis risk in weather index crop insurance in Northern Ghana

Résumé fourni par la source

Weather index insurance (WII) has been proposed as an effective risk transfer measure against extreme weather events affecting smallholder farmers in Sub-Saharan Africa. Despite the potential of this insurance type to stabilize farm income under extreme weather conditions, subscription rates by farmers have been very low. One of the reasons for the low subscription is basis risk, which relates to mismatches between payouts and losses, leading to misunderstanding and distrust on the part of farmers. Using an integrated bio-economic modelling approach for Northern Ghana, we quantify basis risk arising from three misalignments: spatial mismatch in rainfall inputs, temporal mismatch due to heterogeneity in planting dates, and biophysical mismatch linked to soil water-holding capacity (proxied by soil depth). Spatial basis risk was assessed by adjusting the daily precipitation data decreasing the values by up to the 10th percentile and increasing them up to the 90th percentile compared to the reference. For temporal basis risk planting dates were varied by delaying them by 7 to 21 days and increasing them by 14 days. To assess the sensitivity of index performance to soil variability, reference soil depths were increased and decreased by 30 cm. We evaluate insurance performance on maize crops using household outcomes (gross margin and assets). Results show that misalignment can substantially weaken risk protection, with the largest effects in product basis risk where soil water storage differs from insurance contract reference assumptions. Consistent with prior work, our results reinforce that WII contracts should align with local agronomic and environmental conditions; we add incremental evidence by quantifying how residual misalignment, especially soil-depth heterogeneity and planting-date shifts can weaken protection in shock years.

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