Chapter One

Introduction

1.1 Background to the Study

The agricultural sector is a major economic sector and a critical source of livelihood in many developing countries (Mahul, 2011). Agricultural production has long been characterized by risk and exposure to such perils as drought, flood, fire outbreaks, and pests and diseases (Phillip and Ezeh, 1988). Risks and uncertainty have adverse effects on the effectiveness of decision making, particularly as relating to input use and output supply (Agadaet al., 1997). As a result, farmers in every agricultural system have remained largely active, devising ways to cope with the various unfavourable events within their production settings (Phillip and Ezeh, 1988

While risk elements have differed with commodities, places, and even time, the consequence has largely been reflected unambiguously in non-optimal allocation of resources at farm levels. Actually, in the case of empirically more prevalent risk-averse behaviour, farmers have responded to risk by under-employing resources and, of course, under-supplying outputs (Phillip and Ezeh, 1988).

Natural and biological events, often of catastrophic and epidemic proportions, some of which have potential for recurrence, have been witnessed in Nigeria. Examples include: (i) the drought, which caused considerable financial losses in crops and livestock, and (ii) the attack on groundnut crop by aphids, which both occurred in the early 1970s. These two prominent events together contributed immensely to Nigeria‟s exit from the World groundnut market (Phillip, 1988).

Other events which have occurred during the past decades, and could therefore be regarded as risk elements in the Nigerian agricultural sector include erosion and flood in the southern parts of the country, locust attacks on crops in the northern (especially the semi-arid) parts, and the ravaging of farmlands by accidental fires, particularly in the savannah (grassland) areas of the country (Phillip, 1988). Several more cases can be cited to press the point that agricultural production in Nigeria, like in most other ecological sub-regions in the world, is characterized by risk elements, many of which have (and could still) manifest themselves unfavourably (Phillip, 1988).

Insurance has long been identified as one of the logical options, whenever an economic activityis subject to knowledge imperfection that is no more than risk (Heady, 1952). Essentially, when a farmer buys an insurance policy, he sells his risk to the insurer. The farmer moves out of a risky world into certainty with respect to the peril he insured against. If the farmer suffers a loss, he receives compensation according to the terms of the insurance policy. Otherwise, he keeps his earnings, less the amount paid as premium (Hey, 1979).

1.2 Statement of Problem

Insurance is one of the tools that farmers and other stakeholders can use to manage risks that are too large to manage on their own (risk layering) (World Bank, 2011). Part of that risk is transferred to another party, who takes it in return for a fee (or premium). Where available and affordable, agricultural insurance (crop or livestock) can provide great benefits to farm households (World Bank, 2011).

At present, most households in Africa do not buy insurance for a variety of reasons, namely: (i) people are unaware of the availability of insurance; (ii) insurance products are not well designed for them; (iii) people cannot afford to buy currently available services; and (iv) people consider insurance schemes dubious because of the well-known inefficiencies and delays in claim processing (Markowski, 2001).

1.3 Research Questions

What are the socio-economic characteristics of the respondents in the study area?

What is the proportion of respondents that are aware as well as participating in Nigerian Agricultural Insurance Scheme?

What are the socio-economic characteristics of farmers influencing participation in Nigerian Agricultural Insurance Scheme in the study area?

What is the impact of participation in Nigerian Agricultural Insurance Scheme on farmers‟ income?

v. What are the problems associated with extension of Nigerian Agricultural Insurance Scheme in the study area?

1.4 Objectives of the Study

The general objective of the study is to evaluate farmers‟ participation in Nigerian Agricultural Insurance Scheme in Kaduna State. The specific objectives are to:

 To describe the socio-economic characteristics of the respondents in the study area.

 To determine the proportion of respondents that are aware as well as participating in Nigerian Agricultural Insurance Scheme.

To determine the socio-economic characteristics of farmers influencing participation in Nigerian Agricultural Insurance Scheme in the study area.

To determine the impact of participation in Nigerian Agricultural Insurance Scheme on farmers‟ income.

To identify and describe the constraints associated with implementation of Nigerian Agricultural Insurance Scheme in the study area

1.5 Significance of the Study

In many developing countries, farmers operating all sizes of farms retain the risk of crop and livestock losses (Herbold, 2010). The occurrence of unfavourable events in agriculture could be accompanied by substantial costs to society, if there are no proper risk management and reallocation of risk-bearing (Phillip, 1988). Akinola-Bello (1985) argues that protection against financial losses through insurance enhances (i) the efficiency of resource allocation; (ii) the productive capacity of society; and (iii) confidence in business transactions.

 Appropriate risk management tools for agriculture such as agricultural insurance systems are, therefore, critical for agricultural development. In order to contribute to knowledge on agricultural insurance in Nigeria, it is important to determine, amongst other objectives, the extent of participation of farmers in the scheme, farmers‟ preferences of insurance cover for crop, livestock or both enterprises, the impact of the scheme on farmers‟ income and to obtain quantitative estimates of the factors influencing participation in agricultural insurance schemes and to assess the 6 policy implications for further development of the schemes. It is envisaged that the results of this study will provide useful information on the workings of agricultural insurance schemes to farmers, policy makers, researchers, government agencies, the general public as well as international agencies interested in the improvement of agricultural production and rural development through the development of innovative and sustainable agricultural insurance products and services. This will help address some of the problems of rural-urban migration, poverty, and food insecurity in the rural sectors of developing countries.

1.6 Scope of the Study

The study examines the problems and prospect of extending insurance services in rural areas with case study 0of Oba in Anambra state. Due to the complexity of the insurance service and also with reference to the study area which is a rural setting, the study will focus on Agricultural insurance scheme or services provided to rural farmers.