Examining Underinvestment in Agriculture

Jessica KiesselIPA Ghana Country Director

Innovations for Poverty Action

3ie Rome - April 2012

From Research to Policy

A few models of using results:1. Organizations that IPA works with to evaluate a

program scale can scale it up afterwards2. Programs that IPA designed and evaluated are

adopted by implementing organizations in the same country

3. Programs that were evaluated and shown cost-effective are adapted to a different country/context

Examining Underinvestment is an example of the 2nd and in the process has become an iterative research project 2

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Ghana• Maize farmers, often

intercropped with groundnut

• Light input use– MoFA recommended

package 60 cedis/acre of chemical inputs

– Sample median 7; 25%=0

• Yields– Recommended package

1000 – 1500kg/acre– Sample: 200 kg/acre

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Why do farmers invest so little?

Typical response from farmers as to why they do not use hybrids + fertilizer?•I don’t have the money : Capital

constraint•It’s too risky – hybrids don’t do well

with too little rain: Risk averse

How can you address these problems? Cash Grants Weather Index Insurance

Examining Underinvestment in Agriculture: Empirical Design

Researchers: Chris Udry, Dean Karlan, Robert Osei, Isaac Osei-Akoto

Why do farmers underinvest in their farm?1. Hypothesis 1:

Farmers are capital constrained

2. Hypothesis 2: Farmers are risk averse

Design• Year 1:

– Capital drops– Free Weather Index

Insurance– Capital + Free Weather

Index Insurance • Year 2:

– Same groups, but price of insurance randomized

Weather Index Product - Takayua

• First weather index insurance product in Ghana

• Designed to cover maize farmers from excess rainfall and drought

• Year 1: FREE • Year 2: 1, 4, 8, 9.5, 12,

14• Capital (2009: 50

GHC/acre, 2010: 300/farmer)

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Take up of Takayua Insurance 2010

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0 1 4 8 9.5 12 140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Price per Acre (GH Cedis)(Act. Fair = 9.5)

Take up of Free insurance in 2009 was 100 percent

EUI – Initial results• Farmers substantially increase their investment in

farming with I, especially with both I and K. There is no evidence that farmers respond to K.

• For a K + I farmers: • Increased cash expenditures for field prep and

chemicals is about half the value of K• Increase household labor substantially• Cultivated land goes up as well, in proportion to

other inputs. Virtually no intensification• Output increases enough to cover the additional

purchased inputs, but not enough to cover the value of additional labor.

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Implications

• Relaxing the credit constraint alone will not sway farmers to increase farm investments

• Implications for providing capital in cash and/or inputs to farmers• Insurance engenders increased investment and

harvest value• This effects is even higher for those who received

insurance and capital. • Households are willing to pay for insurance despite

the basis risks

The 2010 search for reinsurance:Agricultural Insurance in Ghana

Outreach Activities to share results and lessons learned marketing:

• Conference presentations• Project description, proposals, policy

docs• Meetings

Players:• Ghana Insurers Association• Insurance Companies• The National Insurance Commission

(NIC) • The German International Cooperation

(GIZ)• Ghana Re, Swiss Re

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Encouraging development of Commercial Agricultural Insurance • Lessons learned on marketing and our

results on take up and encouraged development of commercial agricultural insurance

• 2011 Pilot Drought Index Insurance designed for maize farmers in northern Ghana

• Covered by GIA, Ghana Re and Swiss Re• Sold to banks to cover aggregate loan

portfolios• And just in the knick of time EUI farmers

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GIA: Drought Index Product -Sanzali

GHC 3 GHC 6 GHC 9 01020304050607080 70.1

55.7

37.4

Demand (%) - Tamale & Savelugu

**note – charts have different scales

GHC 3 GHC 6 GHC 982848688909294 93.2

89.3

86.4

Demand (%) - Walewale

• Considerable challenges remain in scaling up insurance• Additional research with GIA is planned to provide

information on:– Willingness to pay – Product performance– Basis risk– Farmer perception of product– Agricultural investment, overall wellbeing

• In 2012: We will test group marketing and variations in education

• In the future: we plan to do an impact evaluations with cost benefit analyses of potentially sustainable models of scaling up

Scaling up Agric Insurance

Examining Underinvestment – Phase 2

Identified constraints to agricultural investment

Tested role of risk

and capital

Shared initial

results

Explore questions

on profitabili

ty• Conducted

focus groups & background research

• Consulted local experts and stakeholders

• Identified central questions

• Worked with informal partners to design treatments

• Provided capital and insurance

• Collected information on investment and yields

• Presented key results – hosted conference, met with stakeholders

• Sought feedback on results

• Identified additional constraints

• Conduct operational pilots on input and education programs

• Work with MoFA to test methods to improve profitability

2009 – 2010 2010 - 2011 2011 - 2012 2012 – ____

What are the barriers to profitable returns in a context of reduced risk?• Test intensified agric extension and increased access to high return tech• 2012 Operational Pilot - Intensified agricultural extension with MoFA

EUI Team

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