Tropical Agricultural Research (2020) 31(3): 01-10
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Tropical Agricultural Research (2020) 31(3): 01-10 Contents available at: Sri Lanka Journals Online Tropical Agricultural Research Journal Home Page: https://tar.sljol.info Demand for Crop Insurance by Tea Smallholders in Badulla District: An Analysis of Willingness-To-Pay Y.S.M.M.P. Yallarawa1 and D.V.P. Prasada2* 1Postgraduate Institute of Agriculture, University of Peradeniya, Peradeniya, Sri Lanka. 2Department of Agricultural Economics and Business Management, Faculty of Agriculture, University of Peradeniya, Peradeniya, Sri Lanka. ABSTRACT ARTICLE INFO Tea growers face many risks due to weather Article history: Received: 27 August 2019 conditions, plant diseases, price volatility and policy Accepted: 07 November 2019 changes. Crop insurance is one of the potential Revised version received: 06 June 2020 Available online: 01 July 2020 management tools to manage these risks. The purpose of this paper was to investigate the demand for tea crop insurance with respect to factors affecting Keywords: Risk the decision to adopt insurance for tea cultivation. Tea Data was collected from 150 tea smallholder farmers Willingness to pay Badulla randomly selected from three Divisional Secretariat Indexed insurance divisions. Conjoint choices were used to elicit preference for attributes of insurance. The insurance policy was defined by four attributes: damage Citation: assessment rule (index-based, indemnity-based), Yallarawa, Y.S.M.M.P. and Prasada, D.V.P. type of damage (drought, non-drought), premium, (2020). Demand for Crop Insurance by Tea and mode of compensation (by money, by plants). Smallholders in Badulla District: An Analysis of Willingness-To-Pay. Tropical Data was analysed using logistic models. According to Agricultural Research, 31(3): 01-10. the results, age of the farmer, gender, age of cultivation, and asset level were the variables that DOI: http://doi.org/10.4038/tar.v31i3.8392 influenced the willingness to adopt insurance. Yallarawa, Y.S.M.M.P. Drought damage, monetary compensation, low https://orcid.org/0000- 0002-8431- monthly yield, high cost of production and extension 3455 services were significant variables that influenced the level of premium. On the other hand, the significant variables that influenced willingness to buy index- based insurance were drought damage, monetary compensation, age of farmer, and high asset ownership. *Corresponding author : [email protected] Yallarawa and Prassada (2020) Tropical Agricultural Research, 31(3): 01-10 | 2 implemented development activities INTRODUCTION pertaining to lands between 10 and 50 acres under the name of smallholder development Various natural disasters such as floods, (Sri Lanka Tea Board, 2015). Esham and droughts and excessive rainfall have affected Garforth (2013) have stated the presence of a agriculture sector in Sri Lanka during the vague definition for tea smallholder category recent years. Unexpected changes in climate in Sri Lanka. patterns have worsened the situation. In order to combat the risks, promoting effective risk The average productivity of tea plantations in management among farmers is important. Sri Lanka has shown an overall increase since There are several ways of risk management. 1930s even though there have been Those are avoiding risks, reducing risks and fluctuations between years. The productivity sharing risks. Risk sharing in the form of of tea lands is greatly influenced by rainfall insurance has received much consideration and temperature (Wijeratne et al., 2007). but shows poor adoption at the farmer level Being a rain fed plantation crop in Sri Lanka, (Tadesse et al., 2015). Farmer unawareness tea depends greatly on weather for optimal seems to be a major barrier for taking up growth. Therefore, both levels and the insurance in the rural areas (Hazell, 1992). volatility of weather conditions affect tea production (Wijeratne, 1996). Heavy rainfall Tea was first introduced in 1824 to Sri Lanka typically causes considerable damage to tea and Ceylon tea has received special attention plantations through soil erosion, poor growth in the world tea market for over the last 100 due to lack of sun, and increase in disease years. In Sri Lanka, tea is classified into low- incidence. Old seedling tea stands, pruned tea country, mid-country and up-country, on the fields, and young tea fields during the first two basis of elevation. The up-country holdings are years are more vulnerable to soil erosion due located above 1200 meters. The mid-country to inadequate ground cover. It has been and the low-country holdings are located estimated that more than 30 cm of top soil has between 600-1200 meters and below 600 already been lost from Sri Lanka's tea meters respectively. The tea produced in these plantations, especially in the uplands regions are referred to as high-grown, mid- (Krishnarajah, 1985). The main climatic grown and low-grown tea respectively. There variables influencing the yield of tea are are other spatial identities such as Uva tea temperature, the saturation deficit of the air (signifying that tea is grown in Uva province and, through their influence on plant and soil which has a unique agro-climate). For a water deficits, rainfall and evapotranspiration number of developing countries such as Sri (Carr and Stephens, 1992). Lanka, tea is important in terms of employment and export earnings. Tea sector Tea is one of the largest exchange-earning earns 18 percent of total export earnings of the industries in Sri Lanka, upon which a large country (Central Bank of Sri Lanka, 2018). Tea number of families are dependent. However, production techniques are labour intensive the real value of primary producer prices has and the tea sector provides around 10 percent fallen sharply over the past decades and this is employment opportunities to Sri Lankans observed in the tea sector as well. Low output (Wijayasiri et al., 2018). prices have created pressure on the sustainability of the tea sector, negatively Tea is cultivated in plantations or in affecting the livelihood of the plantation smallholder plots. In Sri Lanka, there is an workers and leading to poor working increasingly higher percentage of tea coming conditions (Perera, 2014). The literature on from smallholders replacing the earlier tea smallholders in Sri Lanka have identified dominance of plantation-grown tea. There are several constraints related to productivity, several definitions for a tea smallholder in Sri technology and government support. Studying Lanka. According to the Tea Control Act no 3 issues related to business development of tea of 1983, tea lands less than 10 acres are smallholders in Sri Lanka linked to technology considered smallholdings (GOSL, 1983). transfer, Samaraweera et al. (2013) found that However, at times, the Sri Lanka Tea Board has level of technical knowledge as very poor Yallarawa and Prassada (2020) Tropical Agricultural Research, 31(3): 01-10 | 3 among tea smallholders. They noted that tea condition, i.e. flood or drought, in addition to smallholders had minimal knowledge related other biological risks. Collectively, the effect of to pest and disease management, planting natural factors has made agricultural output material selection and nursery management, highly variable (Mishra et al., 1996). In which are vital for achieving high productivity. addition, market risks associated with both on Poor extension service in the tea smallholder the input market side and output market side sector was also a key drawback (Samaraweera generate risks to all stakeholders in the supply et al., 2013). Problems related to tea extension chain. Measures such as micro-insurance or services were identified by Karunadasa and crop insurance have been suggested as risk Garforth (1997). management strategies. Crop insurance is one of the alternative tools Insurance is important for economic that could be used to manage risk in yield loss development because uninsured losses lock by the farmers. Primarily, a crop insurance is a vulnerable populations in poverty. means of protecting farmers against the Unfortunately, agricultural insurance and variations in yield resulting from uncertainty disaster insurance are either unavailable or of factors beyond their control such as rainfall prohibitively expensive in many developing (drought or excess rainfall), flood, hail, wind, countries (Miranda and Farrin, 2012). Kumar pest infestation, etc. Crop insurance is a et al. (2003) indicated that crop insurance is financial mechanism to minimize the impact of the best tool in sustaining income stability of loss in farm income by factoring in a large the farmers, which in turn facilitates number of uncertainties, which affect the crop technological advances, investments and yields. It is a risk management alternative credit facilities in agricultural sector. Skees et where production risks are transferred to al. (1999) have emphasized that other another party at a cost. mechanisms (non-insurance) lead to depletion of public funds. In an early Annual crops are the usual targets for publication, Crawford (1979) highlighted the insurance. However, perennials could be problems faced by developing countries in equally vulnerable. Tea producers face many implementing crop insurance, limiting both risks due to weather conditions, plant the probability of success and the level of diseases, price volatility, and policy changes to benefits realized. name a few. Among the recent factors threatening the tea industry, drought and Index insurance is a relatively new and landslides