Learning from a Publicly Subsidized Agricultural Insurance: Evidence from Bolivia
(2020) , 68 pages
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- Abstract
- Adverse climate shocks negatively affect small-holder farmers in developing countries keeping them trapped in poverty. Such shocks not only affect their productivity and investments, but also force them to divert resources from other priorities like nutrition, children’s education and healthcare leading to long term human capital losses. Located in the Andean region of South America, with an average altitude of 1,192 meters and three distinct ecological zones, Bolivia is particularly vulnerable to the vagaries of nature. Clearly agricultural insurance can provide a much-needed safety net to farmers, protecting them from adverse climate shocks. However, like elsewhere in the developing world, take-up of micro-insurance has remained stubbornly low in Bolivia with only 3.1% of productive units purchasing agricultural insurance. To mitigate the climate risk keeping small holder farmers trapped in poverty, the Government of Bolivia pioneered the PIRWA crop insurance program in the year 2012, to be administered by its National Institute of Agricultural Insurance (INSA). The PIRWA program is a publicly funded, zero-fee insurance program for farmers who own less than 3 ha of land. It guarantees participating households a pay-out of 1000 Bs (146 USD) per hectare in case of damages caused by natural disasters including floods, droughts, hail and frost. Since its inception in 2012, it has been expanding across municipalities in phases, scaled-up in 142 municipalities (out of 339) in the 2015/16 campaign corresponding to 135,450 families insured. For the 2016/17 campaign, PIRWA is expected to be reaching 203 municipalities and around 155,000 families insured in 5,576 communities. In this report, we provide the first impact evaluation of the PIRWA program. While the primary aim of our study is to understand barriers to take-up of agricultural micro insurance, we are able to go beyond take-up and evaluate the impacts of climate change on Bolivian agriculture in general and also evaluate the PIRWA program on other dimensions including productivity and welfare. We put together a comprehensive database on weather shocks, agricultural yields, investments and household welfare variables, drawing on several different sources of data. We evaluate the impacts of weather shocks on agriculture using a municipality level fixed effects model. Similarly, exploiting the phased implementation of the PIRWA program, we estimate its impact using a difference-in-differences (DID) strategy. We supplement our quantitative analysis with 10 focus group discussions in participating and non-participating municipalities, spread across five departments of Bolivia. These qualitative views help in the interpretation of causal effects computed in the quantitative analysis. We find that weather shocks are an important determinant of farmers’ productivity. Both temperature and rainfall shocks have large impacts on farmers’ yields and investments in agricultural inputs. These large effects of weather shocks on yields, do not translate into large effects on welfare as measured by total household expenditure. This suggests that farmers tend to smooth consumption significantly. Demographic characteristics like poverty, agricultural dependence and production of the nine crops which were targeted by the PIRWA program are important determinants of its take-up. Interestingly, extreme poverty, access to sewerage and average schooling reduce take-up. This could be related to the decision of these municipalities to focus on alternative programs instead of PIRWA. We also find that weather conditions are important. Municipalities that had a positive temperature or rainfall shock in the year before the program decided not to enrol in the program. On the other hand, extreme rainfall in the previous year increases take-up. We find that being exposed to the PIRWA program has significant and robust effects on agricultural productivity increasing yields, particularly in municipalities with higher agricultural intensity. It also leads to large increases in total expenditure on agricultural inputs. However, we do not find any effects of access to PIRWA on total household expenditure, food expenditure or food budget shares. This again highlights possible consumption smoothing. On the other hand, we find that PIRWA significantly reduces the incidence of extreme poverty. From our qualitative analysis, we find results which not only reinforce our quantitative findings, but also provide some other interesting insights. In line with the quantitative analysis, we first find that Bolivian famers face widespread climatic risks. Adverse climatic events affect them negatively and climate shocks force them to curtail expenditure. A large proportion of farmers, however, have only vague ideas of what insurance is what it could offer them, sometimes even confusing them with loans. This coupled with their rudimentary perception and understanding of risk pose serious barriers to the take-up of insurance. In general, the farmers express interest in financial education and technical training for management of water, irrigation, seeds, and animals (which they use for diversifying risk). Finally, farmers who are part of PIRWA use the pay-outs for subsistence
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Citations
Armand, A., Daga, S., Machicado, C. G., Nogales, R., Branisa, B., Gomes, J., & et al. (2020). Learning from a Publicly Subsidized Agricultural Insurance: Evidence from Bolivia. International Initiative for Impact Evaluation. https://hdl.handle.net/2078.5/23994