Farmers' Perception and Awareness and Factors Affecting Awareness of Farmers Regarding Crop Insurance as a Risk Coping Mechanism Evidence from Pakistan

Sidra Ghazanfar，Zhang Qi-wen*，Muhammad Abdullah，Zeeshan Ahmad，and Majid Lateef

1College of Economics and Management，Northeast Agricultural University，Harbin 150030，China2College of Economics and Management，Northeast Forestry University，Harbin 150040，China

Farmers' Perception and Awareness and Factors Affecting Awareness of Farmers Regarding Crop Insurance as a Risk Coping Mechanism Evidence from Pakistan

Sidra Ghazanfar1，Zhang Qi-wen1*，Muhammad Abdullah1，Zeeshan Ahmad1，and Majid Lateef2

1College of Economics and Management，Northeast Agricultural University，Harbin 150030，China
2College of Economics and Management，Northeast Forestry University，Harbin 150040，China

This study has been conducted in three districts of Punjab Province namely，Dera Ghazi Khan，RajanPur and Bahawalpur of Pakistan. The study showed the results of a survey of 300 farmers which was organized to assess awareness level of farmers regarding crop insurance，factors affecting the awareness level among farmers and the perception of farmers about crop insurance. Based on exploratory research work upon the responses of farmers，the average and standard deviation were calculated. Probit model was applied to explore the factors affecting the awareness level of farmers. SPSS was used for the analysis of the collected data. The results revealed that out of 300 farmers，184 farmers were aware with crop insurance and rests of the 116 farmers were not aware. Banks and E-media were found to be the two most important sources of the awareness for the respondent farmers. In the study area，the climatic risks were reported as the most severe risks faced by the farmers. The results also revealed the existence of negative perceptions of the farmers about crop insurance i.e. farmers perceived crop insurance as a kind of tax and they believed premium was so high that it was out of range of poor farmers and only large scale farmers could afford it. Results obtained by applying Probit model revealed that "education" and "previously availed agricultural credit" were the two most important factors which affected the awareness of the farmers regarding crop insurance.

crop insurance，awareness，perception，agricultural risk，climatic risk

Introduction

Agriculture always tends to be a major sector of the economy of Pakistan，which contributes to the growth of economy by contributing about 21.4% to GDP and engages almost 45% of labor-force （GOP，2013），but unfortunately there has been seen a huge decline in agricultural production and in farm income due to increasing resource constraints，rising production cost，limited expansion of agriculture land vagaries of the weather patterns which leads to floods，drought，land scraping and cyclone. According to economic survey of Pakistan，agriculture sector has recorded decline in a growth of about 2.1% as compared to the growth of 2.9% in last year and this decline happened，due to extreme weather conditions （GOP，2014）.

Miranda and Glauber （1997） revealed in their study that crop insurance markets are more divulged to uncertain climate conditions. Variability of climate leads to more frequent and extreme catastrophicweather events which in turn lead to increase the volatility of farm income and crop yield. Due to the systemic nature of these yield risks，there is an urgency to develop future crop insurance markets.

O'Brien et al. （2004） explained that farmers in developing countries confront with multiple hurdles such as plant diseases，droughts，change in policies and market fluctuations. So Adger and Vincent （2005）suggested that farmer's intimacy about adaptation processes is of a great concern to spot out vulnerable circumstances and to suggest suitable adaptation policies for them. Changes in climate directly influence the life，livelihood，infrastructure and asset of a country and indirectly influence the growth of the economy. Hence all these stressors related to climatic change and agriculture influence the life of a poor farmer as these all seem to reduce his farm production and income.

According to a World Bank report，there is an urgent need to protect the farmers from financial losses which occur due to climatic uncertainties （World Bank，2011）. Hence in this scenario where agriculture is facing the insecurities in terms of its farm production and farmer's income due to weather uncertainties，there is a need to introduce a financial instrument which provides protection to farming sector against these insecurities and no doubt crop insurance is one of the best financial mechanisms which can work in this situation. Raju and Chand （2008） mentioned in their study that crop insurance not only helps the farmer to secure their farm income but it also encourages them to again go for cultivation of their crops in case of having a bad experience in last year as crop insurance insured a minimum amount of protection to farmers in case of loss.

Similarly a well-planned and well implemented crop insurance scheme can protect a large number of small and marginal farmers from fatigue by encouraging them to increase their farm production and by stabilizing their farm income （Bhende，2002）. Further，farmers may also go for improved and uncertain advanced technology，when they feel that they would be compensated in case of failure （Hazell，1992）. Hence this would increase value added to production and farm income.

In general，intention to go for more risky production and technologies depends upon the farmer's attitude so to make positive attitude towards crop insurance，farmer's awareness about crop insurance program and how it will facilitate and the perception about the procedures and benefits of the crop insurance scheme play an important role towards the successful implementation of the scheme.

Crop Insurance Sector in Pakistan

Currently crop loan insurance scheme （CLIS） is running in Pakistan. All the farmers who borrow loan from designated banks are obliged to get insured under this scheme. This program is providing insurance for five major crops named as wheat，cotton，sugarcane，rice and maize. This scheme provides the protection to crops against the risks of weather extremes and attack of insects. This agricultural loan is extended through different authorized commercial and agricultural banks in Pakistan. But，unfortunately according to general manager of a bank in Pakistan，lacking of awareness among farmers is a big challenge for the designing and implementation of the scheme （Agrifin，2013）. The second crop insurance program running in Pakistan is an indexed and hybrid weather micro insurance scheme which was introduced by Pakistan Poverty Alleviation Fund （PPAF） in 2012. This scheme was introduced at limited areas i.e. Soon Valley （Located in Khushab district） and Talagang （Located in Chakwal district） of Punjab Province for wheat crop. These areas consist on arid agricultural land so rainfall index insurance was introduced here （PPAF，2013）.

Research Objectives

（1） To identify and rank the major risks associated in crops production in the light of farmers' response.

（2） To evaluate the perception of farmers towards the traits of crop insurance program.

（3） To find out the sources which play role to bring awareness among the farmers.

（4） To identify the factors which affect the awareness level among the farmers.

Materials and Methods

The present study was conducted in Punjab province of Pakistan. This province has an area of 205 344 square kilometers and is called the homeland of five rivers as five rivers irrigate this province. Extensive irrigation can be observed in this province of Pakistan as this province possesses the largest irrigation system of the world. Weather extreme can also be seen in this province （Provincial Disaster Management Authority，2008）.

For this study we selected three districts of Punjab Province namely Dera Ghazi Khan，RajanPur and Bahawalpur because these districts are declared as the highly vulnerable locations regarding the natural hazards like flood and drought by the disaster risk management Punjab，Pakistan （Provincial Disaster Management Authority，2008）. From the each selected district，two tehsils were randomly selected hence total six tehsils were selected and from each selected tehsil，50 farmers were randomly selected for this study； hence a sample of 300 farmers was obtained for this study from July 2014 to August 2014.

The data for this study was collected using a survey conducted based on a formal questionnaire. The questionnaire was divided into two parts. The first part covered the questions investigating the socio-economic characteristics of the farmers and the second part covered the questions about the perception and awareness of farmers regarding the crop insurance in the study area. Wherever needed，descriptive statistics tools like average & standard deviation were used. For the measurement of the importance of sources providing the awareness，a five degree likert scale （1=least important and 5=most important） was used and mean and standard deviation scores were extracted. In order to identify the factors which affect the awareness level，we applied Probit model. We selected this model because the awareness regarding crop insurance is a qualitative dependent variable and is measured as a dummy variable hence we cannot use Classical Linear Regression Model （CLRM）. Keeping in mind that Logit and Probit models produced almost the same results for large samples，Asteriou and Hall （2007） have mentioned that Probit model is more sophisticated than Logit model. Here in this research paper we have a dichotomous dummy variable as dependent variable so we applied Probit model. Also this model provides solutions to the problems of nonnormality of residuals，heteroskedasticity and a smaller R-square so we selected and applied this model for our study. For this study，Probit model was specified as shown below

Where:

Awri=Awareness about crop insurance. A dummy variable measured as 1 for aware farmer and 0 otherwise.

CAi=Credit availed by a farmer and it is measured as 1 for credit availed and 0 otherwise.

Edui=Education level of a farmer.

Agei=Age of farmer.

Disi=Discussion with other farmers is a dummy variable which is 1 for discussion with other farmers and zero otherwise.

E-mediai=E-media is a dichotomous dummy variable that is 1 for those farmers who are using E-media otherwise 0.

Expi=Experience of a farmer is categorical variable that is measured in years.

LHi=Landholdings of a farmer is a categorical variable that is measured in acres.

NPi=Newspaper reading is a dichotomous dummy variable that is 1 for those farmers who are using newspaper otherwise 0.

εi=An error term.

Results and Discussion

Demographics of respondent farmers

The demographic profile of the sample respondents isgiven in Table 1.

Table 1 regarding the demographic variables shows that majority of the farmers were falling between the age group of 36-50 years，majority of the farmers had at least primary level education. More than half respondents had never availed the agricultural credit from the government crop loan insurance scheme and almost 78% farmers had land holdings less than 10 acres.

Risks faced by farmers in agricultural activities

Farmers were asked to point out all the risks associated to their crops and rank them on five point scale on the basis of the severity of the risk. According to the farmers； floods，drought and variation in rain fall were the most important risks，which were the most hazardous to their crops with the mean values of 4.5，4.0 and 3.5，respectively. The details are shown in Table 2.

Table 1

Table 2　Ranking of risks with respect to the severity considered

Awareness level among farmers

The farmers were asked whether they knew about the features，procedures and benefits of crop insurance scheme or not. A total of 184 farmers （almost 61%） out of 300 replied positively and mentioned that they had idea about crop insurance scheme，while 116 （almost 39%） farmers replied that they did not know anythingabout crop insurance. Results are shown in Table 3.

Perception of farmers about crop insurance program

The farmers of the sample who responded that they were aware with crop insurance were further asked to describe their perceptions about crop insurance program. They were asked to rate the pre defined items at a five point likert scale as well as they were given an option to add any further point stating their perception regarding crop insurance and to rank the newly added perception variable along with existing perception variables. The results showed that three factors namely "higher premium"，"designed for rich farmers" and "a form of tax" were ranked as the major perceptions by the farmers regarding crop insurance with the mean score values of 4.56，4.52 and 4.12，respectively. This showed that majority of the farmers believed that crop insurance scheme was especially designed for rich farmers，because it cost high premium and was not affordable by poor and marginal farmers. They also perceived that procedure for currently working crop loan insurance scheme was very complicated. The results are given in Table 4.

Table 3　Awareness of farmers about crop insurance

Table 4　Perception of farmers towards crop insurance traits

Opinion regarding sources of information

The farmers，who positively responded regarding the presence of the awareness of the crop insurance，were further asked about the sources of information which make them aware about crop insurance program and also to rate the most informative source on a likert scale. According to farmers，banks and TV channels were the two most important sources of information. Farmers responded positively to the attitude of bank staff and mentioned that they play major role in creating awareness about crop insurance among farmers. As when the farmers visit banks to borrow agricultural credit，the staff members inform them about crop loan insurance scheme and its salient features and conditions. The findings are also shown in Table 5.

Factors affecting awareness level of farmers regarding crop insurance

Probit model was applied to check the impact of diverse factors on farmer's awareness about crop insurance. Results of Probit model have been presented in Table 6.

Table 5　Perception about importance of various sources of awareness

Table 6　Results of Probit model （factors that affect awareness of farmers）

The model was a good fit with R2=0.78 which meant that 78% of the variation was explained by the explanatory variables in the dependent variable. The results clearly depicted that education was positively and significantly related to the farmers' awareness about crop insurance schemes at p≤0.01. These results provided evidence that education of a farmer played a very influential role in developing awareness regarding crop insurance and it seemed logical as well. Farmers with less education would not be able to understand what the insurance scheme meant and how it worked. However，farmers who were well educated （no matter it was school based or gained via social networking）would be more responsive regarding the dialogues，procedures，and benefits of insurance schemes.

Similarly the factor "credit availed" was also found to be positively and significantly related to farmer's awareness about crop insurance scheme at p≤0.01. beacause all the farmers who had availed credit were already insured under existing crop loan insurance scheme. That is why they were well informed and they responded positively to the features，procedures and benefits related to the crop insurance scheme.

Hence education and credit availed were the two factors which positively and significantly affected the awareness level of farmers about crop insurance scheme. While the other factors such as age，discussion，E-media，landholdings，experience and newspaper were found not to be significant according to the results found by applying Probit model and shown below.

Conclusions

The results of the study showed a low level of awareness of crop insurance among Pakistani farmers. The farmers faced great risks from catastrophic hazards and every year floods and variations in rainfall have been hitting the crops in the study area which cause huge damages yet the farmers were reluctant regarding crop insurance because they perceived crop insurance as an extra expense/cost instead of a tool to cover the losses caused by natural hazards.

Similarly the results of the Probit model showed that only those farmers who had previously availed agricultural credit from banks and those who were educated had much awareness and understanding about crop insurance. But unfortunately education level among farmers in Pakistan is not very high and there is not even a single formal program designed by government for the promotion of crop insurance products，that's why the awareness level is very low in Pakistan. Although banks are playing their roles to make farmers familiar with crop insurance procedures and benefits，but this opportunity is limited to only those farmers，who avail agricultural credit/loan from banks and other farmers who do not avail credit from banks，cannot utilize the advantages of this facility. So，this is the responsibility of policy makers to involve media （electronic and print） and to design special educational programs to educate the farmers about crop insurance and its products.

References

Adger W N，Vincent K. 2005. Uncertainty in adaptive capacity. Comptes Rendus Geoscience，337（4）: 399-410.

AgriFin webinar. 2013. Crop loan insurance in Pakistan. http://agrifinfacility.org/sites/agrifinfacility.org/files/vberisha/51/AgriFin%20 Webinar%20_HBL_Presentation.pdf.

Asteriou D，Hall S G. 2007. Applied econometrics: a modern approach using eviews and microfit. Palgrave Macmillan，New York.

Bhende M J. 2002. Flow of credit to small and marginal farmers: a case study of Karnataka. Agricultural Development and Rural Transformation Unit，ISEC，Bangalore，Ministry of Agriculture，Government of India，New Delhi.

GOP. 2013. Pakistan economic survey 2012-2013. http://www.finance. gov.pk/survey_1213.html.

GOP. 2014. Pakistan economic survey 2013-2014. http://finance.gov. pk/survey_1314.html.

Hazell P B R.1992. The appropriate role of agricultural insurance in developing countries. Journal of International Development，4: 567-581.

Miranda M J，Glauber J W. 1997. Systemic risk，reinsurance，and the failure of crop insurance markets. American Journal of Agricultural Economics，79（1）: 206-215.

O'Brien K，Eriksen S E，Schjolden A，et al. 2004. What's in a word？Conflicting interpretations of vulnerability in climate change research. CICERO Working Paper.

PPAF. 2013. Pakistan poverty alleviation fund，annual report. http:// www.ppaf.org.pk/Annual_Reports.aspx.

PDMA. 2008. Disaster risk management plan. http://unesco.org.pk/ns/ documents/Workshop_Workbook/Session_5/4_PDMA-Punjab.pdf.

Raju S S，Chand R. 2008. Agricultural insurance in India: problems and prospects. National Center for Agriculture Economics and Policy Research，NCAP working paper.

World Bank. 2011. Weather index insurance for agriculture: guidance for development practitioners. http://documents.worldbank.org/ curated/en/2011/11/15643352/weather-index-insurance-agricultureguidance-development-practitioners.

F361 Document code: A Article ID: 1006-8104（2015）-01-0076-07

16 January 2015

Sidra Ghazanfar （1986-），female，researcher，Ph. D，engaged in the research of crop insurance in Pakistan. E-mail: neau2011@outlook.com

. Zhang Qi-wen，professor，supervisor of Ph. D student，engaged in the research of financial theory and policy. E-mail: 5390748@ qq.com