The potential for index-based crop insurance to stabilize smallholder farmers' gross margins in Northern Ghana

Abstract

Context: Smallholder farmers in semi-arid West Africa face challenges such as weather variability, soil infertility, and inadequate market infrastructure, hindering their adoption of improved farming practices. Economic risks associated with uncertain weather, production and market conditions often result in measures such as selling assets and withdrawing children from school, resulting in long-term impoverishment. To break these poverty traps, there is a need for affordable and sustainable risk management approaches at the farm level. Proposed strategies include risk reduction through stress-resistant crop varieties and diversification, additional investments transfer options like crop insurance and contract farming. Despite experimentation with insurance products in sub-Saharan Africa, low adoption persists due to many factors including high premiums, imperfect indices, and cognitive factors.