Demand for area crop insurance among litchi producers in northern Vietnam

Abstract This study examines the need for crop insurance for litchi production in northern Vietnam and how farmers might participate in such a program. Hypothetical insurance programs were developed which proposed all‐risk coverage based on area yields. This coverage was offered to farmers to determine both their interest in the program and how insurance features and farmer characteristics affected their decision to buy insurance. Farmers were also surveyed regarding their production practices, price and yield expectations, and financial and personal characteristics. Even before considering other program costs and government budget constraints, there is not a strong case for establishing a crop insurance program here. Results indicate that while farmer participation would be significant, crop insurance is not needed to achieve policy goals like raising farmer income or guaranteeing subsistence levels of income. Crop insurance is not needed to promote litchi production, which is already expanding rapidly due to its high profitability relative to other farm enterprises. In their choice of coverages, farmers preferred higher yield guarantee levels and lower indemnity prices. Estimated premiums were quite low when expressed as a percent of expected revenue, and farmers were not responsive to changes in premiums. Econometric analysis indicated that high income farmers were more likely to participate, but other farmer characteristics seemed to matter little. Anecdotal evidence suggested that farmers believed the expected area yields used to set insurance coverage levels were too low. Because litchi productivity varies significantly by tree age and the litchi planted area is expanding rapidly, determining appropriate values for expected area yields and insurance coverage levels appeared to be the biggest challenge in program design. It is hypothesized that additional farmer education about the relationship between area and farm yields and other aspects of area insurance could improve such a program's operation. Published by Elsevier Science B.V.