ABSTRACT

climate change. Agricultural
insurance is seen as one of the best strategies to address farm risks and
encourage the affected farmers to get back to business and achieve better and
quality yields. This study assessed the effect of climate change on crop
insurance payout method of the Nigerian Agricultural Insurance Corporation
(NAIC). The framework used in this study consists of crop yield models, crop
yield variance and the insurance payout estimation methods to be employed to
get the affected farmers back to business.

Primary and secondary data were
used for this study. Two broad categories of respondents were surveyed to
obtain the primary data. A sample of 120 insured and 120 uninsured farmers were
randomly selected and interviewed using structured questionnaires. The insured
farmers were randomly selected from the insurance policy register of NAIC while
the uninsured farmers were selected from the Oyo State Agricultural Development
Program (OYSADEP) farmer’s register. The secondary data includes climate
variables and crop yield data in Oyo State from 1990 to 2010. The data were
collected from the Nigerian Meteorological Station (NIMET) and OYSADEP

The results showed that the mean
age of the insured and uninsured farmers are 51.5 and 48.2 respectively which
is significant at (t = 8.36), education level, year of experience and farm size
are significant at (t= 2.19, 6.00 and 3.10 respectively). Changes in climate
affects crop yield levels and variability, rainfall and temperature increases
are found to increase yield level and variability. On the other hand, rainfall
and temperature are individually found to have negative effects on some yield
levels and variability. The increase in yield was derived from a significant
reduction in rainfall; on the other hand, the decrease in yield was caused by
heat stress and the shortening of the growth period induced by the temperature
rise. The results also identified that the insured farmers are less productive
than the uninsured farmers in term of crop production in the study area. This
shows that the insured farmers took an insurance policy as a pre- requisite to
obtain credit from the financial

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CHAPTER
ONE

1.0         Introduction

1.1        Background to the Study

Mean temperatures in Africa over
the last 30 years showed a pronounced upward thread and were above the long
term average of the past 100 years. The five warmest years in Africa in the
last century all occurs since 1988 and 1995 being the two warmest years
(Desanker and Magadza 2001). Since 1968, the average rainfall in West Africa
has been decreasing and fluctuating around a notably lower mean (UNEP, 1999).
This had led to shortened rainy seasons in many areas thereby aggravating the
insufficient water supply available for agricultural production since many West
African countries receives less than 500mm of rainfall and thus considered dry
lands (UNEP, 2006). In addition, inter-annual rainfall variability is great
over most of Africa and for some regions, most notably the Sahel, multi-decadal
variability in rainfall has also been substantial.

The rainfall trends of the continent through the 20th century drying up to 2.5% per
decade or more in some Western and Eastern parts of the Sahel (Hume et al;
2001). This reduced mean rainfall is expected to persist as a result of climate
change. In recent years, the pattern of rainfall has tended towards the
extremes, with increasing severity and frequency of drought and floods. Many
countries, including Botswana, Burkina Faso, Chad, Ethiopia, Kenya Mauritania
Mozambique and Nigeria experiences drought at mean rainfall over the most of
the continent. The East African flood of 1988, the Mozambique floods of 2000
and the recent floods in West Africa (Ghana, Benin, Togo and Burkina Faso) in
2007 and recently the devastating floods in Nigeria 2011, which occurs in the
Western parts of the country led to loss of much farmland, damage to transport
networks, diseases outbreak and loss of human life. The continent already
experiences a major deficit in food and animal production in many areas, and
potential further declines in soil moistures or inundation of crop lands has
been an

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added burden. One of the ways to address this form
of agricultural risk has been the use of agricultural insurance.

The need for a specialized Agricultural insurance
company to provide insurance cover to farmers was informed by Government’s
concern over the vacuum created due to the unwillingness of conventional
Insurers to accept Agricultural risks, which they considered too risky. In
Nigeria, the implementation of the scheme was thus initially vested in the
Nigerian Agricultural Insurance Company limited, which later turned into a
Corporation in 1993 by the enabling decree No. 37 of 1993, which was planned by
the government to boost agricultural production, but it is constrained by the
inability of the average farmer to provide the necessary required rules to
purchase an insurance cover.

1.2        Problem statement and research questions

Climate change problem in Nigeria indicate the ways in which climate
change has affected crop producing farmers. These include: increased likelihood
of crop failure; increase in diseases and mortality of livestock, and/or forced
sales of livestock at disadvantageous prices; increased livelihood insecurity,
resulting in assets sale, indebtedness, out-migration and dependency on food
aid; and downward spiral in human development indicators, such as health and
education. Such impacts will further aggravate the stresses already associated
with subsistence production, such as isolated location, small farm size,
informal land tenure, low levels of technology and narrow employment options.

Most Nigerian Cities are facing major stresses on water availability.
Particular stress related to issues of supply scarcity, contamination and salt
water infiltration (Enete, 2008; Enete and Ezenwaji, 2011), higher demands, and
growing dependency on external supply. The impacts of climate change on health
are another area of concern, including air pollution, heat island effects, and
spread of disease vectors. The consequences on human settlements due to
sea-level rise or coastal and inland flooding are a further concern that could
lead to

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serious disruption in the transportation and infrastructure service
(Enete, 2008). Increase in global temperatures, rising energy demands (Enete
and Alabi, 2011) and increased heat island effects (Enete and Ijioma, 2011),
are identified as other issues of primary concern. It is considered very likely
that increasing global temperatures will lead to higher maximum temperatures,
more heat waves and fewer cold days over most land areas. Disruption of
sensitive ecosystems, loss of biodiversity and food security problems will have
been witnessed. Wildfire is dramatically escalating in frequency and extent.
Forest could be lost due to frequent and more intense fires (Reid et al.,
2007). Other climate change impacts include shifting ranges and seasonal behaviors,
changes in growth rates, in the relative abundance of species and in processes
like water and nutrient cycling and in the risk of disturbance from fire,
insects and invasive species (Johnson and Moghori, 2008).

Adaptation can be both autonomous and planned. Autonomous adaptation is
the ongoing implementation of existing knowledge and technology in response to
the changes in climate experienced; and planned adaptation is the increase in
adaptive capacity by mobilizing institutions and policies to establish or
strengthen conditions that are favourable to effective adaptation and
investment in new technologies and infrastructure. Autonomous adaptations are
highly relevant for smallholder farmers. Mostly located in areas of ecological
fragility, they tend to have an extensive knowledge base to draw upon in coping
with adverse environmental conditions and shocks. Autonomous adaptation options
can be, for example: changing inputs such as crop varieties and/or species and
using inputs with increased resistance to heat shock and drought; altering
fertilizer rates to maintain grain or fruit quality consistent with the
climate; and altering amounts and timing of irrigation and other water
management practices; making wider use of technologies to ‘harvest’ water, to conserve
soil moisture (e.g. crop residue retention) and to use water more effectively
in areas where there is a decrease in rainfall; utilizing water management to
prevent water logging, erosion and

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nutrient leaching in areas where there is an increase in rainfall;
altering the timing or location of cropping activities; diversifying income by
integrating into farming activities additional activities such as livestock
raising; and using seasonal climate forecasting to reduce production risk. However,
while many of these measures are effective against a degree of climatic
variability, they may become insufficient in the face of accelerating climate
change, therefore a longer-term planned approach for adaptation is therefore
needed to secure sustainable livelihoods of farmers. It has to incorporate
additional information, technologies and investments, infrastructures and
institutions and integrate them with the decision-making environment.
Insurances, safety nets and cash transfers to reduce vulnerability to shocks
are also part of the solution.

Despite the evidence of climate change and the need to adapt to it,
there has not been any evidence of change in the payout technique adopted by
the Nigerian Agricultural Insurance Corporation; as adaptation need additional
financial resources. Unfortunately, financial support for smallholder farmers
for implementing adaptation has been too little and too slow in reaching them. Only
500,000 of Nigeria’s agricultural producers have access to insurance where only
Oyo state has 415,030 farm families (Oysadep 2012). This implies that The
Nigerian Agricultural Insurance Corporation has not been able to improve their
quality of products, coverage, liberalize insurance market, allow private
players to enter and spur competition and restructuring the mode of their
payout due to the incidence of climate change and uncertainty.

The
research questions that follow the above problem statements are:

1.     
What are the the socio economic
characteristics of insured farmers and uninsured farmers in Oyo state

2.      How does
climate change and its risk affects food crops production in Oyo state

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3.      What are
the factor(s) affecting farmer’s crop insurance decision

4.     
What are the effect of climate
change on payout of agricultural insurance corporation in Oyo State

1.3         Objectives of the Study

The general objective of this study is to evaluate the impact of climate
change on crop insurance in Oyo state.

The specific objectives are to;

1.   To compare the socio economic characteristics of insured farmers
and uninsured farmers in Oyo state

2.      To
analyze how climate change and its risk affects food crops production in Oyo
state

3.      To
determine the factors affecting farmer’s crop insurance decision

4.   To estimate the effect of climate change on payout of agricultural
insurance corporation in Oyo State

1.4         Hypotheses of the study

Ho1: There
is no significant difference between the socio-economic characteristics of the
insured and uninsured farmers in the study area.

Ho2: There
is no structural difference between the production function of the insured and
uninsured farmers.

Ho3:
Productivity of the farmers does not have any significant impact on their crop
insurance decision.

Ho4: Climate
will not have any significant impact on payout of Agricultural Insurance
Corporation in Oyo State.

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1.5          Justification of the study

Farmers have a long history of
responding to climate variability. Traditional and newly introduced adaptation
practices can help farmers to cope with both current climate variability and
future climate change. However, the debate about the adaptation of small-scale
farmers in Africa to climate change has occurred in the absence of knowledge
about existing and potential adaptation practices. Because prevailing ideas
about adaptation are vague, conducting focused research on potential adaptation
practices and formulating appropriate advice for implementing new practices is
difficult, therefore it is pertinent to examine the impact climate change on
payout techniques of Agricultural insurance corporation

Even without climate change,
there are serious concerns about agriculture in Nigeria because of water supply
variability, soil degradation, and recurring drought events. A number of
Countries face semi-arid conditions that make agriculture challenging. Further,
development efforts have been particularly difficult to sustain. African
agriculture has the slowest record of Productivity increase in the world.

Experts are concerned that the
agriculture sector in Nigeria will be especially sensitive to future climate
change and any increase in climate variability. The current climate is already
marginal with respect to precipitation in many parts of Africa. Further warming
in these semiarid locations is likely to be devastating to agriculture there.
Even in the moist tropics, increased heat is expected to reduce crop yields.
Agronomic studies suggest that yields could fall quite dramatically in the
absence of costly adaptation measures. The current farming technology is basic,
and incomes low, suggesting that farmers will have few options to adapt.
Presently, public infrastructure such as roads, long-term weather forecasts,
and agricultural research and extension are inadequate to secure appropriate
adaptation. Unfortunately, none of the empirical studies of climate impacts in
Africa have explored what

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