Econometric Analysis of the Effect of Climate Change on Crop Insurance in Oyo State, Nigeria

Agriculture dominate most of the economic development policy in many developing countries but it is surprising that as high as the proportion of the policy to boost agricultural productivity, the countries are still suffering from food insecurity due to the countries’ failure of the policy to deliver the sustained supplies of food and industrial raw materials as intended. In Nigeria, crop farmers cannot withstand the increased risks associated with climate change by adopting autonomous adaptation technique that is why 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. The framework consisted of various models ranging from climate change projection, crop yield and yield variance estimation and crop insurance payout estimation. Two categories of respondents were surveyed to obtain the data required for the analysis. 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 while the uninsured farmers were selected from the OYSADEP farmer’s register. 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. The R2 indicated the proportion of the variation in output of both insured and uninsured farmers. An R2 value of 93.52% was obtained for the specify function of the insured farmer as compare to 84.38% of the uninsured farmer and 90.66% R2 was obtained for the pooled result of the two groups of farmers. The adjusted R2 value was obtained allow us to compare the R2 value of the different result obtained from each group of farmers. This implies that uninsured farmers are more productive than the insured farmers in the study area and the level of production achieved did not justify any difference of production practices between the insured and the uninsured farmers without evidence of significant changes in the insurance payout method embrace by the insurance company since the obvious incidence of climate chang