Rigorous field trials across Africa show that agricultural index insurance can stabilize small-scale farmers financially after a shock and even increase their agricultural investments, both of which could improve productivity and profitability in the West African cotton value chain.
A randomized controlled trial (RCT) in Burkina Faso showed that farmers who purchased insurance made significantly more investments for higher future income despite implementation challenges, adding evidence for the high potential of agricultural index insurance for development.
The typical challenges of basis risk and low uptake have plagued index insurance products for years, but AMA Innovation Lab researchers are crafting solutions by designing innovations around the structure of the insurance contracts.
On average, AMA Innovation Lab researchers find that after the drought, insurance leads to a 36 percent decrease in sales of remaining livestock, and a 25-percent reduction in household meal consumption.
The results from the first sales period in Mali indicated that those farmers who purchased the insurance were more likely to expand their cotton cultivation, increase use of productive inputs and increase the use of seeds.