Examining Underinvestment in Agriculture

1. Examining Underinvestment in Agriculture Jessica Kiessel IPA Ghana Country Director Innovations for Poverty Action 3ie Rome - April 2012

2. From Research to Policy A few models of using results: • Organizations that IPA works with to evaluate a program scale can scale it up afterwards • Programs that IPA designed and evaluated are adopted by implementing organizations in the same country • Programs that were evaluated and shown cost-effective are adapted to a different country/context Examining Underinvestment is an example of the 2nd and in the process has become an iterative research project

4. Ghana • Maize farmers, often intercropped with groundnut • Light input use • MoFA recommended package 60 cedis/acre of chemical inputs • Sample median 7; 25%=0 • Yields • Recommended package 1000 – 1500kg/acre • Sample: 200 kg/acre

5. Why do farmers invest so little? Typical response from farmers as to why they do not use hybrids + fertilizer? • I don’t have the money : Capital constraint • It’s too risky – hybrids don’t do well with too little rain: Risk averse How can you address these problems? • Cash Grants • Weather Index Insurance

6. Examining Underinvestment in Agriculture: Empirical Design Researchers: Chris Udry, Dean Karlan, Robert Osei, Isaac Osei-Akoto Why do farmers underinvest in their farm? • Hypothesis 1: Farmers are capital constrained • Hypothesis 2: Farmers are risk averse Design • Year 1: • Capital drops • Free Weather Index Insurance • Capital + Free Weather Index Insurance • Year 2: • Same groups, but price of insurance randomized

7. Weather Index Product - Takayua • First weather index insurance product in Ghana • Designed to cover maize farmers from excess rainfall and drought • Year 1: FREE • Year 2: 1, 4, 8, 9.5, 12, 14 • Capital (2009: 50 GHC/acre, 2010: 300/farmer)

8. Take up of Takayua Insurance 2010

9. EUI – Initial results • Farmers substantially increase their investment in farming with I, especially with both I and K. There is no evidence that farmers respond to K. • For a K + I farmers: • Increased cash expenditures for field prep and chemicals is about half the value of K • Increase household labor substantially • Cultivated land goes up as well, in proportion to other inputs. Virtually no intensification • Output increases enough to cover the additional purchased inputs, but not enough to cover the value of additional labor.

10. Implications • Relaxing the credit constraint alone will not sway farmers to increase farm investments • Implications for providing capital in cash and/or inputs to farmers • Insurance engenders increased investment and harvest value • This effects is even higher for those who received insurance and capital. • Households are willing to pay for insurance despite the basis risks

11. The 2010 search for reinsurance:Agricultural Insurance in Ghana Outreach Activities to share results and lessons learned marketing: • Conference presentations • Project description, proposals, policy docs • Meetings Players: • Ghana Insurers Association • Insurance Companies • The National Insurance Commission (NIC) • The German International Cooperation (GIZ) • Ghana Re, Swiss Re

12. Encouraging development of Commercial Agricultural Insurance • Lessons learned on marketing and our results on take up and encouraged development of commercial agricultural insurance • 2011 Pilot Drought Index Insurance designed for maize farmers in northern Ghana • Covered by GIA, Ghana Re and Swiss Re • Sold to banks to cover aggregate loan portfolios • And just in the knick of time EUI farmers

13. GIA: Drought Index Product -Sanzali **note – charts have different scales

14. Scaling up Agric Insurance • Considerable challenges remain in scaling up insurance • Additional research with GIA is planned to provide information on: • Willingness to pay • Product performance • Basis risk • Farmer perception of product • Agricultural investment, overall wellbeing • In 2012: We will test group marketing and variations in education • In the future: we plan to do an impact evaluations with cost benefit analyses of potentially sustainable models of scaling up

15. Examining Underinvestment – Phase 2 Identified constraints to agricultural investment Tested role of risk and capital Shared initial results Explore questions on profitability • Conduct operational pilots on input and education programs • Work with MoFA to test methods to improve profitability 2009 – 2010 2010 - 2011 2011 - 2012 2012 – ____ • Worked with informal partners to design treatments • Provided capital and insurance • Collected information on investment and yields • Conducted focus groups & background research • Consulted local experts and stakeholders • Identified central questions • Presented key results – hosted conference, met with stakeholders • Sought feedback on results • Identified additional constraints • What are the barriers to profitable returns in a context of reduced risk? • Test intensified agric extension and increased access to high return tech • 2012 Operational Pilot - Intensified agricultural extension with MoFA

16. EUI Team