Weather Index Insurance Design for Rice Farmers in Kebbi State

This study develops and evaluates a weather index insurance product design for rice farmers in Kebbi State, North West Nigeria. Rice farming is the dominant agricultural activity in Kebbi State, supported by the Kebbi-Rice initiative and federal anchor borrowers programs. However, rainfall variability and drought events cause significant yield losses that threaten farmer income security and loan repayment capacity. Conventional indemnity-based crop insurance faces high administrative costs and verification challenges in remote farming communities, making weather index insurance a potentially more suitable alternative. This study uses historical rainfall data from the Nigerian Meteorological Agency for stations in Kebbi State from 2010 to 2023, combined with rice yield survey data from the Kebbi State Agricultural Development Programme. Rainfall-yield correlation analysis identifies the critical growth stage windows during which rainfall deficit most severely affects yield. An index trigger and exit point structure is calibrated to minimize basis risk while maintaining product affordability at a target premium rate below 8 percent of insured sum. Findings reveal that a cumulative rainfall index measured during the vegetative and flowering stages (weeks 4 to 12) provides the strongest yield prediction correlation at R-squared of 0.71. At the calibrated premium rate, the product achieves positive expected value for farmers in average and below-average rainfall years. The study concludes that weather index insurance is technically feasible and actuarially viable for Kebbi State rice farmers. It recommends a pilot program in collaboration with the Anchor Borrowers Programme.

Keywords: weather index insurance, rice farmers, Kebbi State, basis risk, agricultural finance.