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: 1.Organizations that IPA works with to evaluate a program scale can scale it up afterwards 2.Programs that IPA designed and evaluated are adopted by implementing organizations in the same country 3.Programs that were evaluated and shown cost-effective are adapted to a different country/context Examining Underinvestment is an example of the 2 nd and in the process has become an iterative research project 2

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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 4

5. Why do farmers invest so little? Typical response from farmers as to why they do not use hybrids + fertilizer? I dont have the money : Capital constraint Its too risky – hybrids dont 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? 1.Hypothesis 1: Farmers are capital constrained 2.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) 7

8. Take up of Takayua Insurance 2010 8

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. 9

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 11

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 12

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

14. 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 Scaling up Agric Insurance

15. Examining Underinvestment – Phase 2 Identified constraints to agricultural investment Tested role of risk and capital Shared initial results Explore questions on profitability Conducted focus groups & background research Consulted local experts and stakeholders Identified central questions Worked with informal partners to design treatments Provided capital and insurance Collected information on investment and yields Presented key results – hosted conference, met with stakeholders Sought feedback on results Identified additional constraints Conduct operational pilots on input and education programs Work with MoFA to test methods to improve profitability 2009 – 20102010 - 20112011 - 20122012 – ____ 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 16