Ghana: Crop insurance

While most adaptation strategies seek to minimize risks stemming from climate change, not all risks can be eliminated. Weather perils such as droughts, storms or erratic precipitation represent so-called systemic risks that go beyond the farmers’ coping ability. Thus, mechanisms are needed that distribute residual risks to avoid that certain groups or individuals lose their livelihoods. One such risk transfer solution is crop insurance, which allows farmers to insure their crop yields against weather-induced losses. While insurance usually is based on indemnity assessment, this model is problematic for smallholder farmers due to the high transaction costs which insurance schemes usually entail. Thus, a more suitable approach for smallholder farmers are weather index-based insurances (WII), a scheme that uses a weather index, such as precipitation, to determine a payout. Alternative index-based insurance schemes can also be useful, such as area-yield index insurance.

Generally, insurance schemes are rather costly adaptation strategies, at least when considering the overall costs and with progressing climate change increasing the overall risk to the agricultural sector. However, insurance schemes have an important role to play for securing livelihoods: They can stabilize farm incomes and can prove to be very cost-effective for farmers when a hazard occurs.

According to the Ghana Agricultural Insurance Pool (GAIP), area-yield index insurance (AYII) as an alternative to WII has shown the biggest potential for smallholder farmers in Ghana as of yet. GAIP is a pioneer in implementing AYII in Ghana, insuring since 2011 successfully some 3000 – 4000 smallholder farmers’ cereal crops[1] on over 18,000 acres of land. In 2017, GAIP made payouts to nearly half its insured parties.

Although AYII is a promising development, farmers’ uptake of AYII in Ghana remains limited. Balmalssaka et al. (2016), who examined the willingness of farmers in northern Ghana to participate in insurance schemes, found access to credit as well as education and experience with insurance to be important factors determining farmers’ engagement with crop insurance (Balmalssaka et al., 2016).

This indicates the need for additional incentives or financial support for taking out insurance, underlined also by Aidoo et al. (2014) who determined farmers’ willingness to pay for crop insurance in one municipality in Ghana. He concluded there was a need for government subsidies to implement it in the country (Aidoo et al., 2014). While subsidies are one strategy, experts also suggested to bundle insurance with inputs, where possible, to increase uptake.

Overall, crop insurance is a promising strategy for transferring climate risk also in Ghana. There is high interest in Ghana and demand-based roll-out of insurance pilots can be recommended. However, careful design is crucial to ensure affordability and financial sustainability.

[1] The main insured crops are: maize, sorghum, millet and groundnut.


  • Aidoo, R., James, O., Prosper, W., & Awunyo-Vitor, D., (2014). Prospects of crop insurance as a risk management tool among arable crop farmers in Ghana. Asian Economic and Financial Review, 4(3), 341–354.
  • Balmalssaka, Y., Wumbei, B. L., Buckner, J., & Nartey, R. Y., (2016). Willingness to participate in the market for crop drought index insurance among farmers in Ghana. African Journal of Agricultural Research, Vol. 11(14), 1257–1265.