The Price Insurance Demand of Rice Producers in the Vietnamese Mekong Delta

The Price Insurance Demand of Rice Producers in the Vietnamese Mekong Delta

Huynh Viet Khai (Can Tho University, Vietnam)
Copyright: © 2020 |Pages: 9
DOI: 10.4018/978-1-7998-2599-9.ch005
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Abstract

Using the dichotomous choice contingent valuation method, this chapter helps shed light on the potential for marker-based insurance schemes in Vietnam by empirically exploring the demand for minimum price insurance among rice households. The study showed that the majority of rice farmers accepted the guaranteed price of VND 4,500 per kg, and their accepted insurance fee was about 13% of the guaranteed price and 30% of the break-even price. Farmers growing rice under a monoculture system were less likely to pay for the proposed insurance service, while those with access to any formal credits were more likely to pay for it.
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Methodology

The indirect and direct methods have popularly been applied to calculate the WTP to keep households away from the uncertainties of the market price. One weakness of an indirect method is the use of exogenous time-series information on shocks of prices and yields from household surveys that are not aimed at exploring issues of vulnerability and insurance. Alternatively, the direct method engages household interviews designed particularly to estimate the vulnerability and demand for insurance by households. Thus, this study applies the direct approach (Alexander et al., 2007).

The direct or “contingent valuation” (CV) methods are based on direct questioning of agents (producers, households, etc.) on how much they are willing to pay for avoiding an undesirable event, or for having available a possibly welfare improving instrument such as a given amount of an insurance contract.

The major problems with this approach largely have to do with the specification of the “scenario” or the “benchmark” against which the agent is supposed to compare the current situation, and express a monetary value for what it is worth to him/her to move to the new situation, or avoid a bad one. It is not always easy to specify this scenario appropriately, especially if it involves a rather improbable event, and this lies at the heart of most criticisms of this approach. However, in the case of well-specified risks, such as price or yield variations, it is likely that farm households are familiar not only with their normal values, but also with their variability over time, and hence the above criticism may not be valid.

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