Willingess to pay for white leg shrimp insurance

MINISTRY OF EDUCATION AND TRAINING NHA TRANG UNIVERSITY VU DUY THANG WILLINGESS TO PAY FOR WHITE LEG SHRIMP INSURANCE: THE CASE OF SHRIMP FARMERS IN TRA VINH PROVINCE MASTER THESIS KHÁNH HÒA – 2019 MINISTRY OF EDUCATION AND TRAINING NHA TRANG UNVERSITY VU DUY THANG WILLINGESS TO PAY FOR WHITE LEG SHRIMP INSURANCE: THE CASE OF SHRIMP FARMERS IN TRA VINH PROVINCE MASTER THESIS Major: Marine Ecosystem Based Management and Climate Change 60620115 Code: Topic Allocation Decision: Decision on No 1310/QĐ-ĐHNT establishing the Commitee: Defense date: Suppervisors: Professor CURTIS JOLLY Assoc.Prof NGUYEN THI KIM ANH Chairman of Committee: Faculty of Graduate Studies: KHANH HOA, 2019 DECLARATION I hereby declare that this thesis titled “Willingess to pay for white leg shrimp insurance: The case of shrimp farmers in Tra Vinh Province” is my own research It is original and no part of this work has been submitted for any other degrees or diploma Nha Trang, 01th November 2019 Author Vu Duy Thang iii ACKNOWLEDGEMENT I would like to express my sincere gratitude to NOHERD project for giving me a chance to study in an international environment with experts and students from many countries around the world I would like to express my deepest appreciation to the graduate faculty of Nha Trang University for helping and giving me the best conditions to complete my thesis My special thanks go to Prof Nguyen Thi Kim Anh and Prof Curtis Jolly for their continuous support of my study and research, their patience, motivation, enthusiasm, and immense knowledge displayed during the whole process My study could not have been completed without their assistance I deeply thank the Tra Vinh Department of Agriculture and Rural Development for their offer in collecting data (http://travinh.gov.vn/wps/portal/sonnptnt) I would like to thank all my Cohort classmates who supported me during this course of studies Finally, this thesis is dedicated to my family who have always stood and supported me during my life iv TABLE OF CONTENTS DECLARATION iii ACKNOWLEDGEMENT iv TABLE OF CONTENTS v LIST OF TABLES vii LIST OF FIGURES AND GRAPHS .viii ABSTRACT ix !Unexpected End of Formula 1.1 Rationale of the Study 1.2 Research Objectives 1.2.1 General objective 1.2.2 Specific objectives 1.3 Research questions 1.4 The object and scope of study 1.4.1 The object of study 1.4.2 The scope of study 1.5 Contributions of the study 1.5.1 Sciencetific aspect 1.5.2 Pratical aspect CHAPTER LITERATURE REVIEW 2.1 Agricultural insurance 2.1.1 Concept of agricultural insurance 2.1.2 Significance of agricultural insurance 2.1.3 Types of common risks in agrculture 2.2 Agriculture pilot insurance 2.2.1 Objects of the aquaculture section of the pilot insurance 2.2.2 Scope of the pilot aquaculture insurance 2.2.3 Insurance premium 2.2.4 Indemnity 2.3 Theory of model factors influencing farmers' willingness to pay for whiteleg shrimp insurance 10 2.4 Related domestic and foreign studies 12 v 2.4.1 Foreign studies 12 2.4.2 Domestic research 13 2.5 Analytical framework of research 15 2.6 Summary of previous research and hypothesis development 16 CHAPTER RESEARCH METHODOLOGY 20 3.1 Research process 20 3.2 Research approach 21 3.2.1 Qualitative method 21 3.2.2 Quantitative method 21 3.3 Sampling method 22 3.4 Types of collected data 22 3.5 Data analytical tools 23 CHAPTER RESULTS AND DISCUSSION 24 4.1 Current situation of aquaculture methods and ecological environment in the research area 24 4.1.1 Current situation of aquaculture farming system 24 4.1.2 Ecological environmental conditions 24 4.1.3 Area and shrimp output over the years 25 4.2 Description of survey sample 26 4.3 Analysis of factors affecting the willingness to pay for whiteleg shrimp insurance 34 CHAPTER CONCLUSION AND RECOMMENDATION 39 5.1 Conclusion 39 5.2 Recommendations 39 REFERENCES 41 vi LIST OF TABLES Table 2.1 Premium rate Table 2.2 Formula to calculate the insurance amount Table 2.3 Rate of damage covered for whiteleg shrimp 10 Table 2.4 Summary of variables in previous research models 16 Table 2.5 Variables used in model to analyze the willingness to pay for whiteleg shrimp insurance 17 Table 4.1 Area and shrimp output in Tra Vinh province from 2013 – 2017 25 Table 4.2 Characteristics of shrimp farming households in three districts: Cau Ngang, Duyen Hai, Tra Cu in Tra Vinh province in the survey sample 26 Table 4.3 Whiteleg shrimp farming activities of households in three districts: Cau Ngang, Tra Cu, Duyen Hai in Tra Vinh in 2016 27 Table 4.4 Household’s risks in whiteleg shrimp farming in three districits: Cau Ngang, Tra Cu, Duyen Hai in Tra Vinh in 2016 30 Table 4.5 Frequency of epidemic diseases for whiteleg shrimp in three districts: Cau Ngang, Tra Cu, Duyen Hai in Tra Vinh province for five years (2012-2017) 31 Table 4.6 Awareness of agricultural insurance for shrimp farming 32 Table 4.7 Household’s judgment on total cost, average revenue, damage rate, insurance payment rate calculated on total cost, premium rate calculated on total cost 33 Table 4.8 Results of regression model for “Analysis of factors affecting the willingness to pay whiteleg shrimp insurance” of households in research sample 35 vii LIST OF FIGURES AND GRAPHS Figure 2.1 Total willingness to pay 11 Figure 2.2 Analytical framework of research 15 Figure 3.1 Diagram of research process 20 viii ABSTRACT The pilot agricultural insurance program was designed to support fammers to overcome and offset financial losses caused by natural disasters and epidemics The pilot program was supposed to contribute to ensuring the stability of rural social security and promoting agricultural production On March 1st, 2011, the Government issued Decision No 315 / QD-TTg on the pilot insurance implementation of agricultural insurance for the period of 2011-2013 The pilot agricultural insurance program was implemented in 20 provinces and cities in Viet Nam with the aim of reducing risks to stabilize farmers' income The Tra Vinh province is one of the places where the pilot agricultural insurance program was tested The pilot program was highly subsidized by the Government of Viet Nam and after three years it was supposed to be handed to the private sector and run under a free market system It is believed that shrimp farmers would be ready to pay for shrimp insurance The main objective of the research is the evaluation of the willingness to pay for whiteleg shrimp insurance in three districts: Cau Ngang, Duyen Hai, Tra Cu of Tra Vinh province The research methods used in the study combined qualitative and quantitative methods with data collected from 158 white leg shrimp farming households in the three districts OLS regression model was used to analyze the factors influencing the willingness to pay for white leg shrimp insurance The data was entered in EXCEL and the Eview software was used to analyze the data The research results show that among seven independent variable included in the regression model, four variables were statistically significant, namely: Age of householder, Number of years of schooling, pond area and the number of dependents belonging to household The other three variables year of operation, agricultural insurance program for shrimp culture, membership of shrimp cooperative/association/or other were not statistically significant Among the four statistically significant variables, two age of householder and number of years of schooling had positive signs; Number of dependents belonging to household and pond area had negative correlation with the dependent variable Keywords: Willingness to pay, agriculture insurance, white leg shrimp ix CHAPTER INTRODUCTION 1.1 Rationale of the Study Vietnam is a country where the economy depends significantly on agriculture with 70% of the population dependent on agriculture for their livehoods The agricultural sector often faces natural disasters and epidemics, with estimated annual losses in Vietnam equivalent to 1.5% of GDP Based on the estimated annual argricultural losses, there is a potential market for agricultural insurance development In recent years, agricultural insurance has been encouraged by the Vietnam government that has included insurance provision for farmers in the rural agricultural development strategy The content of establishing mechanisms and forms of agricultural insurance was included in the Party Congress Documents (10th and 11th time), Central Resolution No (10th term) on agriculture, farmers and rural and Decision No 315/QD-TTg of the Prime Minister Objects and areas were covered by the pilot insurance The Agricultural Pilot Programme in Viet Nam was initiated to support farmers who suffered from physical risks and to minimize the effects of national and government budgetary stress from disaster support payments annually (World Bank, 2005) The program was implemented to assist the poor farmers and to vary the risk responsibility according to farm income and poverty levels The programme was supposed to be tried out from 2011 to 2013, and thereafter the programme was supposed to be roled out nationwide (Nguyen, 2018) The programme provides cover for rice, livestock and aquaculture farming against storms, floods, drought, cold, frost, tsunami and other perils It also provides cover against named pests and diseases and epidemics specific to rice, livestock and aquaculture (Rogers 2013) Paddy production took place in Nam Dinh, Thai Binh, Nghe An, Ha Tinh, Binh Thuan, An Giang and Dong Thap provinces Insurance for buffalos, cows, pigs and poultry was implemented in Bac Ninh, Nghe An, Dong Nai, Vinh Phuc, Hai Phong, Thanh Hoa, Binh Dinh, Binh Duong and Ha Noi Insurance for aquaculture of ”tra” and ”basa” catfish, black tiger shrimp and whiteleg shrimp was implemented in Tra Vinh, Ben Tre, Soc Trang, Bac Lieu, Ca Mau The pilot implementation of agricultural insurance during this period was essential to create conditions for local people to access insurance on the principle of The frequency of diseases for whiteleg shrimp in three districts: Cau Ngang, Tra Cu, Duyen Hai in Tra Vinh province in the last years is shown in Table 4.5 Table 4.5 Frequency of epidemic diseases for whiteleg shrimp in three districts: Cau Ngang, Tra Cu, Duyen Hai in Tra Vinh province for five years (2012-2017) Almost every year 45 Every year Every crop - Several times a year 28 85 - Yellow head disease 70 50 33 - Taura syndrome 53 72 15 18 - 60 60 30 - 94 64 - - - 20 51 43 44 - White feces syndrome - 89 45 24 Infectious myonecrosis 15 128 15 - - Other 143 15 - - - Never White spot disease Pathogenesis of acute hepatopancreatic necrosis disease Infectious Hypodermal and Hematopoietic Necrosis Runt Deformity Syndrome (Source: Calculated from survey data) Through surveys of 158 households in three districts of Tra Vinh province, most of the epidemic diseases appearing in the farming areas, such as white spot disease and white feces syndrome occur several times per year Infectious Hypodermal and Hematopoietic Necrosis and other diseases rarely occur or if any, it usually occurs once in a few years Every time the disease occurs, it greatly affects shrimp households and the speed of spread is fast This is partly because of massive development of shrimp farming area and problems of water quality control and disease prevetion in the farming area 31 4.2.4 Awareness of agricultural insurance for shrimp farming Among 158 surveyed households, 129 households (accounting for 81.6%) responded that they received information on the radio, and newspapers about the Agricultural Insurance program for farmed shrimp Table 4.6 Awareness of agricultural insurance for shrimp farming Yes No Does the household know about the agricultural insurance 129 program for shrimp farming? 29 Does the household receive information about the agricultural insurance program for shrimp farming? 41 117 Has the household ever participated in a pilot agricultural insurance program? 158 Information of survey sample (Source: Calculated from survey data) Although 100% of households have never been able to participate in the pilot agricultural insurance program, many households are willing to participate in the Rural Insurance program for Whiteleg shrimp In fact, the Prime Minister issued Decision No 315 / QD-TTg dated March 1, 2011 on the implementation of pilot agricultural insurance in the period of 2011-2013 Subjects of fisheries insurance are shutchi catfish, yellow-tail catfish, giant tiger prawn and whiteleg shrimp The area for pilot implementation is in provinces: Ben Tre, Soc Trang, Tra Vinh, Bac Lieu and Ca Mau; and Khanh Hoa is the province that have not been piloted for Rural Insurance 4.2.5 Willingness to pay for white leg shrimp insurance in Tra Vinh province There are 142 out of 158 households were interviewed with 89.8% of the farmers willing to participate in the Rural Insurance program for Whiteleg shrimp The majority of households agreed and expected the Rural Insurance program for white leg shrimp to be implemented and piloted in Tra Vinh Willing farmers expected that the Rural Insurance Program would prevent them from being passive participants during the production process, and stimulate them to inject capital into their farming business to enable them to avoid risks from natural disasters and epidemic diseases However, there are some households who are not willing to participate in insurance program for white leg shrimp because of their concerns about high insurance premiums and whether insurance payment is easy and quick to help farmers to remedy the damages 32 from natural disasters and diseases This is understandable, because farmers have not received and understood the information about the Rural Insurance Program so the lack of trust in the effectiveness of the rural insurance program is inevitable Out of 142 respondents who were willing to participate in insurance for whiteleg shrimp, 100% of the respondents stated that whiteleg shrimp are often at risk duing the period of less than 40 days old; and therefore they would like to buy insurance for shrimp for the period of to less than 40 days old This is consistent with reality, because in the early stages, the ponds are unprepared, poor in nutrition, and lacking in minerals, so it leads to weak and susceptibility of shrimps to diseases Also during the period of less than 40 days old, shrimp are small, very sensitive to any change in environmental factors; thus it is easy for the shrimp to suffer from environmental shocks and die It is assumed that 1.0 hectare of white leg shrimp from households during the period before 40 days old is completely damaged (100%) The household desired percentage of compensation will be the total farming cost and the insurance premiums (%) that farmers are willing should be calculated on the basis of total farming cost Thereby, the author will calculate the premiums that the farmers are willing to pay for white leg shrimp insurance, which is shown in Table 4.7 Table 4.7 Household’s judgment on total cost, average revenue, damage rate, insurance payment rate calculated on total cost, premium rate calculated on total cost Item Total cost/ha Total revenue/ha Damage rate (%) Average total cost or revenue per hectare for shrimp less than 40 days old 245,385,347 (VND) Damage, compensation and insurance premium (VND) 100 90 80 70 60 50 >50 Insurance payment rate calculated on 100 90 80 70 60 50 >50 20 15 10 >5 total cost (%) Insurance premium rate calculated on 30 total cost (%) 33 25 Through the survey, 142 households reported that the average total cost for shrimp less than 40 days old was 245,385,347 million VND / Households pay special attention to shrimp insurance at the beginning of the crop, when shrimp are too small to sell If the shrimp is damaged less than 40 days old, most households not harvest because at this time shrimp is small and has not reached a marketable size and they often dispose of the shrimp and prepare the pond for next production period The farmers then perceive 100% damage rate for this period With the insurance premium rate on total cost is 30%, shrimp households in Tra Vinh are willing to pay for white leg shrimp insurance with a fee of 73,615,604 VND/ha 4.3 Analysis of factors affecting the willingness to pay for whiteleg shrimp insurance Results of the regression model for “Analysis of factors affecting the willingness to pay for whiteleg shrimp rural insurance” of households in three districts: Cau Ngang, Tra Cu and Duyen Hai in Tra Vinh province as follows: 34 Table 4.8 Results of regression model for “Analysis of factors affecting the willingness to pay whiteleg shrimp insurance” of households in research sample Factor Age of householder Coefficient P-Value Code AGE 0.033853 0.0268 Agricultural insurance program for shrimp culture AIINFORMATION -0.482453 0.2856 Area -0.379038 0.0002 Become a member of shrimp cooperative/association/or other COMMPARTICIPATION 1.494988 0.2147 Number of dependents belonging to household DEPENDDBELONGING -0.135595 0.0011 AREA Number of years of schooling EDUCATION 0.093400 0.0095 Starting from year WLSEXPERIENCE 0.227529 0.7390 Constant C 4.772906 0.0001 R-squared 0.637470 Prob (F-statistic) 0.0000 Observations 158 (Source: Calculated from survey data) The statistical value in the Prob (F-statistic) model = 0.0000