3.2. Tres variables conceptuales
3.2.2. Equivalencia empírica
For the purposes of valuing a WII contract for field crops such as maize and rice, the minimum level of protection should be based on the accumulated costs of production during the growing season, or alternatively if higher levels of sum insured protection are required, a revenue-based valuation may be used.
Under this study, it has been seen that between 2004 and 2010 the NAIC average sum insured all crops has been about Naira 66,000 per hectare. The local consultants also prepared gross margin cost of production and return per hectare budgets and this data is reviewed in Annex 3. However, given the very high production costs presented and which do not reflect farmer-level average typical costs of production a lower costs of production based valuation for maize of Naira 60,000 per hectare has been used for maize in all states. The figure of Naira 60,000/Ha also sets the basis of the sum insured per hectare, or in other words the maximum total payout which the policy will make in one cover period.
The maximum payouts for maize per phase have been calculated to represent as accurately as possible the lost costs of production that a typical farmer would incur at each phase under a severe rainfall deficit scenario. Under the sowing failure cover, it is estimated that the farmer will have incurred about 40% of his costs in terms of land preparation, seeds, basal fertiliser dose and sowing costs, which gives a sowing failure payout of Naira 24,000/Ha. For Phase 1 Germination failure the farmer would lose the costs invested to date in land preparation and sowing, but at this stage he will not have incurred major additional costs to maintain the crop and therefore the maximum payout in this two dekad period is also fixed at Naira 24,000 (40% of total production costs). In Phase 2 Vegetative Stage the farmer will incur additional costs for weeding and fertiliser application (top dressing) and also in plant protection measures and the maximum payout for Phase 2 is set at Naira 30,000 50% of the total costs of production/ maximum total annual payout. Finally during Phase 3 flowering and grain formation the maximum payout is set at Naira 40,000 or 67% of the total production costs / total sum insured: at this stage the typical maize farmer will have incurred between two thirds and three quarters of his production costs save for harvest labour costs and post-harvest transport, storage and threshing. In Phase 3, tasseling / flowering in maize rainfall deficit will result in major loss of grain formation and yield. These policy payouts are summarised in table A4.2 below.
It should be noted that the Policy Maximum Total Payout is Naira 60,000 per hectare or in other words the policy does not pay out the sum total of the maximum payouts for each vegetative phase. This is because the policy allows for a total loss scenario in each phase, but in reality once the crop had been lost say following sowing failure, there would not be any more crop production to lose. The recognition that a farmer may incur losses or damage to his crop at different stages of the growth cycle means that the policy is designed to make at least 2 full payouts in Phases 1 and 2, or partial payouts in either of these phases and still make payouts in Phase 3 if drought conditions continue to dominate. Under such a WII cover, once the maximum payout of US$ 60,000 / Ha has been reached, cover will cease and no further payouts will be due from Insurers in that cover period (insurance year).
The payout rates or the Tick in Naira per millimetre of rainfall deficit are also shown for the illustrative Prototype maize rainfall deficit contracts in Table A.4.2.
Table A.4.2 Nigeria Maize Deficit Rainfall Insurance Contract Parameters
State / Weather Station Kaduna Cross River (Calabar)
Enugu Lagos (Ikeja)
Insured Crop: (Main Season or
first crop Maize)
Maize Maize Maize Maize
Contract Parameter
Failed Sowing Trigger (mm) 25 25 25 25
Phase 1 Trigger (mm) 40 40 40 40 Phase 2 Trigger (mm) 75 70 65 65 Phase 3 Trigger (mm) 100 100 100 80 Phase 1 Exit (mm) 30 25 20 20 Phase 2 Exit (mm) 35 40 40 35 Phase 3 Exit (mm) 55 50 55 45
Maximum rainfall cap per dekad 60mm 60mm 60mm 60mm
Failed Sowing Payout (Naira) 24,000 24,000 24,000 24,000
Phase 1 Max Payout (Naira) 24,000 24,000 24,000 24,000
Phase 2 Max Payout (Naira) 30,000 30,000 30,000 30,000
Phase 3 Max Payout (Naira) 40,000 40,000 40,000 40,000
Phase 1 Payout Rate (Naira/mm) 2,400 1,600 1,200 1,200
Phase 2 Payout Rate (Naira/mm) 750 1,000 1,200 1,000
Phase 3 Payout Rate (Naira/mm) 889 800 889 1,143
Contract Maximum Payout (Naira) 60,000 60,000 60,000 60,000
Source: World Bank
4.6. Maize Rainfall-Deficit Contract Modelled Outputs and Payouts
To date a simple manual analysis has been conducted to model the payouts that would have been made under the rainfall deficit models for maize for the 4 selected stations and states. The outputs of this analysis are summarised below.
Kaduna:
In Kaduna based on the NIMET rainfall data and the WRSI modelled water balance, there was adequate rainfall in each phase of the 30 year period to fully meet the crop water requirements for maize to achieve a potential yield of 2,300 Kg/Ha, which would imply that rainfall deficiency (drought) is not the primary cause of yield variability or loss in the vicinity of the Kaduna airport weather station (Figure A4.2).
There was no significant correlation between the rainfall and WRSI analysis and the Kaduna State-level yields for the 16 year period 1994 to 2009
.
This is probably explained by the fact that the state-level aggregated maize area, production and yield data fail to reflect the local variations in maize yields in the vicinity of the Kaduna NIMET weather station (See comparison in Figure A4.3 of WRSI calculated yield productivity for maize and actual average state-level yields of maize from 1994 to 2009).Source: Authors
Figure A4.3. Kaduna: Comparison of WRSI Calculated Maize Yields with Actual average state-level Maize Yields
Source: Authors