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How Will Farmer's Borrowing Respond to an Increase in Crop Insurance Premiums?


This article explains the effect/impact of a crop insurance premium adjustment to farmer's credit demand; and factors affecting the demand for crop insurance. Among other things, the study shows that the formal cost of credit, inclusive of the crop insurance premium, has a consistently negative and statistically significant effect on borrowing. This reduction implies, not so much as farmers shifting to informal credit, but rather an increasing reliance on internal funds. There is no evidence, though, that small farmers respond differently to an increase in the premium on formal cost of credit compared to the average-size farm operator.

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