Assessing the viability of the non-monetary flood insurance market for Bangladeshi smallholder farmers

Agriculture in Bangladesh is susceptible to numerous climatic hazards, especially flooding. Smallholder farmers in the country have been losing agricultural productions to flooding because they lack flood insurance for decades. Several studies that used the contingent valuation method (CVM) to investigate farmers’ willingness to pay (WTP) for insurance demand through monetary payment mode reported that small farmers suffer considerable financial constraints that limit their ability to pay insurance premiums. To avoid this concern, present study designed a novel econometric approach to assessing the validity and reliability of non-monetary WTP estimates in the context of environmental valuation research. By comparing monetary and non-monetary payment systems using the CV method, the study offers non-monetary flood insurance options for Bangladeshi smallholder farmers. For this purpose, 600 farmers in four flood-prone districts of northern Bangladesh were interviewed about their preferences for a hypothetical flood insurance market. To assess the accuracy and precision of non-monetary WTP estimates, a multivariate regression model was used. The results show that farmers with lower incomes favored non-monetary payment choices, and approximately 26% of the overall sample opted to contribute a portion of their seasonal rice crop rather than cash to cover the cost of flood insurance. Regression results show that farmers’ in-kind WTP decisions were influenced by a variety of factors, including farmland elevation, frequency of flood returns, non-farm income, and commercialization in agricultural farming, demonstrating the validity and consistency of the non-monetary payment alternative. Findings imply that subsidy policies are insufficient to expand the adoption of non-monetary flood insurance market in Bangladesh.