Innovative microinsurance protects poor farmers against climate change

Tea farmers in Kenya. [CIAT/Flickr]

This article is part of our special report Innovations instead of assistance for farming.

SPECIAL REPORT / Farmers in the Global South can protect their business by insuring their crops against climate hazards. But this system is held back by a lack of reliable climate data. EURACTIV France reports.

For several years, insuring harvests against the climate hazards that regularly destroy farmers’ crops in developing countries has for several years been a major tool in the fight against poverty, mainly in Africa and Asia, where between 400 and 500 million farmers survive on very low incomes.

This system, which links indemnities to a climate index, allows small family businesses to insure their harvests, at least partially, against catastrophic losses that could otherwise ruin them.

>>Read: UN calls for global food security plan

Index-based agricultural insurance protects all the policy holders of a particular region against climate risks, and is available to small farmers who would not be able to afford classic insurance products.

Speaking at the Convergences World Forum in Paris on 9 September, Olga Speckhardt, the head of global insurance solutions for the Syngenta Foundation for Sustainable Agriculture, said, “With the Kilimo Salama project in Kenya, for example, we are able to insure a capital of just $10.”

Managing agricultural risk

The results are immediately visible. Launched in Kenya, Rwanda and Tanzania in 2009, the Kilimo Salama project insured almost 190,000 policy holders in 2013. “And we are aiming for a million by next year,” Olga Speckhardt said.

This insurance covers farmers against drought, excessive rainfall and illness for a premium of between 5% and 25% of the value insured. Farmers that sign up are then able to take out loans to invest more in their business.

“Farmers that have taken out the index-based agricultural insurance have been able to increase investment in their business by 10%,” said Olga Speckhardt.

Mobile phones as payment portals

The development of agricultural insurance has also been made possible by the wide dissemination of new technologies. Small business owners in poor rural areas often operate outside the banking system, and do not have easy access to traditional systems for transferring money.

Thanks to the mobile phone, now widespread in Africa, losses can be reimbursed in around a week. According to a study carried out by consultants PwC in 2012, Africa now has 500 million mobile phone owners, covering around 40% of the continent’s population.

This brings the insurance system an indispensable flexibility. Olga Speckhardt explained that “farmers must have access to rapid reimbursement when they activate their insurance, otherwise they can’t replant their crops”.

Sonu Agrawal, the founder of Weather Risk Managment services, said, “In India, small farmers communicate on the state of their crops by sending photos through Whatsapp.”

Implementation difficulties

Despite its proven effectiveness, this system is complicated to implement. The economic balance is also delicate for insurers, who rely on the often erratic local insurance markets to connect with farmers.

Access to data is another difficulty they have to face. Index-based insurance systems need up to 20 years of data on precipitation and productivity in order to be both profitable and reliable.

“Data accuracy is a big barrier to the development of index-based insurance in developing countries,” said Gilles Galludec, the programme manager of the World Bank’s Global Index Insurance Facility. “The use of satellite data is a partial answer to this problem, which is still one of the main obstacles we face,” he added.

For farmers in developing countries, taking out insurance is not always a high priority.

Gilles Galludec said, “We have difficulty selling, and above all explaining these products to farmers. The culture of insurance in developing countries remains a real problem. Farmers find it a bit mysterious.”

A growing challenge

Agriculture is confronted by many risks, particularly the increasingly common and severe climate hazards, as well as price volatility on the markets.

>>Read: New global food table: Europe feasts while Africa fasts

These difficult circumstances make farmers in developing countries particularly vulnerable. Not only is agriculture often the only means of subsistence and only source of income in poor rural areas, but farmers must also respond to the increasing demand for food in Africa, and prepare to feed two billion mouths by 2050.

“The African continent has 60% of the planet’s uncultivated arable land and could produce enough food not only to cover its own needs, but also to export,” the former UN secretary general Kofi Annan said at the OECD’s Africa Forum in Berlin last week. “Yet hundreds of millions of people suffer from hunger.”

Africa spends $35 billion on imported food products every year, but the fast pace of demographic change could see this figure explode in the coming years. Experts believe the African population will double by 2050 and triple by the end of the century.

>>Read our Interview: Hogan: Empowering women farmers in developing countries is ‘absolutely crucial’

Farming is the main source of income and work for 70% of the world's poor, rural population. In spite of this, Africa spends $35 billion on imported food products every year.

Soil exhaustion and land degradation, exacerbated by climate change, threatens the ability of developing countries to produce enough food at a time when high birth rates are pushing up local demand.

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