Zimbabwe has been prone to droughts in the past few years mostly caused by climate change. The southern African nation’s poor farmers are increasingly falling prey to natural disasters, droughts and torrential rain largely due to climate change.
However, insurance can assist in managing these losses, and crop insurance is that branch of this financial mechanism that is especially geared to covering losses from adverse weather and similar events beyond the control of growers.
Government has over the years been supporting agriculture through provision of inputs under the presidential input scheme and various subsidies under command agriculture, but paying little attention to crop insurance.
Principal, and elementary to the understanding of insurance, is the reality that insurance does not and cannot eliminate risk but it actually spreads risk. For starters, there are two dimensions to this spread. The first dimension is the spread across an industry or an economy, extended in the case of international reinsurance to the global sphere. The second dimension of spread is through time. Most insurance programmes operate on both dimensions. A key fact to note is that insurance does not directly increase a grower’s income rather it simply helps manage risks to this income.
Our food security depends on reliable harvests from smallholder farmers, but erratic weather is making their job increasingly risky
Secondly, insurance is a business. An insurance indemnity only becomes payable in the event of a claim under a policy. The policy must be in force, with premium paid, by the time of the loss event. Most policies incorporate an element of risk sharing, by means of a deductible. This amount is the %age of the loss which is borne entirely by the insured. Third, premiums must cover several areas of cost in addition to meeting the cost of paying indemnities under policies in force.
Our food security depends on reliable harvests from smallholder farmers, but erratic weather is making their job increasingly risky. To ensure a steady food supply, governments must secure the livelihoods of the farmers who grow our food. As mentioned earlier, one proven tool to increase farmer resilience is crop insurance, which helps farmers’ weather poor harvests and adapt to a changing climate.
One of the major problems is that only a few insurers want to enter the market thus making government support critical. Progressive government programs are needed to lead the way.
Agriculture has always depended on the weather, but climate change is making growing seasons more unpredictable.
Zimbabwe’s more than 1.5 million smallholder farmers, who rely on rain-fed crops to feed their families, are feeling these changes first. For families who live season to season, a year with bad weather can actually entail months of hunger until the next harvest.
Zimbabwe is lagging behind in terms of agriculture insurance. The Insurance and Pensions Commission targets an overall insurance penetration rate of 7% by 2022, up from the current 4,1%. As the world embraces IOT, encouraging use of ICT generally quickens compilation of data, verification and faster settlement of claim making insurance attractive to farmers.
Various governments are supporting crop insurance to cushion farmers in times of distress. Zambia, Kenya, Ethiopia and India, for example, have over the years implemented various strategies to support crop insurance. In Africa, our neighboring Zambian government enrolled over a million smallholder farmers under its input support scheme, Farmer Input Support Programme (FISP), on weather index insurance. Kenya, on the other hand, introduced an insurance Bill to protect farmers from drought losses.
Another interesting development is in Kenya where insurance experts called Acre which specialize in running index insurance schemes are now embracing the use of information and communication tools (ICT) to help farmers regain faith in crop insurance schemes.
Acre’s solutions are quite innovative. Like a farmer buying seeds in a packet with a scratch off code, the number of which is sent to insurer Acre, which can then localize the farmer and register the purchase. If there is a compensation claim, payment is transferred directly to the farmer’s mobile phone to buy a new packet. The price of index insurance plans is usually circa US$11 per season but can vary depending on the weather and the value of the crops grown. If the insurance plan cost is too high for some farmers, other actors can intervene to subsidize the premium for instance, fertilizer manufacturers and retailers, banks, farm cooperatives and even governments.
The Government of Zimbabwe can lead the way on agriculture insurance through offering progressive policies. The idea of crop insurance is simple but the challenge is scale. Insuring 100 farmers in a single village, for instance, in Muzabani is risky, because they’re all likely to have similar harvests. But insuring 100,000 farmers in a bigger area like Mt Darwin means the risk is more evenly spread, making it a better bet for insurance companies and more affordable for farmers. This is why governments’ support is so essential.
Progressive policies can create an important incentive for agricultural insurance. If the government through the Ministry of Finance prepares National Budgets with a key focus on crop insurance for smallholders, this encourages insurers, who have traditionally focused on commercial farms, to add coverage options for the small-scale farms that produce the majority of Zimbabwe’s maize.
Provision of Subsidies can also help build demand. According to One Acre Fund, for the past 4 years, Kenya through its Agriculture Insurance Programme has offered a 50% insurance subsidy for smallholders growing maize and wheat, one of the first large-scale schemes in Africa. In Uganda, the government offers a 70% subsidy for smallholder and commercial farmers, growing the insurance sector by 17% in 2017.
Finally, farmer education is of paramount importance. Given low levels of awareness around crop insurance in Zimbabwe, farmers may be hesitant to buy insurance. Through sensitization campaigns, governments can explain how insurance works to build farmers’ confidence in the coverage.
