Agricultural insurance is not a popular concept among smallholder farmers in Africa. Research actually indicates that industrial farmers are the majority of insured farmers, primarily because people do not tend to buy insurance products unless they are compulsory or occupy certain positions of influence. That aside, the development and deployment of agricultural insurance products is no easy task.
There’s need to raise awareness about the importance of crop and livestock insurance within communities and among smallholder farmers, as there exists various risks, including low production, gaining adequate markets and political bureaucracies. Other barriers and risks related to agricultural insurance also include the availability and quality of data i.e. weather and output from the farm. But, designing a product requires a lot of expertise that better suites the chosen business model.
What I learnt in Session 52 at Fin4Ag Conference about this issue is that not all things can be insured, and that a subsidy for crop and livestock insurance can be viable. Significant advances can be made in agricultural insurance to assist the smallholder farmer in times of crisis, too.
In order to develop a credible agricultural insurance model, it’s a question of mentality and education. Producers who are insured are more likely to invest in other farm inputs for improving their produce e.g. buying fertilizer.
Livestock and crop insurance can facilitate access to credit by increasing the credit-worthiness of farmers. It can also serve as a substitute for physical collateral and give banks more security and incentive to lend to the sector. In addition, it can improve agricultural competitiveness amid increasing market and environmental pressures.
Technological advances like satellites should be incorporated in the design and tracking of products to make insurance affordable and more likely. This helps in acquisition of the much needed quality and reliable data that the insurer can use to analyze the risks and inform the producer appropriately.
The cost of insurance products is usually high and if you look at the smallholder farmer who earns very little income, it’s unrealistic for him to get and sustain insurance for agricultural activities. Thus governments’ intervention is very much required in subsidizing key elements of the agri-value chain. For instance, governments’ can play a role in subsidising the premium on crop insurance or helping in setting up good information for weather data as initial steps.
Low penetration rates in relation to agricultural insurance can also be effectively confounded through using cooperatives and producers organizations as distribution channels. Insurance companies also need to partner with other agricultural value chain stakeholders such as financiers and off-takers to ensure that the smallholder is very much protected.
Insurance is crucial, especially in times of crisis, as pay outs, builds the confidence of the smallholder farmer to insure their products again. So insurance, which is an important risk-mitigating tool to address livestock and crop farming, provides sustainability for agricultural activities.