Insuring the agricultural sector
Agricultural insurance is a major tool for farmers and other stakeholders to use in managing risk. Generally, insurance protects against production-related risks (pests, diseases, farming practices) and market & policy related risks (drought, flood, prices). Globally, the major value chains that benefit from insurance are crop and livestock, others include fishery and forestry.
Access to agricultural insurance in Nigeria is limited and costly, particularly for rural farmers. In addition, farmers have poor access to other services like financing and inputs so insurance policies add to costs that most farmers are unwilling to incur. International best practices show that agricultural insurance is most effective when combined with other services such credit and technology.
Crop & Livestock Insurance
Crops are mostly affected by adverse weather conditions which include drought, flood, pest infestation and bush fires. Annually, farmers lose significant amounts of money as a result of the effects of these adverse conditions on crops.
Crop insurance products can be classified into two major groups. Indemnity-based insurance or peril crop insurance is calculated by measuring the percentage damage soon after the incidence occurs while yield-based or multiple peril crop insurance is coverage in which an insured yield is established as a percentage of the farmer’s historical average yield. Livestock are mostly affected by various types of diseases such as bird flu and swine flu. In Nigeria, livestock insurance is more popular than crop insurance particularly in the poultry industry, due to the increase in organized poultry production in the country. Initiatives promoting agricultural insurance and role of Agricultural Insurance Corporation (NAIC)
In an effort to provide agricultural risk insurance for farmers, the government established the National Agricultural Insurance Scheme (NAIS) in November, 1987. This scheme evolved into a corporation, fully owned by the Federal Government of Nigeria called the Nigerian Agricultural Insurance Corporation (NAIC) in June, 1988. The main objectives of NAIC are to promote agricultural production, provide financial support, increase the flow of agricultural credit and minimize the need for emergency assistance to farmers. The scheme was established for all categories of farmers: small, medium and large scale at the individual or group level. The crop insurance package covers 17 crops like maize, rice, cassava, yam and sorghum. The livestock insurance package covers 14 types of livestock such as cattle, poultry, pigs, rabbit and sheep. The perils covered under crop insurance are fire, lightning, windstorm, flood, drought, pests and diseases while the perils covered under livestock include accident, disease, fire, storm and flood. In May 2013, NAIC paid over 500 million in claims to insured farmers who suffered losses from the floods in 2012. More recently, NAIC paid 80 million in compensation to a sugar farm in Adamawa State, following natural disasters.
Agricultural Insurance in Africa
Since 2009, Syngenta Foundation for Sustainable Agriculture has developed and implemented agricultural insurance products for smallholder farmers through the Kilimo Salama project (now ACRE, a for-profit company). Acre Africa currently operates in Rwanda, Tanzania and Kenya. ACRE Africa has been designing insurance products for farmers who grow maize, beans, wheat, coffee, tea, sunflower and potatoes. The project discovered major challenges with the traditional approaches such as excessive fiscal costs and high abuse potential.
Thus, they developed an innovative crop insurance product that utilizes weather station and satellite data to monitor rainfall; reducing the need to depend on expensive farmer visits to verify claims. Rainfall measurements and pay-outs are automatically sent from the insurance company to the clients in seasons of loss. This product leverages on mo-bile technology and aggregators in existing agricultural value chains. The insurance
cover can be bundled into the cost of inputs, loans from micro finance institutions (MFIs), or repaid at harvest. As at 2013, the project had insured 187,466 smallholder farmers in Kenya and Rwanda, a major increase from 185 farmers insured in 2009. One of the major success factors of this project has been its ability to leverage on technology to enhance insurance product monitoring and distribution.
The current products offered by ACRE Africa include:
• Loan-Linked Insurance: MFIs offer input loans (100 USD) to farmers, including certified seed, mineral fertilizer, extension services and market linkages. Kilimo Salama products insure these loans, with pay-outs sent to the MFI to apply against loans or distributed directly to affected farmers.
•Contract Grower Insurance: an agri-business pays the premiums at the start of the season, deducting the cost from the de-livered harvest. This also works for large scale farmers, producing certified seed on larger areas with heavy investments in fertilizers and crop protection.
•Dairy Livestock Insurance: offered to individual farmers or linked to dairy loans from MFIs or banks. The cover is linked to an animal care package and vaccines, and attracts farmers with high quality cows.
• Replanting Guarantee: an input company (seed or fertilizer) bundles the insurance premium into the price of each bag. Each bag contains a card with a unique code. If there is severe drought, farmer receives mobile money transfer to purchase a new bag and replant. Source Sahel advisory services.