According to 2008 World Bank statistics, 82% of the rural Sub-Saharan Africa population lives in agriculture-based countries where agriculture is a major source of growth, accounting for 32% of GDP growth on average, writes Simbarashe Nembaware.
However, in many countries the sector, which is the backbone of many livelihoods, is without an insurance scheme and analysts say this stalls the sustainable growth of the sector as commercial banks and other financial institutions do not want to risk their funds by bankrolling enterprises in a sector that is very risk.
But the agricultural insurance is quickly gaining ground as a way of fighting the cycle of poverty, made worse by natural disasters such as floods and drought which destroy food and kill animals. It is now being appreciated as a popular solution to mitigating against the cycle of poverty created by harvest loss.
With the existence of an insurance scheme, banks are now certain that the money they lend to farmers can be recouped and this translates to many farmers applying for loans so that they can upgrade their farming enterprises: they can now apply for loans to buy combined harvesters, tractors and other tractor drawn implements; they can now apply for loans to buy livestock. Indirectly the insurance contributes to food security and increasing the contribution of agriculture to GDP.
The Botswana Insurance Company (BIC) recently launched its agriculture insurance that covers both livestock and crops. The insurance took a long time coming for a country that has a thriving beef industry. But the timing is also appropriate because it comes at a time when the country strides towards food security, self sustenance and the eradication of poverty through the National Vision 2016.
Launching the policy in Gaborone, recently, Mr. David Garden an Insurance Broker with Tribe from South Africa; a company that has extensive experience and knowledge in livestock insurance, said the policy was tailor made to suit the needs of farmers.
Although the policy was developed in South Africa, Mr Garden says the “policies are online with Botswana conditions and in liaison with Botswana Insurance Company (BIC) we will keep on checking if the products and policies work” and change where there is a need for changing.
Mr Dziki Nganunu, the Managing Director of Botswana Insurance Company who when offering the closing remarks at the launch of the insurance said the “insurance meets the needs of farmers and those of the sector. Cover is also available for crops and this will be available on a case by case basis.”
In terms of this livestock insurance’s security, farmers are secure as reinsurance support for the direct insurer is being provided by Munich Re, the largest reinsurer in Africa. The insurance’s local technical support is brought by BIC “with and exclusive arrangement with Alexander Forbes Risk Services.
Though termed Livestock Insurance, this is a multi peril insurance scheme that caters for livestock and crops too. It also cuts across the livestock divide as it accommodates beef cattle, dairy cattle, pigs, horses, chickens, game and fish farming. There is also mention of fire insurance for commercial forestry.
The insurance is flexible in that it has options for Herd Select Insurance which gives the farmer the option to select the animals that they wish to insure “if he does not want to insure his entire herd.” The advantage of this is that effecting this Insurance will “also assist the farmer to obtain finance to purchase animals.”
In addition to Herd Select Policy there is the Stud Animal Policy whose features include: infertility and impotence cover; gap cover following a government slaughter order. There is also Herd Insurance Essential Cover which “is designed to protect the least valuable animals or the entire herd where the farmer is not concerned about disease or sickness cover.
The policy addresses death from fire, lightning, accident and theft. In addition to covering animals from all risks mortality and theft, transit is also included. Death by snake bites is also covered by the insurance.
However the insurance does not “cover death directly or indirectly caused by or happening through or in consequence of: Ionising radiations or contamination by radioactivity from nuclear fuel or from nuclear waste from the combustion of nuclear fuel; the radioactivity toxic explosive or other hazardous properties of any explosive nuclear assembly or nuclear component thereof.”
Also not covered is the death “directly or indirectly caused by happening through or in consequence of: confiscation or nationalism or requisition by or under the order of any government or public or local authority or any person or body having jurisdiction in the matter.”
Death as consequence of “war, invasion acts of foreign enemies hostilities (whether war be declared or not) civil war rebellion insurrection military or usurped power riots terrorism and civil commotions” is also not covered.
Speaking on the sidelines of the launch, David Merementsi, a cattle farmer from Matabula Ranch in Western Sandveldt said the insurance is a welcome development to the local agricultural scene as it is going to draw banks into lending farmers money “as they will know that their money is secured.”
Merementsi whose herd is made of the climatically adaptive Brahmans, Charolais, Simmentaller and Tswana cattle says the insurance is a “step in the right direction as we are not getting enough finance from the banks. This is going to strengthen our resolve using agriculture as a vehicle of diversifying the economy from being a diamond driven economy.”
“I recently lost a bull that i had bought for R16 000 from South Africa. It was just two weeks old on my ranch and it had not even done anything to help return my investment when it died due to a snake bite, and this is the second time that I have lost a bull this way,” said Merementsi who is glad that the new insurance also covers deaths by snake bite as this is a common calamity in the country.
Arable land farmers should also insure as this insurance caters for them. Johan van den Berg the Product Development Manager for South Africa’s Santam Agriculture says climate variability is a farmer’s most immediate threat as it has huge impact on planting decisions and risking management.
In an article published in South Africa’s Farmers Weekly, Berg discussed why farmers should insure citing the effects of climate change. He added that “weather forecasts are only about 70% accurate; farmers must have plans to ensure they can make money if the 30% probability happens. Climate variability is a big risk and, with current low commodity prices, the margin of error is very small. Insurance can help decrease the negative effects of climate variability.”
He advices that “if farmers decide that conditions are right to plant, they must also decide which grain crop and cultivars will give the greatest yield at the lowest risk. Farmers often wait to see if the season is late and dry and then plant a suitable crop. Farmers traditionally plant more medium-term growing cultivars, but if the season is very late, they choose to plant shorter growth-cycle crops.”
He further notes that good farm management and production practices are important for risk management adding that farmers sometimes let parts of their land to fallow, or store up water from the last season to reduce planting risk.
“Precision farming, which deals with in-field variability, is also becoming a crucial risk management tool, where farmers adopt new technologies, such as global positioning, sensors, satellite or aerial images and information-management tools to assess and understand variations for optimal use of soil potential,” says Beg.
At the Southern African Regional Development 3rd Briefing on Financing agriculture in Southern Agriculture held last month in Malawi by African, Caribbean and Pacific Group of States, David Rohrbach from the World Bank, who presented a paper on Risk Management and Agricultural Insurance, said “weather, price and related market risks are pervasive in agriculture.”
He said these risks reduce farm investment and productivity growth with insurance however allowing “at least a portion of these risks to be transferred to another party.”
“However, the success of agricultural insurance programmes, particularly those targeting small-scale farmers, has been undermined by high transaction costs, and problems of adverse selection and moral hazard. Index based insurance offers substantial potential for reducing these costs,” said Rohrbach before citing Malawi which has been using rainfall index insurance to support the expansion of credit supply to groundnut, tobacco and maize producers.
He explained that the insurance offsets the risks of credit default in the event of drought adding that this encourages both the expansion of agricultural credit in drought prone areas, and a reduction in interest rates.
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