Of low insurance uptake, the bane of growing weather uncertainties
IT appears more of a global tendency than a fluke when smallholder farmers dominate the production of food crops in developing countries, thanks to limited economic opportunities outside urban areas, which obliges most rural dwellers to survive on agriculture.
Sadly, this farmer category is extremely vulnerable to weather uncertainties and variabilities, with shocks posing a major challenge to increasing productivity.
In most cases, this group of farmers has no counter measures to mitigate the harsh effects of adverse weather, hence they just haplessly watch as their efforts go up in flames.
These are risks emanating from unforeseen weather, diseases, pest infestations and market conditions that usually cause wide variations in yields and commodity prices.
Of course, their types and severity vary from crop to crop, farming system, agro-ecological conditions, policy and institutional settings.
These farmers obviously need safety nets in the form of insurance to protect them in the event of crop failures inspired by circumstances beyond their control.
Insurance policies can save them from total losses, as they can just transfer the shocks to the insurer.
It is, however, unfortunate that the majority of farmers in this class do not have insurance policies for their activities and often leave their fate to chance. Of course, they always give an assortment of reasons why they are not comfortable with insurance policies.
Globally, less than 20 percent of smallholder farmers have any form of agricultural insurance. The figure is even less than three percent across Sub-Saharan Africa, something that has always been attributed to a range of demandside and supply-side factors.
On the demand-side, lack of awareness of insurance services, largely due to the low penetration of financial services in rural areas, is a key barrier to uptake.
Even when farmers are aware of insurance, insufficient knowledge and understanding of financial services means they may not immediately trust the service provider owing to previous experiences in which someone they know or even themselves have struggled or even failed to get a claim honoured, as stipulated in the policy.
In most cases, the farmers are not able to raise the money to secure insurance policies and, therefore, focus their energies on mobilising basic resources such as seed, fertilisers, chemicals and sometimes labour.
In general, insurance uptake among smallholder farmers has also been constrained by two potential outlays: the cost of premiums and the cost of travelling to nearby towns to register for services and make claims.
It is encouraging to note that Government is making relentless efforts to ensure farmers get their activities insured and has even gone to the extent of suggesting that agricultural insurance should be made mandatory.
This is indeed crucial considering that Government is the one bearing the brunt of the farmers’ failure to insure their crops against failure year-in, year-out, yet the latter are not making the slightest effort to compliment this.
All the numerous support schemes, which the Government rolls out every season, need the farmers’ buy-in through not just being physically involved, but via ring-fencing activities from unforeseen risks.
In some cases, the Government even borrows money to invest in the programmes and that money will need to be repaid on the backdrop of good yields.
Good yields are only possible when the crop is allowed to grow safely on the fields while in the event of failure, there should be a fall-back position for the farmer so that Government does not feel the shock too.
It is disappointing to note that farming insurance accounted for 3,35 percent of the Gross Premium Written in 2021 compared to 2,13 percent recorded during the same period in 2020.
This slight increase in figures is obviously not something to write home about, given that such a percentage rating is very low for an agro-based economy like Zimbabwe’s.
In recent times, many farmers have lost both crops and livestock to natural disasters such as floods, hailstorms or even droughts, which left them incapacitated to participate in the production process anymore.
Such eventualities could have easily been taken care of if the farmers had insured their activities against unforeseen risks.
Government, like always, has stepped in to provide relief food and pacify the situation to ensure the citizenry’s life returns to normal, which is costly given the current economic challenges the world, Zimbabwe included, is facing.
But the farmers cannot shoulder the blame for the low insurance uptake all by themselves. Their spirits may be willing to insure their crops or livestock yet the pockets are not deep.
At the beginning of every season, the farmer will be focusing on securing money to invest in the farm and uses almost all the money, which in most cases is even inadequate, for the farming business.
This even leaves the farmer to contend with deficits that require to either borrow or even forego other important issues.
This makes it difficult for the farmer to find or save money for insurance policies even if is aware that insurance policies are a useful tool for managing agricultural risks.
In the end, the farmer just focuses on getting the basic things done and leaves the rest to chance.
Sometimes insurance providers are to blame for the way they treat the farmers.
In recent years, there has been a glut of cases involving disputes between farmers and insurers who renege on contracts or fleece them of their hard-earned cash after allegedly smuggling new clauses into the contracts before accusing farmers of not being fully paid-up.
There have also been cases in which farmers have approached their service providers seeking cover following in the aftermath of a problem and the insurers have not been very helpful.
This has naturally left farmers suspicious of schemes involving parting with cash when there are also chances of them going through a season without calamities befalling them.
They, therefore, fail to see the difference between those with insured projects and those without.
Their situation will even be worse than those who would stayed away from insurances because those that abscond would not have lost any money.
The costs of the premiums are sometimes just unaffordable for most farmers.
Insurers may, therefore, need to peg charges for their services at rates that do not make the farmers feel better without the policies and wait to cross the bridge when they come to it.
It may also be good if they develop products that address what the smallholder bracket of farmers need and avoid the ‘one-size-fits-all’ approach they mostly use.
On the one hand, the failure by smallholder farmers to insure their crops or livestock also comes with other challenges other than just being vulnerable to hostile weather and natural disasters.
They are also systematically excluded from financial schemes by most financial institutions because they cannot provide guarantees of their capacity to repay.
It is obvious that any lender can readily accept to help them if there is a flourishing project backed by comprehensive insurance policies as surety should the unexpected happen.
The farmers can always transfer the risks to the insurer.
Farmers naturally cannot control what happens, but can at least manage the scale and in some cases, the possible outcomes.
Success in farming is always possible through proper planning and insuring crops or livestock is one sure way of demonstrating this.
The adoption of insurance policies is one way the farmers can guarantee that they will be surviving from season to season.
The roll out of national insurance programmes that will enable even resource poor farmers to protect their activities is thus important.
Recently AFC Holdings, partnered a consortium of insurance companies and the Government to run a pilot project on Area Yield Index Insurance for farmers who received Pfumvudza inputs in the 2021/2022 Season in Rushinga and Mwenezi districts.
Area Yield Index Insurance compensation is based on the realised average yield of an area, not the actual yield of the insured party.
Losses are paid if the realised yield for the area is less than the insured yield regardless of the actual yield to an individual policyholder.
Countries like Zambia, Kenya and others have also introduced the insurance programmes in the face of the growing climate change problems that are making it difficult for farmers to operate viably every year.