From subsistence to sustainable: how insurance can help African farmers make the move

This was the key takeaway from the 4th Agricultural Reinsurance Workshop which took place on 17 July 2014 in Nairobi. A record 90 professionals from 53 organizations across 15 countries assembled in the Kenyan capital to look for solutions to make agriculture more sustainable in Africa.

Reliable farming has arguably become an even more daunting challenge given the impact of climate change, the increased food demand due to a growing population and alternative uses like fuel, something which is already evident in Kenya and many other countries of the region.

Said David Mburu from the Kenya Meteorological Department: "We are seeing a decrease in food production because of the erratic rainfall patterns, even within the productive areas. "This challenge is hitting African farmers at a time when they have to produce more food to feed a growing population. As Franco Rispoli of International Fund for Agricultural Development pointed out, the African population will double from today to two billion by 2050. And because 70% of the population will live in cities, they will be dependent on farmers for their food supplies.

Achieving sustainability: cooperation, funding key

To adequately supply the demands of the affluent urban populace, farmers in Africa must move from subsistence to more commercial farming; this requires help.  Key obstacles are inadequate irrigation and a lack of capital and know-how. The combined effect is that "crops don't develop well and they don't reach their optimum potential in terms of growth and yield" said Dr. Anthony Kibe of Egerton University in Kenya.

So what is needed to achieve sustainability? Cooperation and upscaling are key. Governments, NGOs and the private sector need to collaborate to help farmers in Africa realize their potential. While the government role is to provide the right basic conditions, the private sector role is to provide know-how and finance.

Finance is crucial because farmers' access to capital is restricted due to lack of collateral. Here, insurance can have an important role, since crop insurance gives a bank confidence that a loan will be repaid, said Simon Yegon of Stanbic Bank.

This was also underscored by Dr. Julius Muia of Kenya's National Economic and Social Council: "The financial sector provides the oil which oils the machine of production, which oils the machine of processing, which oils the machine of distribution, which oils the machine of consumption."

The importance of scale

What the financial sector needs for this is scale. Especially in insurance, larger number of insureds means better diversification, an important component for sustainable coverage observed Reto J. Schneider of Swiss Re. A pre-requisite is adequate risk management practices by the farmers and insurance products that fit their needs.

According to Isaac Magina of Kenya's UAP Agriculture Underwriting, these needs vary from livestock and aquaculture to classical crop insurance. Africa's diversity enables nearly any kind of agriculture on any scale, hence many different products are needed.

For the majority, index-based insurance is still important. This is because it has lower administrative cost, reaches exactly those subsistence farmers that need to scale up and – by protecting against the key perils – gives banks the confidence to lend to small scale farmers to develop their business.

What can be achieved could be seen at Egerton University Farms, where workshop members visited on the second day. "What I like about this farm is that it embraces modern methods of farming that are technologically sound and enhance efficiencies. This includes conservation tillage, precision farming for crops as well as zero grazing for dairy cattle," said Lovemore Forichi of Swiss Re.

Africa can be a bread basket provided that governments, NGOs, input providers, banks and insurance all work together.

Published 18 September 2014

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