The agriculture sector is of vital socio-economic importance as it contributes an average of 20% to 25% of the African economies` GDP. The sector however is an “open roof” industry which is exposed to the vulnerabilities of nature such as drought, excessive rainfall, floods, wildfires and other events of catastrophic nature. These loss triggering perils are responsible for the reduced food security on the continent. It is therefore imperative to find appropriate risk mitigation and risk transfer solutions to ensure uninterrupted production and processing systems.
The insurance sector over time has curated products that contribute to the protection of the different aspects of living, individual and corporate bodies. The agriculture sector has not been left out, with the provision of appropriate insurance products to minimize the impact of these loss triggering events on food security. Insurance companies provide adequate financial compensation in a timely manner to enable the sourcing of required food resources without waiting for government or donor assistance.
A myriad of factors can contribute to food insecurity such as socio-economic issues, geopolitical issues, production systems and their efficiencies, distribution systems of the inputs and the produce. Food losses during post-harvest handling can also not be ignored. Up to 40% of food losses in developing countries like Africa, occur during post-harvest processing (Simon Collings, Energy 4 Impact 2018). However, the biggest threat to food security is mostly climate related. Extreme climate events such as continued warming temperatures, floods, landslides and droughts all have a negative impact on crop and livestock productivity. The majority of farmers in Africa rely on rainfed agriculture and as such, their production system is mostly vulnerable to climate related events.
In addition, lack of enhancing technology needed for early warning and weather & climate observation systems, also impact the way the African continent perceives risk and adapts to the impact of the risk factors that threaten food security. It is important to look at the entire food production and processing value chain and minimize or eliminate food leakages and add a risk transfer solution such as agriculture insurance to close the loop.
Role of Insurance in Food Security
The insurance industry, having considered all forms of threats to the agriculture sector have available an array of products that contribute to food security such as multi-peril crop insurance, index-based insurance for both crops and livestock and indemnity-based products for livestock – all of which are offered by Allianz entities across the African continent.
By compensating the losses to the farmers in a timely and efficient manner, insurance provides farm income stability and ensures that the farmer is kept on the farm doing what they know and love best – farming – thereby contributing to food security.
Insurance has contributed largely to the agriculture sector in Africa through the following ways;
a) Direct Impact of Insurance on Food Security:
World Food Program reports that in Malawi in 2020-21 season, drought and pests destroyed crops and nearly 65,000 farming households who were affected received payouts from an agricultural insurance program, to the tune of USD2.4 mio. The payouts served as a springboard for farmers to adapt to weather-related shocks and fight food insecurity and poverty (Africa Renewal November 2021).
It can also be argued that by minimizing post - harvest losses caused by loss events like machinery breakdown of processors, fire, floods and wind damage of harvested crops through affordable and relevant insurance products, the insurance industry can contribute to food security.
b) Financial Inclusion:
The majority of the farming community in Africa generally operate on thin margins and most of them do not have title to land or any bankable assets that they can use as collateral to access finance for the much-needed inputs. By using the insurance policy as collateral, the farmers can access the finance they need, source the right inputs on time and be more productive per unit area, thereby contributing to the food security of their country, apart from also creating their own margins.
c) Indirect Impact of Insurance:
Insurance comes with requirements that encourage the farmer to practice the best methods of farming, which include maximizing output per unit area as well as practicing risk management technics that minimize losses or vulnerability of enterprises to losses. Well organized insurance companies, such as Allianz, would also dispatch field inspectors to the insured premises to ensure enforcement of loss mitigation and minimization efforts. This is in a way an indirect contribution to maximum possible production and leads to enhancement of food security.
Senior Agriculture Underwriter – Africa Region