Farming as any other business is risky anywhere in the world, but especially if you are a subsistence/small-scale farmer in Africa, where a few weeks of too much or too little rain can wipe out your little farming investment and your ability to feed your family. The effects of climate change have been felt mostly by the farmers especially due to dependence on rain-fed agriculture. The changing and unpredictable raining seasons has greatly affected their ability to plan their farming activities. As climate change increases the frequency and intensity of natural hazards, the challenges faced by farmers will also intensify.
Although the advantages of agricultural insurance are almost common knowledge to insurance experts and many large-scale farms, this is often not the case for small scale farmers. It is believed that farmers are reluctant to part with their hard-earned cash in premium payments.
Yet, the same farmer needs help when his crops meet the wrath of unforeseen weather-related disasters such as floods or droughts. There is a lot of work needed in educating the smallholder farmers on the long-term benefits of crop insurance and financing models that are affordable to them. Education of small-scale farmers is necessary if they are to have a fruitful relationship with the insurance sector. Smallholder farmers are risky and need insurance more than the large-scale farmers to hedge against weather calamities.
Farmers in the developed world insure their crops against multiple hazards, including extreme weather, but in Africa insurance premiums are beyond the means of most small-scale farmers. Insurers are also reluctant to take on the cost and complexity of designing suitable policies and assessing claims in often remote areas.
Though insurance companies have tried to introduce weather index-based insurance, a form of micro-insurance, a robust risk management and risk-financing framework is needed in Africa to overcome the financial impacts of uncertainties such as droughts or floods. Good risk management not only will it help to smooth income volatility for farmers and players in the agricultural value chain, but will also unlock credit and mechanization services. For weather-index schemes to really work well, you have to make sure farmers are getting other assistance. In years where you don’t have drought, farmers might still not do well because they don’t know how to properly look after their crop.”