Study: Weather-based insurance benefits farmers

A new study shows that weather-based insurance will help smallholder farmers to withstand the effects of climate change and market shocks. The study was launched recently in London where Nigerian officials also gathered to learn how they can implement the programme for their farmers. 

The report, “Scaling up index insurance for smallholder farmers”, was carried out by the CGIAR Research Programme on Climate Change, Agriculture and Food Security (CCAFS), and the International Research Institute for Climate and Society at Columbia University in New York. It showcased projects that have overcome many of the challenges that have hindered farmers from having access to index insurance.

This type of insurance provides support to small farmers when there’s not enough rainfall to grow sufficient yields. The insurance is based on a specific “index” – for example wind speed or rainfall for crops.

Dr Adebisi Araba, the team leader for the Environment and Climate Change Unit for Nigeria’s Ministry of Agriculture, explained the appeal of the insurance to food producers in his country.

“Nigeria has about 15 million smallholder farmers, and it’s our aim to ensure that each of those farmers not only remain productive but are able to cope with the shocks and stresses of weather-induced climate change,” said Araba.

“In 2012 we had massive floods along the east and southern parts of the country. And this not only affected the livelihoods of the farmers but it also made us acutely aware that farmers needed to be insulated from the shocks and stresses of climate change and one of the methods that we want to use is index insurance.”

He said CCAFS scientists provided them with a technical workshop in London where they designed a weather-index insurance programme for small-scale farmers in Nigeria.

Dan Osgood, lead scientist of the financial instrument sector team at International Research Institute for Climate and Society at Columbia University and also the co-author of the study, explained how the index insurance programme can improve the lives of smallholder farmers.

“For many farmers, climate change means more bad years, and so adaptation means taking advantage of the remaining normal years and being more productive in those years — you know, basic math,” he said.

“The problem is the kinds of things that you can do to become more productive, like using a quality seed or taking out a loan for some inputs or buying an ox to be able to plow, those things involve taking a chance.

“So even if… out of five you have four years that are okay, if you have one year out of five that’s bad, you don’t know if that’s the year that you’re making this decision to invest in something like an ox or quality seeds. And if this is the year, then you can fail completely and lose the farm.”

According to Araba, in Nigeria one of the biggest challenges to implementing insurance as a safeguard against losing the farm is having access to data.

He said access to data used to be a constraint. Now they have concluded they have enough data to develop an insurance mechanism.

“We’re working with the IRI — International Research Institute of Columbia University — to work with the Nigerian Meteorological Agency, where we’re going to collate all the data that we have from the weather stations across the country both at the federal and state levels. We’re going to synthesise these and produce high quality information that will form the backbone of the weather index insurance.”

The new crop insurance programme will also incorporate other programmes already in existence.

One, called the Planting with Peace Programme, is run by the Nigerian Agricultural Insurance Corporation.

Another is the Growth Enhancement Scheme, which includes a database with vital and up-to-date information, down to the mobile phone numbers of smallholder farmers in Nigeria.

It also distributes subsidised fertilisers and seeds to farmers.

“We’re also working side-by-side on another framework that will enable multiple provider insurance companies to participate in extending insurance products to the farmers. And then we foresee a situation where the government then backs the more highly perceived risk areas where the private insurance companies don’t want to engage with farmers,” Araba said.

“We will back NAIC to extend insurance products to those farmers.”

The study also examined other countries where index insurance has been successful, such as India, Kenya, Rwanda, Ethiopia and Senegal.

Smallholder farmers are beginning to understand the importance of this science-based insurance. Scientists have found traditional loss-based insurance is not affordable for smallholder farmers.

However, with index insurance, farmers are able to purchase coverage based on an index that is correlated with a specific loss such as wind speed or rainfall amounts. Scientists at CCAFS and Columbia University say the index insurance model has the potential to build the resilience of smallholder farmers.

“I think we’re going to see these kinds of models which grew from a couple hundred to tens of thousands, to hundreds of thousands. Or in India — because it was connected with a national programme — to tens of millions,” Osgood said.

“And I think and I hope there will be a real push to make sure there are solid products so that when we go to larger numbers of people, we’re giving them a good service.”

He further highlighted that the insurance needs to be meaningful to the farmers, “so that it’s actually giving them the tools to provide for their families instead of just having them sign up. And I think there’re some examples in the case studies of how it’s possible to do these things, and I think those kinds of things in the future will continue to grow.”

Scientists of the study say index insurance not only protects small farmers’ assets, it also unlocks opportunities to increase productivity in the non-payout years which might allow them to escape from the traps of poverty.

Nigerian officials say they’re committed to signing up all 15 million of its farmers by 2017. — VOA