Insurance enables smallholders to invest with confidence

The following is a guest post by Paul Castle, Head of Communications at Syngenta Foundation for Sustainable Agriculture

Worldwide, millions of smallholders are facing the effects of climate change. Erratic rains, flood and drought threaten their livelihoods. Insurance can help them tackle these and other problems.

The Syngenta Foundation for Sustainable Agriculture (SFSA)* has been working in East Africa for about a decade. The Swiss-based non-profit has gained considerable experience there in smallholder insurance, which it is now putting to use in Asia.  

Smallholders are very risk-averse – understandably. Bad weather and/or pests can rob them of entire crops. They then lack the money to buy quality seeds and other inputs for the next season. Unable to invest in their harvests, smallholders remain trapped in a vicious cycle of poor yields and low incomes.

In response to this problem, SFSA launched Kilimo Salama in 2008. The insurance program started in Kenya. Its name means ‘safe farming‘ in Swahili.

“Insurance should be simple, affordable, and relevant to small farmers“, says Olga Speckhardt, SFSA’s Head of Insurance Solutions. “Otherwise the entire burden of agricultural risk weighs on the shoulders of those least able to carry it.“

In Kenya, Kilimo Salama was a partnership between SFSA, local insurance company UAP, and Swiss Re. Kilimo Salama was designed specifically for smallholders. It primarily helped them cope with weather shocks. However, it also developed other insurance products, for example for dairy cows. A Helpline provided insurance information, agronomic advice, issue resolution, and other services**.

By late 2013, 187,000 farmers in Kenya, Rwanda and Tanzania had taken out protection. “Previously, few smallholders could afford such cover“, explains Olga. “Traditional crop insurance relies on expensive farm visits to verify claims. Kilimo Salama did not visit the farms, but instead used automated weather stations and mobile payments. These dramatically reduced administrative costs, enabling a premium price that was right for small farmers.”

Crucial for success: indexing and automation

Kilimo Salama’s success stemmed mainly from offering ‘index insurance‘, and from suitable application of technology. Index insurance uses weather data from satellites and automated weather stations as a proxy to estimate farmers’ harvest situation. Each season‘s weather data are automatically compared to an historical index. If rainfall is, for example, 15% above or below average, the insurance payout is calculated and sent to farmers‘ mobile phones. There is no long-winded ‘claims process’.

By reducing their risks, insurance encourages farmers to invest in their farms. This way, they can raise their yields. A 2012 Kilimo Salama survey indicated that insured smallholders stepped up their farm investment by about 20 percent.

By 2014, SFSA had proved that affordable insurance for smallholders is possible, popular and productive. With co-investors, it set up ACRE Africa (Agriculture and Climate Risk Enterprise Ltd.)*** to take this work forward. The new insurance surveyor was one of the few sources of smallholder insurance expertise in Sub-Saharan Africa.

Releasing capacity for replication in Asia

SFSA remains ACRE‘s majority shareholder. However, with the company launched, Olga Speckhardt and her team have increasingly focused on Asia. Among the first insurance products offered in India was a Replanting Guarantee. In an unusual example of knowledge transfer from Africa to Asia, this was based on a solution developed under Kilimo Salama. SFSA is also working in Indonesia, Cambodia, Bangladesh and Myanmar.

“New countries mean new risk profiles and client demands”, comments Srini Rao. He works for Olga Speckhardt’s team in India. “So we are in the field seeing what farmers really need.” This is particularly important in Myanmar and Cambodia, where the Foundation has no operational experience. However, even in the other countries, where it already had local teams, insurance is a new field of activity.  

“In each country we start with a feasibility study”, Srini adds. “This assesses the local viability of insurance as a risk management tool. We discuss with a wide range of stakeholders how we can support local adoption.” These stakeholders include farmers, cooperatives, officials, meteorologists, input suppliers, insurance companies, NGOs, banks and mobile phone providers. “We also look how we can best distribute new insurance products to large numbers of smallholders, for example in cooperation with the local private sector.”

The next stage is a ‘Dry Run‘. In Myanmar, for example, SFSA partnered with a Burmese NGO to track rice and sesame farmers from land preparation to harvest. Every week, extension officers recorded farm activities, input use, plant development, and any risks to the crop. “With these data, we can ensure that new insurance products are right for the farmers”, Srini continues. “That means covering their major risks, and ensuring any pay-outs come at relevant times – and quickly.”

As Srini Rao emphasizes: “Strong private sector links are critical to reach large numbers of smallholders with scalable solutions. We are now actively developing partnerships with produce buyers and farmers’ cooperatives, many of which have worked with us before in India and Indonesia.”

Insurance improves loans access

Risk management by smallholders takes several forms. Improving their agricultural practices to cope better with bad weather contributes as well. This requires education, and may also call for a change in inputs, such as more drought-tolerant crop varieties. At the same time, insurance also plays a role beyond protecting farmers‘ investments. It can open new doors to affordable agricultural credit.

“Combining agricultural insurance with financial products is a natural step“, says Rouven Pérez from the Swiss end of the SFSA team. “The insurance protects credit institutions against widespread default after bad weather, and farmers against the inability to repay loans after poor harvests. Agricultural credit and insurance are complementary products; together, they can reach more and more smallholders.“ A reputable insurance policy can also act as alternative collateral where a farmer cannot prove land use rights. This is particularly valuable for widows, who in some societies lose land access when their husbands die.

Rouven underscores the importance of financial education alongside agricultural training. “Few smallholders have experience with insurance. They need to know about the products before they can decide what to request. We organize educational programs to match.“

The loan-giving institution – which can also be the company buying smallholders‘ produce – ideally prepays the premium on their behalf. Repayment follows after harvest. If there is an insured loss, the amount to be repaid is reduced. These products are often an integral part of the loan package: if farmers choose to access credit, it comes with insurance. Protection against risk takes many forms.

**For more on Kilimo Salama, see