Estimated reading time: 3 minutes
Risks such as heavy rain, flooding, hail, frost, drought and fire are by no means new to the South African agricultural sector. However, because of climate change, they are increasing in frequency and severity. These risks are also becoming more unpredictable amid changing weather patterns, which complicates risk management efforts for producers.
The impact of climate change will worsen over time, with forecasts predicting that South Africa will become hotter and that the average temperature is rising. Heatwaves will occur more frequently, increasing the risk of veld fires and more severe droughts. Managing water resources will become more challenging, making it vital for producers to improve and conserve soil quality to allow for better water infiltration.
In addition to climate change and severe weather events, infrastructure risks also threaten the productivity of our agricultural sector. The most obvious example is the ongoing energy crisis in the form of loadshedding, which severely affects producers – particularly when you consider that 100% of fruit and vegetables and a third of field crops require irrigation, which requires electricity. These mounting challenges put our agricultural outputs at risk.
Agriculture is an export-oriented sector in South Africa with more than half our produce – to the value of US$13 billion – being exported annually. It is an important contributor to our economy, and we cannot afford to let escalating agricultural risks have an impact on our food production outputs.
The benefits of agricultural insurance
Crop insurance serves as an integral tool in maintaining sustainable levels of food production by providing a safety net for producers, ensuring access to financial resources in the event of crop failure and other disasters. It enables producers to invest in new crops and continue producing food, thus maintaining their operations and securing their livelihoods. Insurers also assist producers with employing risk mitigating measures to minimise damages.
In addition, agricultural insurance can help reduce the vulnerability of emerging producers who are considered high-risk borrowers. This perceived risk prohibits them from gaining access to much-needed credit from lenders. However, insurance reduces the risks they face and improves their credit worthiness as it provides a degree of certainty, making it easier for them to access the capital they need to invest in their farms and improve productivity.
Malawi and Kenya have introduced insurance schemes for emerging producers and their food security status has improved year-on-year, according to the 2022 Global Food Security Index Report. Malawi has an overall score of 48,1 and improved by 2,6 points from 2021 to 2022, and Kenya has an overall score of 53 having improved by ten points over this period. This improvement can be attributed to their robust risk mitigation strategies, particularly in agricultural insurance.
South Africa – with a food security status score of 61,4 ranks the highest in Africa and 59th out of 113 countries – has its own proposed scheme for emerging producers, of which there are approximately 1,3 million in South Africa. Index insurance has the potential to be a game-changer in the local insurance landscape.
Index insurance is a type of insurance that pays out if a particular measure, for example, rainfall, is above or below a certain predetermined level. Small-scale producers could opt for a weather index or a yield index. These products are more flexible and cost-effective because this model of insurance does not require insurance assessors to visit the farm to determine damages. But it will require greater collaboration between insurers and government to fast-track the development of legislation to make this a reality for small-scale producers in South Africa.
In conclusion, agricultural insurance is a necessary tool for the sustainability of farming operations by ensuring uninterrupted production and assisting with risk management in an escalating risk environment, which is critical for food security, beyond our borders. – Daniel Stevens, head of Santam Agriculture Crop Insurance