Crop insurance for small-holders farms

Kay Chapman sent me this link to a recent article in The Economist; “Security for shillings” which observes that:

One of the things holding back agriculture in developing countries is the unwillingness of farmers with small plots of land to invest in better seed and fertiliser. Only half of Kenyan farmers buy improved seed or spend money on other inputs. Many use poor-quality seed kept from previous harvests. That is understandable when drought or deluge can destroy their crop, but it has the effect of reducing yields. A new microinsurance scheme promises to help.

Sebastian Derwisch    , a consultant to CAS-IP who works on our System Dynamics Modelling research project, commented that:

It is smart of seed companies like Syngenta that are operating in many African countries to step out of their core business and help farmers to manage their cash flow. Seed adoption rates of 5%- 30% in most Africans countries provide for some business opportunities but innovation needs to target the other 70%-95%. To start and expand business in developing countries, multinationals must realize that their customers work under very different conditions than their customers in Iowa or Switzerland. Ensuring that farmers won’t be hit as hard by crop failure is one way to enhance seed adoption and we hope to see other ways to improve crop yields for African farmers by ensuring that they use better inputs. This should happen in cooperation with the national and international public sector as well as national private sector companies.

Farmers in the West have access to a number of instruments designed to manage risk; futures trading (which guarantees a price at harvest) and crop insurance are two of the most important.  And the use of trade marks – and enforcement of these – is a factor that can help to protect farmers from buying counterfeit seed which does not perform.

The pilot crop insurance program was launched by the Syngenta Foundation for Sustainable Agriculture in Kenya, and enables farmers to use their cell phones (see recent post on cell phones) to register and insure seed and input purchases.  Although there are several other comparable programs, insuring any link in the agricultural value chain is problematic because high and varied risks and the size of most farms (<1 ha) make it difficult to built actuarial models.

Post written by Peter Bloch    , consultant to CAS-IP