Effects of Agricultural insurance on supply of agro-based raw materials

 Effects of Agricultural insurance on supply of agro-based raw materials

AGRICULTURE
 
By Florence Nakazi
 
The National Development Plan (NDP) acknowledges the potential of agro-processing-adding value to agricultural products to create better paying off-farm jobs, improve food security, increase incomes, poverty alleviation and also attain the long term vision to become a middle income country.
 
For successful implementation of this agenda, agricultural production becomes critical to ensure consistent supply of agro-based raw materials required by agro-processing industries. 
 
However, agricultural production faces a myriad of risks that are a threat to achieving the targets and eventual supply of raw materials. Notable among these are climate related risks due to drought and rainfall.  
 
These are beyond the farmers’ control as they entirely depend on natural weather to carry out agriculture (less than 1% of farmers practice irrigation). These risks severely affect farmers through lowering production and diminishing farm income. Yet with climate change, seasons are no longer predictable and the magnitude of loss due to unfavorable eventualities is increasing.  
 
The Economic Policy Research Centre study by Paul Lakuma and Brian Sserunjogi reveals that Uganda lost over 400,000 tons of maize grain valued at USD 200 million due to the armyworms invasion, which occurred in February 2017.  
 
In addition, the evaluation report by operation wealth creation together with the President’s office showed that the survival rate of 93 million coffee seedlings planted during the first season of 2016 was only 42% (39.06 million seedlings survived) because of drought.
 
Precarious situation of weather change not only deprive the farmers the incentive to invest sufficiently in agricultural production, but also jeopardises the sustainable supply of agricultural related raw materials to agro-based industries.  
 
The daunting task is to protect farmers to minimise such losses and therefore ensure an uninterrupted and efficient supply chain of raw materials for development of competitive and sustainable agro-processing industries.  Agricultural insurance- a means of protecting farmers against financial losses due to uncertainties arising from all unforeseen perils beyond farmers’ control is much needed.
 
This has the potential to absorb some of the weather risks by contributing to the prevention and management of climate risks and modifying the behavior of smallholders towards increased and more lucrative investments due to reduced uncertainty.
 
 Agricultural insurance helps the farmers deal with shocks of crop and livestock losses by providing farmers with a form of protection. 
 
It spreads the agricultural losses over time and helps farmers make more investments in future. For example, it facilitates adoption of improved technologies when farmers are assured of compensation in case of failure, which encourages higher investment (quality seeds, fertilisers, new technologies) resulting in higher agricultural production.
 
A case in point is the Kenya National Agricultural Insurance Programme that focuses on insurance of key crops (maize and wheat) and livestock to improve farmers’ resilience to climate related risks and to enable them adopt improved production technologies.
 
Farmers may opt to grow more profitable crops even though they are risky. Insurance can also catalyse lenders to extend credit to farmers covered by insurance, which allows farmers to make productivity-enhancing investments.  
 
Unfortunately, agricultural insurance in the country has not made much headway even though the need to protect farmers from weather vagaries has been a continuing concern of agriculture policy. There has been efforts by both Government and private sector to help farmers recover losses due to weather hazards through; the agricultural credit guarantee scheme-shared risk management, Kungula Agrinsurance- covers both crop and livestock, the recent five year (2016/17-2020/21) public-private arrangement between Government and Uganda Insurers Association where Government set sh5b for agricultural insurance subsidy to cover national priority commodities against weather vagaries.
 
This was a good starting point to revamp the sector, but the number of farmers so far reached is still small. The country’s agricultural insurance penetration remains the lowest in the East African region standing at less than 1% as compared to Rwanda (1 percent), Tanzania (2.3 percent) and 3.4% in Kenya.  
 
Given the expectations that the frequency and intensity of some climatic calamities will increase with climate change, it is important for farmers to proactively manage weather and climate risks to protect their livelihoods and ably supply required raw materials to agro-industries.
 
Government and its partners need to increase agricultural insurance coverage in terms of the numbers of farmers covered to ensure more equal and sustainable access to insurance. Coverage can change farmers’ attitude to invest in riskier but potentially more lucrative farm activities.
 
There is a perceived idea for farmers to think that insurance only benefits large commercial farmers. Hence, the need to intensify awareness and sensitise farmers about agricultural insurance.
 
The writer is a Research Analyst with the Economic Policy Research Centre
 
 
 
 

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