A study conducted by a group of UK scientists in 2016, concluded that the effects of climate change on food production around the world could lead to more than 500 000 deaths by the year 2050. Increasingly bizarre weather patterns around the globe, certainly give credence to this study, leaving little doubt that climate change will impact on food availability in the future.
South Africa’s agricultural industry has three layers of diversity, each bringing their own challenges to the table. The climate and soil differ significantly from area to area; a wide range of crops are grown and a broad segment of farms – from small emerging to large corporate farmers – compete in relatively small geographical spaces.
Traditionally, local insurers have generally offered farmers multi-peril crop insurance (MPCI), which inherently includes a great deal of anti-selection, leading to high prices. This is particularly problematic as high and volatile prices could automatically exclude emerging farmers, who are the most vulnerable to inclement weather patterns. For instance, a corporate farm would have the resources to withstand a year, or maybe even two, of drought but an emerging farmer would be hard hit in the first year.
The lack of adequate insurance cover has exposed South Africa’s diverse farming community over the past two decades; and this exposure goes beyond the farmer, affecting the entire value chain, including lenders, input suppliers, storage facilities, millers and equipment providers.
Now South Africa’s leading cell captive insurer, Guardrisk has teamed up with Agnovate, to provide multi-peril yield insurance (MPYI), a tailor-made solution suited to the local market.
Globally, insurers are also starting to respond to farmers’ unique insurance needs with new generation yield-based insurance, which removes anti-selection and volatility and keeps prices down.
“Yield based insurance is not new, what is new is that we have ‘Africanized’ the offering, taking into consideration the unique features of the local industry to ensure that South African farmers get protection based on the average yield in the farm’s production area, regardless of the size of their farming operation,” says Richard Eales, Managing Executive of Guardrisk.
All farmers in the same production area being subjected to the same insurance rate per crop is a major win for emerging farmers.
Eales points out that internationally governments are major partners when it comes to crop insurance products, including through subsidies and technical advice. Closer to home, there are many ways that government can play a role, including as financier and custodian of data collection. Given that emerging farmers face the highest exposure, the opportunity for government, the local industry and Guardrisk to cooperate in this space is promising.