Safe-Farming: Crop Insurance for Smallholders

Safe-Farming: Crop Insurance for Smallholders photo by One Acre Fund

Trophus Nyaga is a smallholder farmer in Kamwana, a village in eastern Kenya. He has two acres of land, where he plants maize, beans, millet, and sorghum. He also has avocado trees. Last year, Trophus planted maize for the short planting season, and the rains failed. He harvested less than one bag of maize, not even enough to pay for seed and fertilizer for the next planting season.

But Trophus had purchased crop insurance for the first time that season, and in March 2011, he received a payout. He immediately used that money to purchase maize seeds for the long planting season, which began in March.

Unfortunately, the rains for the long planting season were irregular, and Trophus’ germination rate was disappointing. When I met him, at the end of June, he was surprisingly sanguine. “If I do not harvest maize, I will get money for replacing the seeds,” he told me.

Trophus had only been an insurance customer for a year, but he was fully convinced of its benefits, as are many of the farmers in his area that have purchased the same insurance, a product called Kilimo Salama, which means safe farming in Swahili.

Nancy Njeii said that she tripled the quantity of maize seed that she planted because she was confident that she would receive compensation if the rains failed. Before the insurance, she would only plant part of her land, in an attempt to minimize her potential loss.

“There is a hope,” a farmer named Enos Ngondi told me. “Either you will be paid if the rains fail, or you will have a good harvest.”

Kenyan smallholder farmers are not used to having the kind of hope that crop insurance brings. Though the majority of farmers in Kenya, and across sub-Saharan Africa, depend on rain-fed agriculture, if the rains fail, they traditionally have no way to recover from the loss. They bear 100 percent of the risk.

Farmers in the United States also must contend with the vagaries of the weather. In America, however, crop insurance is universally adopted. Every farmer has it. In fact, the U.S. government highly subsidizes the cost of crop insurance for farmers. It is one of the few agriculture subsidies that the World Trade Organization permits.

But insuring an American farmer with thousands of acres of land is much easier than insuring an African farmer with two acres of land. There is an abundance of historical weather data available in the United States, which makes it possible to calculate risk, and transaction costs are manageable for large farmers. Until recently, these two challenges prevented the spread of crop insurance in sub-Saharan Africa.

Kilimo Salama, the insurance product that Trophus, Nancy, and Enos all purchased, is showing that it is possible to measure risk and administer insurance at a reasonable cost for smallholder farmers.

The product’s cost is kept low by technology. Farmers can purchase the insurance at a local agrodealer when they purchase their seed and fertilizer. They receive the insurance policy by text message. Over the course of the agriculture season, Kilimo Salama uses solar-powered weather stations to measure rainfall levels and determine whether the farmers in a particular district should receive a payout. If rainfall levels are either too low or too high during certain critical periods of the growing season, the insurer automatically disburses a payout to every insured farmer in the district. There is no need to check each farmer’s fields, or even to write a check to each farmer; the payout is distributed by mobile phone.

Kilimo Salama was developed by the Syngenta Foundation for Sustainable Agriculture in 2009 and was piloted with 200 farmers. In 2011, it is insuring over 21,000 smallholder farmers in Kenya (with plans to reach 50,000 in 2012), in partnership with the Kenyan insurance company UAP. The foundation is looking at offering crop insurance products in other African countries.

One Acre Fund, the agriculture organization that I work for, partners with Syngenta to offer Kilimo Salama to all of our farmers in Kenya who live in districts with its weather stations. We offer the crop insurance as part of our financing package—farmers receive inputs on credit, and the cost of crop insurance is included in the cost of the loan. Because farmers have never had access to crop insurance before, we make it incredibly easy for them to adopt; it is packaged with their loans.

Expanding crop insurance across the continent is particularly important as global food prices rise ever higher. Africa’s smallholder farmers have the potential to significantly increase their agriculture production, but without a tool for mitigating risk, most farmers won’t be willing to invest in improved seed and fertilizer. Increasing their own production will protect these farmers against further food price increases, but it will also help stabilize global food prices by increasing the overall supply of food. There are roughly 500 million smallholder farmers in the world; in sub-Saharan Africa and southeast Asia, they produce 80 percent of food.

If more of the world’s smallholder farmers had crop insurance, they would feel more confident trying new agriculture techniques to improve their productivity. Some of the farmers insured by Kilimo Salama are already doing this. Now that Trophus has crop insurance, he wants to plant different crops and see if he can increase the profitability of his land. “I want to try new things and then I will see the outcome,” he said.

Stephanie Hanson is director of policy and outreach at One Acre Fund, an agriculture organization that serves over 55,000 smallholder farmers in East Africa through a complete service model that includes farm inputs, financing, training, and market facilitation. In 2010 and 2011, One Acre Fund won the Financial Times/IFC Sustainable Finance Award for Achievement in Basic Needs Financing.