Transcript Instituting a Global Agricultural Insurance Programme as a Risk

PRESENTATION AT THE AFRICA-ASIA CONCLAVE
ON
LOSS AND DAMAGE DUE TO CLIMATE CHANGE:
INSTITUTING A GLOBAL AGRICULTURAL INSURANCE
PROGRAMME AS A RISK SHARING AND TRANSFER
MECHANISM FOR DEVELOPING COUNTRIES
BY
YERIMA P. TARFA (PhD)
DIRECTOR CLIMATE CHANGE AND FOCAL POINT, NIGERIA
ADDIS ABABA
25-26 AUGUST, 2016.
1
Outline
 Introduction
 National Circumstance
 Vulnerability of Nigeria agriculture sector (Agricultural Risk)
 Objectives of Nigeria agricultural insurance
 Agriculture insurance products in Nigeria
 Impacts of agriculture insurance on beneficiaries’ coping abilities
 Challenges Faced by Domestic Insurers in Providing Agricultural
Insurance
 Conclusions
 Recommendations
2
Introduction

Africa is an extremely vulnerable continent to the adverse impacts of
human-induced climate change.

The need for adaptation measures to cope with the projected impacts
is significant even at 1.5-2°C warming.

In fact, the Loss and Damage in Africa report shows that under all
warming scenarios and despite strong adaptation efforts in the
region, considerable adverse effects of climate change will be felt in
Africa, resulting in further loss and damage.
3
Introduction Cont’d.

Agriculture is a major economic sector and a critical source of
livelihoods in many developing countries.

The sector is particularly exposed to adverse natural events, such
as droughts or floods, and the economic costs of major disasters
are expected to increase because of climate change.

The increase in unexpected weather events lead farmers to
poverty if left unaddressed.
4
Introduction cont’d.

Agricultural insurance according to Nnadi et al. (2013), is a tool that
agricultural producers can potentially use to adapt and even
mitigate the risks associated with adverse effect of climate change.

Agricultural insurance plays a vital role in the stability and growth
of the agriculture sector, helping to ensure a more productive and
stable food supply for countries around the world.

In order to meet demand and feed the world into the future and
enhance world food security, it is important to have a strong
agricultural insurance system in place in a global context.
5
Introduction cont’d.
In managing agricultural risks, insurance can help to reduce the
negative impacts of natural catastrophes (such as floods, or droughts,
insect and pest infestation etc) through:

effective risk transfer at both producer and government levels,

expedite recovery, enable investment by reducing fluctuations in
investment returns,

improve access to credit, reduce government liability in financing
post-disaster reconstruction which can often be more costly to
government compared to well-functioning insurance programs,
among other benefits.
6
Cont’d
With Agricultural Insurance, farmers can be saved from losses or
damage to crops and livestock or the effect of which can be minimized.
Crop insurance in developing countries can thus:
a) Cushion the shock of disastrous crop losses in bad year.
b) Help to ensure a considerable measure of security in farm income
over the years and this contribute to the stability of the agriculture and
in turn the general economy.
c) Improve the position of farmers in relation to agricultural credit.
d) Strengthen the position of the agricultural cooperative societies as a
result of the strengthening of the economic position of the farmers the
credit institution can thus be more liberal in providing the much
needed credit to the farmers, accepting crop insurance contracts as
collateral.
7
Cont’d
e) Give the farmers greater confidence in adopting new and improved
farming practice and in making greater investment in agriculture for
improving crop yield and increasing agricultural production.
f) Help to replace sporadic and haphazard grant and relief operations
which government in developing countries are frequently called
upon to undertake in emergencies by a pre-planned and actuarially
calculated system of compensation awards under which the parties
concerned government and farmers generally know in advance their
respective liabilities and the farmers in particular known the extent
of protection available in case of unavoidable losses of their crops.
8
National Circumstance

Nigeria is Africa’s most populous country, a major
economic and political power on the continent.

The country’s cultural and political history, as well as social
geography are greatly influenced by two main ecological
systems – the Sahara Desert and the Atlantic Ocean.

Half a century ago, the 923,768 square kilometre area of
Nigeria was well drained by rivers, lakes, and wetlands,
but equally well forested in scales of successive change
from coastal mangroves and humid vegetation in the south,
to a dry, northern savannah belt.
Cont’d

Despite its status as an agrarian land, oil dominates the
Nigerian economy, and is a major factor in the political,
social and economic problems of Nigeria.

Population growth combined with more people living in
hazardous areas will also increase risks over time,
including the number of fatalities and asset damage
Climate change is threatening national
development across all sectors
1.
More extreme
weather – floods
and droughts
3.
Up to 11% GDP
loss by 2020
without
adaptation and
mitigation
2.
Loss of
agriculture and
increased water
scarcity
4.
Damage to
roads, buildings,
transport,
energy facilities
Vulnerability of Nigeria Agriculture Sector
(Agricultural Risk)

At present, almost 2/3 of Nigeria’s land cover
is prone to drought and desertification and its
long (800km) coastline is prone to sea‐level
rise and the risk of fierce storms

The drying up of the Sahel and subsequent
encroachment of desert conditions into
northern Nigeria has increasingly resulted in
negative consequences, both for crop farming
and for traditional pastoral livelihoods.

Water resources are under threat which will
affect energy sources and irrigation activities
12
Situation in a drought year
Cont’d

Rain‐fed agriculture and fishing
activities upon which 2/3 of the
Nigerian population depend primarily
for food are under serious threat

Nigeria has a very high population
pressure—160 million people surviving
on the physical environment through
various activities within an area of
923,000 square kilometres

Inadequate financial capacity and
technological know‐how to combat the
negative impacts of Climate Change.
14
Objectives of Nigeria Agricultural Insurance
To offer protection to the farmer from the effects of natural disasters and
to ensure payment of appropriate compensation sufficient to keep the
farmer in business after suffering a loss.
The scheme was designed specifically to:
a) Promote agricultural production since it would enhance greater
confidence in adopting new and improved farm practices and in making
greater investments in the agricultural sector of the Nigeria economy,
thereby increasing the total production;
b) Provide financial support to farmers in the event of losses arising from
natural disasters;
c) Increase the flow of agricultural credit from lending institutions to the
farmers;
d) Minimize or eliminate the need or emergency assistance provided by
Government during period of agricultural disasters.
15
Agricultural Insurance Products in Nigeria
A.Crop insurance: A crop insurance policy guarantees indemnity for
insured losses resulting from serious hazards and agricultural risk.
The Crop insurance policies in Nigeria include:
I. “All Risk” insurance policy: This covers all risks of physical loss or
damage to the crop caused by the insured perils.
II.Harvest policy
 A harvest policy will cover loss up to the value of the expected
harvest.
II.Credit policy
 Crop credit insurance covers the amount of loan given to the farmer.
The sum insured under the policy is limited to the farmer’s
production costs upon which the loan is based.
16
Cont’d.
B.
Livestock insurance policies and
C.
other covers Insurance.

While the former covers issues on Livestock, the latter
covers are necessary for the heavy machinery equipment
used in the modern agricultural ventures including
building and erection of solid structures.
17
Impact of Agriculture Insurance on Beneficiaries’ Coping Abilities
Increasing access to credit

Agricultural insurance facilitates access to credit, because it
increases the credit worthiness of farmers and other agents in the
agricultural sector. To the extent that agricultural insurance
contributes to the overall financial stability of the agribusiness
sector, indirect benefits in terms of credit availability may be
realized at other levels of the agribusiness marketing chain.
18
Cont’d.
Facilitating the adoption of higher-yielding activities

Agricultural insurance help farmers and herders invest in more
profitable but sometimes riskier activities. Poor farmers in
developing countries tend to adopt safety-first behaviour, basing
their production decisions on a survival strategy that minimizes the
likelihood that their revenue will fall below a certain level.

Agricultural insurance has help farmers invest in more profitable
activities, because insurance contributes to the transfer of excess risk
to a third party.

Governments may want to promote this risk-transfer instrument as
part of their overall policy on the modernization of agriculture. In
the context of climate change, insurance can also facilitate the
adoption of adaptation activities.
19
Cont’d.
Improving the management of post disaster assistance
programs

By their very nature, post disaster assistance programs are
unplanned and can expose the government to open ended
fiscal responsibility. Agricultural insurance programs can help
governments better manage the budgetary impact of ad hoc
assistance programs.
20
Challenges Faced by Domestic Insurers in
Providing Agricultural Insurance
(i) Inadequate funding

Adequate and timely funding of the scheme will be essential for
its success. Agricultural insurance is a very costly venture and
as such, arrangement for adequate funding should be made.
Delay in approving and releasing funds and especially undue
political interference in funding and management of the scheme
will affect its success.
21
Cont’d.
(ii) Inadequate Infrastructure and Support services

Inadequacy of infrastructural facilities such as good roads and
other efficient means of transportation, good communication
facilities, uninterrupted power supply, could hamper the
successful operation of the scheme. These facilities are needed in
order to facilitate prompt and speedy reduction of losses by the
farmers for assessment of losses and payment of indemnities.
Also, there is Inadequate Investment in infrastructure to provide
timely and credible indices. In the case of weather indices this
requires investment in weather stations that can provide timely
and accurate information. In the case of area-yield index
insurance this requires substantial investments in the personnel
and procedures to conduct independent and accurate crop cutting
experiments at harvest time.
22
Cont’d
(iii)

Inadequate Trained Personnel
Operational procedures in agricultural insurance are complex
and require specific expertise. The scheme requires the
availability of personnel trained in agriculture and insurance at
the national, state and local government levels as evaluators,
supervisors, loss adjusters, salesmen and extension staff.
(iv) Ignorance and Inadequate Awareness of the Scheme by
Farmers

The ignorance and lack of awareness by the majority of farmers
of the need, practice and lack of awareness by the majority of
farmers of the need, practice and values of agricultural
insurance, constitute problem to the scheme.
23
Cont’d.
(v) Inadequate Data

A major problem affecting the
scheme is the dearth of data on
farm operations, particularly on
crop yields and losses arising
from natural hazards. These data
are
necessary
for
the
computation of premiums and
indemnities
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Conclusions

Agricultural insurance therefore is a necessary part of the
institutional infrastructure essential for the development of
agriculture which is basically a high risk enterprise.

Based on the aforementioned roles, agriculture insurance could
be a panacea to alleviate some of the problem militating against
agricultural production in Nigeria if implemented with riskreduction measures, such as environmental and social impact
assessment, followed by audit and stringent regulation. .
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Recommendations
A number of organisations both within and outside the UNFCCC are
looking towards insurance-based proposals to deal with loss and
damage.
These solutions will only be successful if they tackle two difficult
challenges:
they must benefit the poor, vulnerable and hard-to-reach groups
who currently have negligible access to insurance coverage, and ;

they must re-think approaches, utilise new technologies and find
ways to make insurance schemes affordable, including through
premium support, but also sustainable for the long term.

26
Thank
You
27