By Juerg Trueb, Managing Director, Swiss Reinsurance Company Ltd.
This post is part of a series produced by The Chicago Council on Global Affairs, marking the occasion of its fifth Global Food Security Symposium 2014 in Washington, D.C., which will be held on May 22.
Feeling hungry? Perhaps not now, but with the world's population expected to reach 9 billion by mid-century, tremendous efforts are needed to ensure there will be food for everybody. The emerging markets show staggering statistics: one in eight individuals suffer from hunger and malnutrition in Asia Pacific and Sub-Saharan Africa regions.
The prospect of sustaining the future population raises many critical questions: Do we have enough farmers to produce food? Will the food be produced where it is needed? Can the growing food demand be met in a sustainable way?
Seed and agro chemical companies are convinced that new technology can significantly increase productivity. However, agricultural value chains are complex and therefore technology alone will not be enough to find the solution. Ensuring sustainable agricultural production also requires building up value chains from input providers to farmers and to markets: a multi-stakeholder collaboration, between agribusiness sector, governments, insurance/reinsurance industry, NGOs and local communities.
How can insurance contribute to a solution? With their risk management expertise and capital, insurers quantify and assume systemic risks, particularly droughts that other stakeholders can't cope with. Stabilizing farmers' income is a pre-requisite for access to farm credits and hence to finance better farming technology which is a key factor for farmers in emerging markets in their transition from subsistence to commercial farming. It is also an important consideration for farmers worldwide in financing adaptation to climate change.
What kind of support do farmers need? To increase productivity, farmers need access to credits to finance agricultural inputs (seeds, fertilizer, chemicals). Especially farmers in developing countries are cash constraint and lack collateral to secure credits. Pledging away the potential payout of crop insurance allows them to secure credits and finance inputs. In case of a drought, the payout of crop insurance covers the debt service and principal pay back of their credit such that they can maintain their farm and family even in case of a poor harvest.
Swiss Re has developed groundbreaking risk management solutions for farmers in emerging markets with the goal to boost sustainable farming and resilient agriculture. In Africa, Swiss Re has committed to tripling its insurance capacity to provide 1.4 million smallholder farmers with crop insurance by 2017 through the Grow Africa Initiative. The number of smallholder farmers reached 300,000 by end of 2013.
Swiss Re also works with partners on the ground on innovative agro-micro insurance projects such as Kilimo Salama in Kenya, Tanzania and Rwanda.
Kilimo Salama, "safe farming" in Kiswahili, is a project that offers low-cost micro insurance to farmers protecting them from financial loss if their crops are damaged by weather.
The project is a partnership between Swiss Re Corporate Solutions, the Syngenta Foundation for Sustainable Agriculture, local insurance companies and various agribusinesses such as One Acre Fund. The Global Index Insurance Facility, a WBG Initiative funded by the EU, Netherlands and Japan contributed start-up capital for capacity building, technical assistance and pilot testing.
In the example of One Acre Fund Kilimo Salama bundles insurance with loans provided by One Acre Fund for fertilizer and other farm-related items. The insurance premium is paid as part of the loan repayment.
The Kilimo Salama crop insurance programme was launched in 2009 in central Kenya with Swiss Re as a partner and the main risk taker and 200 smallholder farmers participating. After the area was hit with the worst drought in decades, the farmers immediately received compensation. The project was expanded to five more regions the next year. As of 2013, 158,000 farmers have been insured.
The key for success is that there is enough value added for the farmers - value that standalone insurance does not necessarily provide. This has a decisive impact on whether there is sufficient demand for the product. Another plus to the project are the inherent alternative distribution channels provided by the local lenders and through the agricultural value chain.