Kampala — A farmer's predicament is when after a hefty investment in terms of finances, time and energy catastrophe, natural or manmade, strikes and loses the anticipated harvest.
This can be demoralizing on all fronts. Agriculture has turned to be a recruitive business being undertaken commercially with huge investments.
Agriculture is the mainstay of many economies world over but particularly developing countries increasing the quality and quantity of food production in which climatic conditions play a dominant role.
In East Africa, agriculture is the leading contributor to the GDP's of the five member states therefore it's an important component of life for the people within the region.
Extreme weather conditions like drought or excessive rainfall or even high temperatures has continued to threaten agriculture and increase risk for small-scale farmers who depend on subsistence agriculture as their source of livelihood as well as for commercial farming enterprises.
Erratic and inadequate rainfall is known to account for about 50 per cent of crop failures where there is over-dependence on rainfall, with little or no irrigation systems.
Agriculture as a sector has its own challenges and risks which call for protection especially now that it is a recruitive activity being approached in a modern way of handling business and investments. One way of thwarting these risks and challenges is by sheltering your agriculture investment by acquiring insurance just like you would secure goods in transit against fire or theft.
Insurance companies in the country are now shifting their goal posts to tap into the huge potential that the agriculture sector presents to them by having specially designed agro based cover under the face of agriculture insurance.
What it is
The agricultural sector include elements like crop farming, bee keeping, fish farming, forestry, animal husbandry and birds rearing aspects that agriculture insurance covers independently. Farmers need this kind of cover because crops and animals are prone to risk and with this cover farmers will go into farming with certainty.
Agriculture insurance covers a whole range of the agro business scope. From planting to delivering farm produce to the market.
Agriculture insurance in Uganda has been on and off because only a few farmers are aware of it yet the service providers' need a large pool of farmers (clientele) for them to introduce agro based policies on the market. Fewer clients are a big risk to the insurer because the premiums cannot settle claims in case something happens to the subject insured.
Small-scale farmers are risky
One of the leading problem as to why agriculture has not attracted insurance is that farmers do it on a small scale and are not aware of such insurance. This kind of policy thrives in areas were commercial farming is practiced. Large-scale farmers implement huge investments which are easy to evaluate and they understand the importance of insurance.
These small hold farmers are operating on decimal budgets or no financial budgets at all, they barely feel the risk as agriculturalists because they are growing and keeping animals for food.
The Managing Director of Lions Assurance Uganda, Newton Jazire, in an interview acknowledges that agriculture insurance has remained expensive because unlike other policies were customers are many farmers who need to wave off risks are few. Because few famers buy the policy the insurer risks losing in case an accident happens. "One big claim will wipe all the premiums you have collected from other clients; it doesn't make economic sense." Jazire says.
The other problem is products that have been on the market have been plucked from elsewhere, copied and brought to Uganda yet the infrastructure of farming is totally different from wherever these policies originate.
"A product that you would sell to a large scale farmer in Southern Africa cannot work with a small scale farmer here, one it would be very expensive two it offers a farmer what he doesn't require on his small farm." Jazire noted revealing that the industry is embarking on developing products relevant to the local market.
Lions Assurance for its part has engaged key stakeholders in the financial sector, Farmers Federation and cooperatives to devise ways of coming up with a product which suites the small scale farmers in Uganda.
Lions Assurance will between April and May this year put on the market a policy they are calling agriculture insurance scheme for small scale farmers. Jazire says they will partner with these institutions in selling this cover.
Most products that have failed in Uganda are tailored in South Africa, Zambia and, Zimbabwe countries that have commercial farmers as compared to Uganda.
The agriculture insurance product is one of the most expensive policies in the land despite the potential it posses and the insurers can only do little since the agricultural structures in the country are weak. There is need for an effort to move from a substance to commercial farmers to increase production and for farmers to be organized.
David Tumuhaise the Technical Manager, Uganda Insurers Association, believes that one of the many challenges hindering the roll out of this product is affordability.
Tumuhaise says insurers are building internal capacity, doing parameter developments and partnering with stakeholders but one key stakeholder, the government, has not come on board.
"It's an essential service but not reaching the intended beneficiary, government can say, I will subsidize the service so that people can afford it or it can do it the other way and say give out the service when you suffer a loss I will come and bail you. Those are the key things that government can do to help insurance." Tumuhaise said in an interview.
Tumuhaise explains that the insurers are aware of the market potential but the risk that awaits them is immense. "Increase production will result profitability for farmers hence affording to buy the policy." He adds.
Determining premium requires that the insurer indentifies different risks that are peculiar to a certain crop or livestock. Inspection of the business premises is carried out by agronomists.
"Once we know the risk that you want to cover, because the farmers tell us, we outsource a professional actuarial Valuer to establish the premium." Jazire explains
Insurers are working with financial institutions to make it a condition for them to lend to farmers who have bought the agriculture insurance policy. This will protect both the farmer and the financier
"Insurance is becoming like any other input say fertilizers, seeds, ploughs etc because it guarantees you that anything you're putting into the project, if anything happens you will be able to continue, you will not die out of business." Jazire advises
Like the case is with other insurance products the lack awareness, agriculture insurance is face with a similar problem. This is mainly attributed to the low levels of education. The other problem is the low incomes of farmer's requiring low cost insurance a thing that has made pricing a concern.
When asked how much agriculture insurance contributes to the general sector earnings, Uganda Insurance Associations Tumuhaise said it's very minimal close to insignificant.
"It is very minimal of course we are just thinking of going into it because of the cost involved, if you look at our report almost nothing is coming out of, actually we don't do a report for it. We can look at it as a new product. Even those who have done it have done it as a pilot project."