By Nelson Mandela Muhoozi
Smallholder farmers experience limited access to capital and input resources. This, agricultural experts say, has reduced their competitiveness and chances of growth.
In addition, experts say that the expanded need for quality and food safety concerns for farm products, as well as increasing environmental protection requirements makes insurance a relevant factor in commercialized agriculture, especially with greater levels of financial investment.
According to Food and Agriculture Organization, stricter rules for use of fertilizers, herbicides, and medicines for animals have made farming very costly for a smallholder farmer.
This, the CEO of the Insurance Regulatory Authority (IRA), Al’ Hajji Ibrahim Lubega says is why, for many years, the agriculture sector has lagged, with an average of only 3-4% growth per year.
According to Lubega, the 3-4% growth is still below the National Development Plan annual growth target of 5.6%. It is mainly attributed to the risky nature of the sector across its value chain of input, production, and storage up to the market.
Lubega adds that the risky nature of the sector increases the reluctance of Financial Institutions to extend enough credit to it.
According to Erastus Ndege Ochieng of Africa Re, agricultural production is critical to ensure a consistent supply of agro-based raw materials required by agro-processing industries.
However, he says, agricultural production faces a myriad of risks that threaten to achieve the targets and eventual supply of raw materials, notably climate-related risks due to drought and rainfall.
These, he says are beyond the farmers’ control as they entirely depend on natural weather to carry out agriculture with less than 1% of farmers practising irrigation.
According to Ndege, these risks severely affect farmers by lowering production and diminishing farm income.
He notes, “With climate change, seasons are no longer predictable and the magnitude of loss due to unfavourable eventualities is increasing.”
The Economic Policy Research Centre study by Paul Lakuma and Brian Sserunjogi holds that Uganda lost over 400,000 tons of maize grain valued at $200 million due to the armyworms invasion, which occurred in February 2017.
In addition, the evaluation report by operation wealth creation together with the President’s office showed that the survival rate of 93 million coffee seedlings planted during the first season of 2016 was only 42% (39.06 million seedlings survived) because of drought.
This means that the precarious situation of weather change not only deprives the farmers of the incentive to invest sufficiently in agricultural production, but also jeopardizes the sustainable supply of agricultural-related raw materials to agro-based industries.
The daunting task according to Ndege, is to protect farmers to minimise such losses and, therefore, ensure an uninterrupted and efficient supply chain of raw materials for the development of competitive and sustainable agro-processing industries.
According to Ndege, Agricultural insurance- a means of protecting farmers against financial losses due to uncertainties arising from all unforeseen perils beyond farmers’ control is much needed.
This has the potential to absorb some of the weather risks by contributing to the prevention and management of climate risks and modifying the behaviour of smallholders towards increased and more lucrative investments due to reduced uncertainty.
It spreads the agricultural losses over time and helps farmers make more investments in the future. For example, it facilitates the adoption of improved technologies when farmers are assured of compensation in case of failure, which encourages higher investment (quality seeds, fertilisers, new technologies) resulting in higher agricultural production.
A case in point is the Kenya National Agricultural Insurance Programme which focuses on the insurance of key crops (maize and wheat) and livestock to improve farmers’ resilience to climate-related risks and to enable them to adopt improved production technologies.
Additionally, “Farmers may opt to grow more profitable crops even though they are risky. Insurance can also catalyse lenders to extend credit to farmers covered by insurance, which allows farmers to make productivity-enhancing investments”, Ndege noted.
Dr. Lubega says, to foster growth in this sector, the insurance sector in Uganda sought support from Government inform on premium subsidies and also extended support in terms of data support since agriculture insurance is dependent on timely and accurate production and weather data for underwriting purposes through the Uganda Agriculture Insurance Scheme (UAIS).
Accordingly, the Government of Uganda committed to support the agriculture insurance market in Uganda by approving a four-year extension to run to 2025 to be implemented through financial institutions by way of insuring loans disbursed purposely for agricultural production, insurance companies countrywide branch network and broking fraternities and direct farmer interface, in their Cooperatives, SACCOS and Village Saving Loan Schemes.
“Now, small-holder and large-scale farmers access the agriculture insurance directly as they seek to guard against unforeseen losses or access agriculture credit,” says Lubega.
However, Ndege says this was a good starting point to revamp the sector, but the number of farmers so far reached is still small.
The country’s agricultural insurance penetration remains the lowest in the East African region standing at less than 1% as compared to Rwanda (1 percent), Tanzania (2.3 percent) and 3.4% in Kenya.
Given the expectations that the frequency and intensity of some climatic calamities will increase with climate change, it is important for farmers to proactively manage weather and climate risks to protect their livelihoods and ably supply required raw materials to agro-industries.
Government and its partners need to increase agricultural insurance coverage in terms of the number of farmers covered to ensure more equal and sustainable access to insurance.
Coverage can change farmers’ attitudes toward investing in riskier but potentially more lucrative farm activities.
Farmers think that insurance only benefits large commercial farmers. Hence, the need to intensify awareness and sensitize farmers about agricultural insurance.