Small-scale rainfed agriculture is highly vulnerable to risk.
Small-scale agriculture has for long been the most marginalized sector in terms of having access to credit and insurance services. Small-scale farmings do not attract financial institutions and investment because of the high risk associated with them, mostly because they are dependent on nature.
In addition, small-scale farmings are carried out to meet subsistence that the farmers focus on growing enough food to feed their households. However, most of the time, this type of agriculture do not even ensure the food security of the farmers let alone other development objectives, such as the commercialization.
In this regard, in order to enhance the productivity of small-scale farmings and transform the sector, they must receive sufficient inputs such as fertilizer, pest herbicides and selective seeds. And having access to credit is essential for farmers to obtain theses inputs.
Currently, in some parts of the country, where micro-finance institutions flourished, farmers are able to have access to credit and invest on their farms. However, these micro financial institutions allow farmers to receive credits based on how much the farmers save.
Besides, access to insurance is also vital to enable farmers to borrow from these associations with confidence. They also need to have access to other financial institutions and the government has been encouraging such institutions that are willing to work closer with farmers.
In this regard, Nyala Insurance Company (NIC) is one of the first private insurance companies to be engaged in the provision of micro-insurance protection to small-scale farmers in Tigray, Amhara, Gambella and Southern Nations, Nationalities and Peoples’ states. Solomon Zegeye, Micro-Insurance Department manager at NIC says taking the long term return in to consideration, providing insurance to small-scale subsistence farming is very risky. However, the company has been engaged in the business in order to discharge corporate social responsibility.
The major advantage of having insurance provider to the farmers is that it makes it easier to access credit services from their associations. Besides, it also boosts the confidence of both lenders and borrowers.
According to Solomon, NIC together with stakeholders is providing insurance protection to encourage farmers to take risks, borrow money, invest in their farms and improve productivity.
In partnership with donors such as Oxfam America, the company commenced its pilot project in 2007 in different regions. Between 2009 and 2015, more than 9250 small-scale farmers in Tigray and Amhara states have received drought insurance payment.
Under the project “Promoting Autonomous Adoption” which is supported by the government, UNDP and non-governmental organizations, some 1103 farmers, (790 and 113 in Tigray and Gambella states respectively) HAVE also received some 2.1 million birr insurance payment. The payment was made as compensation for a damaged caused by drought and El-Nino.
According to Solomon, the difference between the regular and micro insurances is that most often than not, the regular one provides insurance to the wealthy who have the capacity to pay the premium for an insurance policy.
Micro-insurance, on the other hand, is provided to those sections of the society that are unable to pay the regular insurance policy. Solomon says in order to access micro-insurance, the farmers need to be members of credit and saving associations.
The company approaches farmers through these associations. The provision of insurance to the disaster that might occur on crops and livestock due to drought, flood, pests and insects encourage farmers to receive more credit from the associations.
Ethiopia has numerous agro-ecological zones with rainfall and climate variations. In addition, the prevalence of pests, soil types, availability of resources such as underground water and livelihood strategy of farmers vary from one agro-ecological zone to the other. Hence, the insurance coverage need to take all these into consideration.
As the agriculture sector is highly vulnerable to various types of risks, the company, with the financial and technical support of donors, has conducted analytically research on the overall situation before commencing the service. NIC has also established strong bond with other stakeholders such as Meteorology Agency, universities and other consultants.
NIC has plan to generate up to 10 percent of its income through small scale farming in the coming 5 years, Solomon says adding, however, the company expects long term return when the business reaches its optimum level. Subsistence farming by its nature is seasonal as it is heavily dependent on nature. And the provision of insurance to such farmings is a risk for insurance companies.
He also says credit agents and intermediaries are also playing central role in raising the awareness of farmers about the long term advantages of having insurance coverage. These agents have established close relationship with the farmers.
Then again, livestock raising both in highland and lowland areas is also highly vulnerable to drought and natural disaster. Culturally, pastoralists tend to accumulate large amount of livestock and move from place to place in search of grass and water.
From time to time, pastoralits lose a large amount of their livestock resources because disaster resulting from difficult weather conditions as well as weak market linkage.
Even if it is a sophisticated process, Nyala Insurance is also providing insurance to pastoralists and the insurance policy/agreement is signed after receiving satellite information about the availability of grazing land in the area.