Agriculture insurance turning around farmers' lives in East Africa

By Deusdedit Ruhangariyo

Jackie Kiconco sits in her garden with her right hand supporting her chin. Her eyes are gazing across the maize garden that she had planted but because of late rainfall, the seeds failed to germinate.

The 50-year-old smallholder farmer gazes to my direction with a stare that suggests: “come and I tell you my story’. When I ask her what happened she responds ‘My son, I am ‘finished’. This is the only maize garden I had planted. The rains did not come as I expected. My other garden of beans suffered the same fate and now I have nothing to feed my children,” she sadly narrates.

Kiconco is just one of the millions of small hold famers in East Africa who face several risks, including erratic rainfall, flooding and subsequent diseases as a result of climate change; land tenure; access rights; and land management; credit access; access to input and output markets; infrastructure; extension services; institutional problems; and more recently the global financial, food, and fuel price crises.  

The majority of farmers in Uganda and other East African countries are suffering, with some even becoming destitute because of the above risks and yet there is a solution to such risks.

One potential risk transfer tool is agricultural micro insurance because it effectively creates a safety net for farmers to enable and encourage them to invest in their farms and raise productivity, increase food security, and reduce the risks financial institutions face when lending in agriculture.

Some farmers in Kenya and Rwanda are already going an extra mile to insure their crops against various risks in the agricultural value chains using products designed by the Agriculture and Climate Risk Enterprise Ltd (ACRE) known by its trade name Acre Africa.

Acre Africa develops affordable index-based and indemnity-based micro-insurance products for small hold farmers, using leading technological innovations so that they can have a peace of mind when investing in their farms in order to comfortably feed their communities, according to Njeri Nga’nga, Acre Africa’s brand associate.

“Some of the insurance covers that we design include: Replanting guarantee cover, crop season cover, loan linked insurance covers, contracted seed growers cover, funeral cover and dairy livestock insurance cover,” she adds.

Acre Africa Ltd was officially launched as a for-profit company with headquarters in Nairobi, Kenya in June 2014. Acre Africa is a registered insurance intermediary and evolved from the Kilimo Salama project (established 2009) that was funded through the Syngenta Foundation for Sustainable Agriculture and the Global Index Insurance Facility (GIIF), a fund established by various donor groups and managed by the World Bank Group’s International Finance Corporation.  

“Acre Africa’s goal is to enable smallholder farmers to confidently invest in quality inputs, increase productivity and leverage access to agricultural credit.  The company works closely with local and international insurers to undertake risk assessment, product development and risk monitoring on behalf of small hold farmers and facilitates the route to market for index insurance products covering multiple crops and risks. Acre Africa partners with stakeholders investing in the agricultural value chain who are interested in private sector risk transfer solutions,” says Benjamin Njenga, head of business analytics at Acre Africa.

Acre Africa’s insurance products are reaching all types of farmers including those who plant on as little as one acre, to shield them from significant financial losses when drought or excess rains are anticipated to inflict devastation on their harvests.

The Syngenta Foundation for Sustainable Agriculture is a non-profit organization based in Basel, Switzerland whose mission is to create value for resource-poor small farmers in developing countries (like ours here in East Africa) through innovation in sustainable agriculture and the activation of value chains.

How it works
In 2009, Acre Africa (then Kilimo Salama – Kiswahili for Safe Agriculture) started as a pilot project by insuring maize farmers in the region of Nanyuki, in Eastern Kenya.  Now it is spreading to other parts of East Africa and covering other crops like wheat, sorghum, beans, potatoes and coffee. In addition to crop insurance, it also designs livestock insurance covers.

By using mobile phones and weather stations, Acre Africa designs products for the small holder farmers whose premiums are low hence the reason for relying heavily on technology to administer the products.

The mobile phones play a key role in the registration process of individual farmers and getting the farm’s location as the insurance cover is location specific. And in the event of compensation, the farmer receives their payment through mobile money transfer.

The weather stations are used for this purpose, to monitor the rainfall throughout the season. A farm must be within 20km radius from a weather station to be covered. As an alternative to weather stations, satellite data are also used to monitor the weather in an area. This is because the costs of installation and maintenance is quite high thus hampering scaling up and offering of weather index covers, says Njeri Nga’nga.

“Each farmer who buys insurance must be near a weather station which must not be more than 20 kilometers away from his farm.  If the weather station shows that the rainfall was inadequate or in excess at the various stages of the crop cycle during the growing season, all the insured farmers in that area get a spontaneous payout without first filing a payment claim. This type of insurance ensures that there will be no need of farm visits or issues to do with establishing whether compensation should be paid out or not. It is automatic,” Njenga adds.

For example under replanting guarantee cover: A farmer purchases a packet of hybrid maize seed from the farm input stores, inside each packet of maize is a card with a unique code that should be sent via SMS to a given number. Upon sending the code, the farmer is registered for insurance for a period of 21 days and receives a confirmation SMS.
 
The weather for that area is then monitored for 21days, if it does not rain causing seed germination failure, a farmer receives the full cost of the seed via mobile money transfer from the insurance company. Since the farmer opens the packet at the point of planting the seed, an SMS is sent from the farm thus the accurate location of the farm is obtained via GPS and the weather is monitored via satellite technology.

The whole process is made even easier because today, most small holder famers have mobile phones. And someone who does not own one, at least knows another person who can help him with one if need arises. The weather stations and mobile phones have therefore reduced the cost of administering insurance policies and changed the lives of small holder farmers in Kenya.

Acre Africa enters Rwanda and Tanzania

With success in Kenya, Acre Africa has crossed borders and is now operating in Rwanda with plans to expand to Tanzania.

In October 2012 over 20,000 farmers in the southern and western provinces became the first Rwandans to obtain index insurance through Acre Africa (then Kilimo Salama). This was possible through a partnership with an agricultural microfinance institution (MFI), the Rwandan insurer SORAS, and Swiss Re Corporate Solutions. In 2014 more than 130,000 Rwandan farmers insured their crops with index insurance.
 
In Rwanda, agricultural credit markets have developed slowly in the past, due to the agricultural risks that can seriously affect repayment. Index insurance provides an opportunity to mitigate some of these risks. Smallholders can use pay-outs from crop losses to repay outstanding loan balances.

As Acre Africa expands into new geographical areas, there is often a lack of the historical weather data necessary to build a rainfall index. So satellite-based indexes are increasingly becoming the best option when working with small hold farmers in remote locations.
 
A partnership with Columbia University’s Earth Institute (IRI) identified a satellite data source. The African Rainfall Climatology Version 2 (ARC2) is available for free through the United States' National Oceanic and Atmospheric Administration (NOAA).

The ARC2 satellite provides a 34-year uninterrupted view on a 10x10km grid. It is available across Africa. In tests, ARC2 shows an 80% correlation with ground weather stations when measuring drought.

With this kind of technology in place, over 1,600 farmers in the Huye district of southern Rwanda were the first to receive a payout from an innovative micro-insurance initiative called “Hinga Urishingiwe” or “protected farming” in Kinyarwanda in December 2012.

The money compensated the small hold farmers for decreased yields resulting from drought. One Acre Fund distributed the payout to bean farmers after the Ministry of Agriculture and Animal Resources (MINAGRI) confirmed the local loss in yields.  And in February 2014, the insurance paid out to more than 7000 farmers in Bugesera, Ngoma and Kirehe communities.

Dr. Agnes Kalibata, Minister of Agriculture and Animal Resources at the time of the program explained that: “For the first time in Rwanda, smallholder farmers are being compensated for their losses following drought. We at the Ministry look forward to seeing the continued results of this amazing innovation of the   insurance program. I believe the payout is evidence that the program can bring stability to smallholder farming that previously did not exist.”

Bernardine, a beneficiary farmer whose debt was reduced, described how she feels with insurance. “I am really proud of my insurance! I was not expecting to have my debt reduced like it is now. Farmers in my group are happy too. Those who were remaining with little money received payment from the insurance, which is a surprise for us. We are so thankful for this.”

One Acre Fund currently serves 135,000 farm families in Kenya, Rwanda, and Burundi, with more than 540,000 beneficiaries living in those families. Founded six years ago,  One Acre Fund has been recognized by prestigious early-stage grant makers such as the Echoing Green, Draper Richards, and Skoll Foundations.

One Acre Fund serves subsistence farmers, who make up 75 percent of the world’s poor. It provides farmers with a “market bundle” of services – including farm inputs, finance, education, and market facilitation – and is repaid for those services.

As for Acre Africa’s work beyond the countries mentioned, they are focusing on consolidating operations in the current focus countries and exploring possibilities for product potential driven from a client engagement and demand-driven perspective.

Success Factors
According to the International Finance Corporation (IFC), a leading investor in microfinance that creates innovative products in insurance and supply-chain finance to reach the poor and accounts for nearly a third of all development financing provided to the private sector by international financial institutions, Acre Africa’s innovation has already achieved success with some challenges that need to be handled.

The key to success has been to engage multiple actors in the agricultural value chain to reach large numbers of smallholder farmers. Working with input suppliers, financial institutions and other key stakeholders, Acre Africa has customized insurance products using mobile technology and weather data, which in turn allow farmers to de-risk their investments in quality inputs, and input credit.

These insurance products have also allowed credit institutions to enter agricultural lending by mitigating weather-related repayment risk.

Acre Africa’s team of local and international specialists models crop risks, develops crop indices, manages climate data, develops insurance products, educates farmers, and creates distribution channels for the insurance. A major success factor has been this knowledge hub of experts located in Nairobi, Kenya.

Challenges
The differing insurance regulatory environment in each country presents a challenge for setting up index insurance markets. Laws and regulations on the role of agricultural insurance service providers and allowable fee percentages vary by country.

New partnerships need to be set up in each country, including government institutions, farmer aggregators and insurance companies who underwrite the insurance policies.

The greatest barrier to expansion is access to reliable long-term data to base agricultural insurance indices on.
For index insurance to be affordable and accurate, 10-20 years of historical rainfall or yield data is required. Collecting, verifying, and analyzing this data is the most time consuming process in product development.

Where such data is not available, Acre Africa is investing in cutting edge satellite data and testing analysis techniques to generate the most accurate proxy for the farmer experience.

Development impact
Figures obtained from IFC show that in 2013 Acre Africa’s total Insurance Portfolio (total sums insured) amounted to $12.3 million, while insurance payouts totalled $370,405.  The average cost of insurance has been 5 to 25% of value of insured inputs or harvest.

There has also been increased investment and earnings: Acre Africa’s insured farmers invested 19% more and earned 16% more than neighboring uninsured counterparts according to a 2012 impact study.

IFC also notes that there was increased access to finance because 97% of the farmers insured in 2013 received loans linked to the insurance, 177,782 farmers received $8.4 million in financing in part due to Acre Africa’s index insurance products in 2012 alone.

In 2014 Acre insured over 233,000 farmers, with more than 89,000 of them insured in Kenya and over 130,000 in Rwanda.