Hennie Van Staden, CEO of iMPAC
The agriculture sector is a central and pivotal industry that plays an important role in nurturing livelihoods and more significantly, ensuring food security to help boost economic growth. It is also a pillar of growth across the whole economic value chain, providing much-needed raw materials to many other critical industries. Retrospectively, the sector faces significant challenges such as the COVID-19 pandemic and supply chain disruption, which harm the potential for its growth.
As a significant contributor to local employment, the sector provides jobs to more than 868 000 citizens and contributes over 36% to the growth of the country’s GDP in Q4 2021, including a multiplier effect that is several times higher – major initiatives need to be considered to ensure its sustainability and continuous growth.
The industry is characterised by severe risks that affect how it operates. Volatility remains a significant factor due to a range of factors that include global conflicts, which affect the supply chain (particularly since Russia is a big exporter of ammonia, which is the central ingredient in fertiliser manufacturing) and the delivery of essential goods. Storage and transportation challenges are also among the leading challenges that negatively impact yield potential and result in financial losses for farmers. While large businesses may have the capability to navigate these risks, small to medium operators lack the necessary support to remain resilient throughout these disruptive periods.
While many crop farmers use their expertise to build agility and the necessary resilience by diversifying products they grow, utilising less water-intensive techniques and planting crops that are much more resistant to droughts – the risks will remain present. A tremendous amount of effort and innovation is required to support traditional risk management for even the unforeseeable risks.
Business conditions and activities continuously change as farmers continue to navigate across different risks. Unforeseen events remain a significant threat for farmers, as evidenced by the recent riots, which led to a substantial loss of infrastructure, livestock and crops. While the sector was beginning to recover from the COVID-19 pandemic and lockdowns, the unrest resulted in the country’s GDP slumping by 1.5%, with agriculture contracting by 13.6%, representing its most significant loss since 2016.
Insurers adding value
In the midst of the risks and challenges that farmers face in the industry, insurers remain critical partners to assist in the resilience and recovery of the sector. Understanding the depth and diversity of risks – which are continually evolving- requires advisors and insurers with deep insight and foresight. Risk managers can play an instrumental role in terms of educating, encouraging and creating a better appreciation for what farmers need to consider as risk mitigation steps against various events.
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Financial cover
Farmers continue to face the massive challenge of having the financial security to assist in covering against increases in input cost. Input financing is vital for purchasing goods that include seeds and fertilisers that can guarantee consistent production of crops. Players in the industry are providing revenue products that allow farmers to apply for input finance, making them the safety net for farmers to ensure they can continue to earn revenue at the end of a season.
The past seasons have placed tremendous pressure on the industry, with traditional products such as Multi-Peril crop insurance requiring improvement to protect farmers’ crops effectively. Farmers and brokers need to form a relationship that can sufficiently acknowledge commonly faced risks and ensure comprehensive cover for crops at all perils.
Innovative solutions
As technology and other disruptions impact how business is conducted, insurers are implementing systems that make it easier to provide quality customer service and quick responses to claims. Clients are continuously looking for partners that understand their needs and can provide immediate assistance when needed.
In an array of risks and challenges, clients need partners that can cater to their everyday needs as well as provide the necessary advice. There is an expectation to protect the sustainability of businesses and industries, and this can only be done with innovative, risk efficient solutions.