Risks for small and medium farmers

Iain Massey Head: Inland Broking Operations. Indwe Risk Services

The main risks facing small-scale farmers in South Africa are climate variability, water availability, lack of appropriate agricultural infrastructure and logistics, shortage of farming skills, high levels of soil degradation and tough economic conditions.

In South Africa, most small-scale crop farming is rain-fed and therefore susceptible to weather fluctuations. Recent flooding in Kwazulu Natal and heavy rains in Gauteng this summer have highlighted the variability of this and the impact of climate change in South Africa. Effective risk management and disaster recovery plans are therefore keys to surviving major losses in the sector.

As agriculture becomes progressively more complex, so do the intricacies of protecting against the risks involved. Farmers need to rely on the analysis and insight of an experienced, professional broker with access to reputable insurers for protecting their assets and crops.   Crop insurance is underwritten by the major Agri insurers and whilst it is a very technical and sector specific area, that is not say that more brokers cannot learn about the sector with the help of experienced insurers. Most farmers settle for named-peril insurance, which is cover taken against specific risks such as hail and frost, whereas multi-peril insurance combines cover for various risks, including drought, which is much more expensive.

The agriculture insurance sector can be split into two main categories: the various crop insurance products and asset insurance products, with livestock and sometimes breeding game forming a specialist subset of assets.

In South Africa, crop insurance only accounts for a premium of approximately R1,5 billion, equating to about 30% of the value of all crops in South Africa.

Many small to medium sized farmers have chosen not to insure their crops, because of the cost of the insurance, or farmers choose to self-insure and hope to have enough capital to carry the risk of damage themselves. But after two years of an economy damaged by the Covid pandemic, recent rising interest rates, input and production costs and a decrease in the farmer’s securities, crop insurance is becoming a necessity for emerging farmers. Access to credit facilities will become dependent on these insurance products. Globally many different options to successfully insure micro and small farmers have been tested or are currently being tested, these include index based and parametric solutions.

The size of the insurance market for assets is roughly R4 billion in premium. Farmers consider equipment, farm vehicles and farm structures as integral to the business and prefer to insure those assets that would cause the operation to come to a standstill in the event of a catastrophic loss.

The farmers in the small and medium farming sector are often not educated about insurance and are unaware of the range of insurance products available. They require insurance products packaged in simple and useful ways that make it easy to take decisions on what to insure. Brokers prepared to put in the time and effort to assist them as professionals in crop insurance can make a meaningful contribution to South Africa’s economy by protecting its food sources.

_{Sources: Farmers Weekly and ARC}