As the effects of climate change increase the risks in agriculture and food production, the need to protect smallholder farmers has never been greater.
Those in particularly developing countries are excessively affected by adverse events such as bad weather, pests and crop and livestock diseases, as well as logistical problems. Yet few have the means to manage risk and deal with the shocks and tensions they face.
Kenya based Pula is one of several new businesses using technology to help farmers facing poor harvests. The agricultural insurance company, which was founded in 2015 by Dutch entrepreneur Rose Goslinga and Kenyan insurance actuary Thomas Njeru, has now insured more than 5 million farmers in more than 16 countries.
“Farming is risky; once you have insurance, you create a foundation, ”says Goslinga, who grew up in Tanzania and previously worked in Rwanda. “Otherwise you’re in quicksand.”
At this month’s COP26 Climate Change Conference, the UN’s World Food Program called for better risk management programs and more government funding for adaptation measures.
But agricultural insurance in developing countries, especially in Africa, is often inaccessible to smallholder farmers. Insurance companies need high quality data to research and endorse products, while logistical problems make farms difficult to reach. The cost of insuring crops is often too high for producers, and they consider the administrative process too difficult.
This lack of risk mitigation erodes financial and food security, while making farmers reluctant to invest in new technologies or assets.
Pula, which raised $ 6 million in early-stage funding this year, is using technology and data to solve these problems. The new venture uses machine learning and historical weather and production data to provide ‘surface yield index insurance’ to producers. This type of cover bases payouts on the average yield of an area, so producers are paid if the average yield achieved in a season is lower than the insured yield. The method, together with data suppression, reduces the need for detailed supervision by the insurer.
Pula provides insurance to farmers by bundling it with other products they need, such as seeds, fertilizers, loans and pay-as-you-go solar products. Under this arrangement, for example, the seed distributor or loan provider – rather than the individual farmer – is the beginner’s client.
The company also works with states and multilateral organizations, including the World Food Program, the Central Bank of Nigeria and the Zambian and Kenyan governments, as well as development agencies, financial providers, commodity buyers, aggregators and mobile network operators.
For example, earlier this month, Pula issued payouts to more than 800 maize farmers in the central Kenyan district of Kirinyaga, which suffered yield losses due to drought and locust damage. Pula’s insurance is bundled with loans provided by Nairobi-based Apollo Agriculture, according to Elizabeth Thinwa, project leader at the insurtech business.
The payout covered outstanding loan repayments and compensated the farmers for their losses. The farmers went home with between $ 45 and $ 405 each after deducting any loan repayments, thus avoiding the risk of default and ensuring that they were eligible for a loan for the next season.
However, the lack of risk mitigation for farmers is not limited to developing countries.
Richard Counsell, a former marketer and software developer, experienced first-hand the impact of volatile prices while growing up on a family cattle ranch in Somerset, South West England. Later, while working in Chicago in 2015, he saw a collapse in milk prices ruin thousands of people’s livelihoods.
Hedging costs are too high for many family farms, and most agricultural commodities do not have efficient futures markets, making risk management virtually impossible for farmers unless there are government subsidies.
But Counsell wanted to find a way to offer lower-cost protection, which is why in 2016 he Stable, an easily accessible online platform. “There’s an enormous amount – about $ 5 billion of agricultural products – [that is] effectively unencumbered, ”he says. “I asked myself, how does someone like my father get comfortable with hedging?”
Stable uses artificial intelligence – for which Counsell sought the help of experts at Liverpool, Harvard and Lisbon universities – to enable producers to choose how much production they want to ensure, what price they want to protect and the period of coverage.
Referring to 7,000 agricultural price indices, provided by 60 private and public organizations from 70 countries, the platform quotes an insurance premium and the farmer can choose whether he wants to pay it in a single amount or monthly installments. “It’s like car insurance,” Counsell says.
Stable raised $ 46.5 million this year in early-stage venture capital backed by venture capitalists, and is now starting to work with U.S. food businesses as well as farming organizations.
The company is also active in Malawi, where it works with the Agricultural Commodity Exchange for Africa to help the banks that finance the trade hedge their exposure. Meantime. in Colombia, Stable is helping avocado supplier Green SuperFood Global smooth out revenue volatility as it builds its export market.
Several other micro-insurance initiatives for crop failures are also underway to support communities that are vulnerable to climate shocks. Among its various agricultural insurance projects, looked at the International Food Policy Research Institute – a Washington-based think tank – photo-based insurance. This allows farmers to use their smartphones to take photos of their crops, which helps minimize the cost of loss verification and makes crop insurance more accessible to them.
As a business segment, agricultural insurance for smallholder farmers is still “a niche of a niche market”, says Goslinga. But the growing impact of climate change underscores the urgency of raising awareness. “The risks are increasing,” she warns. “We can see the volatility increasing, and in the next five years we will see a dramatic increase in the impact of climate change.”