Maintaining Sustainable Food Production amid escalating Risks in the Agri-Sector

Daniel Stevens explores why crop insurance is an essential tool in maintaining agricultural operations and production.

Daniel Stevens, Head of Santam Agriculture Crop Insurance

20 July 2023: Risks such as heavy rain, flooding, hail, frost, drought and fire are by no means new to the South African agricultural sector, but due to the effects of climate change, they are increasing in frequency and severity. These risks are also becoming more unpredictable amid changing weather patterns, which complicates risk management efforts for farmers.

The impact of climate change will worsen over time, with forecasts predicting that South Africa will become hotter and that the average temperature is rising. Heatwaves will occur more frequently increasing the risk of veld fires and more severe droughts. Managing water resources will become more challenging, making it vital for farmers to improve and conserve soil quality to allow for better water infiltration.

In addition to climate change and severe weather events, infrastructure risks also threaten the productivity of our agricultural sector. The most obvious example is the ongoing energy crisis in the form of load shedding, which is severely impacting farmers. Particularly when you consider that 100% of fruit and vegetables and a third of field crops require irrigation, which requires electricity. These mounting challenges put our agricultural outputs at risk.

Agriculture is an export-oriented sector in South Africa with more than half our produce – to the value of $13 billion – being exported annually. It’s an important contributor to our economy and we cannot afford to let escalating agricultural risks impact our food production outputs.

Crop insurance serves as an integral tool in maintaining sustainable levels of food production by providing a safety net for farmers, ensuring access to financial resources in the event of crop failure and other disasters. It enables farmers to invest in new crops and continue producing food, thus maintaining their operations and securing their livelihoods. Insurers also assist farmers with employing risk mitigating measures to minimize damages.

In addition, agricultural insurance can help reduce the vulnerability of developing farmers who are considered high-risk borrowers. This perceived risk prohibits these farmers from gaining access to much needed credit from lenders. However, insurance reduces the risks that developing farmers face and improves their credit worthiness as it provides a degree of certainty, making it easier for them to access the capital they need to invest in their farms and improve productivity.

Malawi and  Kenya have introduced insurance schemes for developing farmers and their food security status has improved year-on-year, according to the 2022 Global Food Security Index Report. Malawi has an overall score of 48.1 and improved by 2.6 points from 2021 to 2022, and Kenya has an overall score of 53 having improved by 10 points over this period. This improvement can be attributed to their robust risk mitigation strategies, particularly in agricultural insurance.

South Africa, with a food security status score of 61.4 ranks the highest in Africa and 59th out of 113 countries, has its own proposed scheme for developing farmers – of which there are approximately 1.3 million in SA. Index Insurance has the potential to be a game-changer in the local insurance landscape.

Index insurance is a type of insurance that pays out if a particular measure, for example, rainfall, is above or below a certain predetermined level. Small-scale farmers could opt for a weather index or a yield index. These products are more flexible and cost-effective because this model of insurance does not require insurance assessors to visit the farm to determine damages. But it will require greater collaboration between insurers and Government to fast-track the development of legislation to make this a reality for smallholder farmers in South Africa.

In conclusion, agriculture insurance is a necessary tool for the sustainability of farmers by ensuring uninterrupted production and assisting with risk management in an escalating risk environment, which is critical for food security, beyond our borders.

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About Santam, Insurance, Good and Proper

Santam is South Africa’s largest short-term insurer with a market share in excess of 22%. Listed on the Johannesburg Stock Exchange (JSE), the Santam group provides a diversified range of general insurance products and services in Southern Africa and internationally through a network of over 3 300 intermediaries and direct channels.

The group’s more than 1 million policyholders range from individuals to commercial and specialist business owners and institutions, including 80 of the Top 100 companies listed on the JSE. The group employs over 6 000 employees and was certified as a Top Employer by the Top Employer Institute for the sixth consecutive year in 2022.