INSURANCE SAVES A ZAMBIAN FARMER’S LIFE

By Bbalewa Zyuulu

Zambia is among the southern African countries that experienced the driest agricultural season in more than forty years, which resulted in significant crop losses, increased livestock deaths, and worsening poverty.

Over 9 million people in 84 out of the 117 districts were affected, according to the Zambian government crop assessment results.

The situation in the once Africa’s food basket nation was so dire that the nation’s President Hakainde Hichilema declared the unbearable drought a National Disaster and Emergency on March 1, 2024.

In his address to the nation, Mr. Hichilema said it had devastated food production and electricity generation in the midst of the nation battling to recover from a recent deadly cholera outbreak.

“The 2023/2024 rainfall season was characterized by late onset, prolonged dry spells, and high temperatures. This erratic rainfall affected crop and animal production. The prolonged dry spells in southern parts of the country coincided with crucial vegetative and flowering stages for staple and economic crops, resulting in total crop failure. A total of 982,765 hectares out of an estimated 2,272,931 hectares of maize planted have been destroyed by the drought, resulting in total crop failure,” Hichilema said.

According to the Zambia Meteorological Department, the most affected regions were Central, Eastern, Southern, and Western provinces of the country.

These provinces had, over the past five years, contributed over 58 percent of the annual national maize crop production. These provinces also host over 76 percent of livestock. But the drought became a huge burden due to decreased access to pasture and water.

For many Zambian farmers, such news means a death sentence.

This is because, in Zambia, insurance has traditionally seen lower uptake compared to other financial services. However, there is a growing recognition of its importance and the positive steps being taken to address this.

Thanks to the dedicated efforts of various stakeholders in the industry, there is a concerted push to continue raising awareness and educate the public about the benefits of insurance.

In this edition of “Business Focus,” we shall share the importance of Agriculture Insurance and how some farmers in Zambia used Insurance to survive the drought.

Contextual Background

Zambia’s population includes over 60 percent farmers, most of whom are smallholder farmers who grow enough food for consumption and sell the remainder to meet other needs.

Despite this huge farming population, only a quarter of the farmers receive direct support in the form of farming inputs from the government. The rest depend on chance and fate to survive.

Not to talk of insurance—as only a few farmers, mostly commercial, have insurance. For the smallholder farmers, insurance penetration is at an all-time low.

Therefore, before going into the details, let us get an understanding of what Agriculture Insurance is.

What is Agriculture Insurance?

According to the International Labour Organization, agriculture is the backbone of many developing economies, but it is exposed to various risks and is highly dependent on the weather.

Agriculture insurance can help reduce this vulnerability of agriculture-based households and enterprises.

Whether small and independent or a major commercial operation, as a farmer you are exposed to risk. Your needs will be as unique as you and the challenges you face every day.

Agricultural insurance serves as a reliable risk mitigation instrument for coping with climate-related hazards. This notwithstanding, agricultural insurance penetration among smallholder farmers in the Zambia remains low.

The agri-policy takes care of the individual needs and includes covering risks associated with cooperative and estate wine cellars, fresh produce packaging and cooling plants, liability, exports, product guarantees, plastic tunnels, poultry, warehouse liability, and many more.

It also covers personal insurance requirements for you, the farmer – one of the most important assets of any farming business.

As agriculture becomes progressively more complicated, so do the complexities of protecting against the risks involved. Farmers should therefore, rely more heavily on the professional analysis and insight of a trusted broker when it comes to protecting assets.

For most insurance companies in Zambia, the specialist agricultural product provides cover for (amongst other things):

Public Liability

Legal compensation for liability due to the accidental death or injury of a third party.

General Liability

Property owners’ liability, products liability, work away, crop spraying, animals, and spread of fire.

Livestock and Pedigreed Animals

Death of livestock or pedigreed animals due to fire, lightning, violent accident, freezing, transit, or attack by a wild animal.

With pedigreed animals, this cover can be extended to include various illnesses, transit, showing of animals, and impotence.

Realities on the Ground

After the Zambian President declared the drought situation an Emergency and National disaster, I went to one of the outskirts to understand the extent of the damage caused by the droughts.

I visited Mikango Village in Chongwe District, an area prominently known for good and favorable rains with good agricultural output.While at Mikango, I met Denis Chipoka, a smallholder farmer.A conversation with Chipoka was sobering as he recounted how many people lost their crops, including livestock. Unsure of what to do to feed his family, Chipoka was depressed and all he needed was a helping hand.

When asked whether he had an insurance policy for his crops and livestock, he reluctantly agreed.

He narrated how he couldn’t trust the insurance companies as they would not pay in most cases.

“Insurance is your friend in times of need. All you need to do is follow up with your insurance company and make sure you provide the necessary and accurate information for you to receive your payout,” I said to him.

I went on to remind him that it is during calamities like droughts that crop or livestock insurance becomes an essential tool in providing a holistic mechanism of protecting farmers against a range of perils such as drought, floods, pests, diseases, hail and windstorms, fires, damage by stray animals, and even damage due to riot and strike under one policy.

The insurance policy pays the farmer for any losses in yield as a result of the impact of any of the insured perils. This ultimately results in the stabilization of the farmers’ incomes, thereby giving them an opportunity to reinvest in inputs and other social securities for the following season.

This way, the agriculture sector becomes robust to climate risk shocks, and the whole agriculture value chain—from input suppliers, farmers, aggregators, transporters, and millers/crushers—is not heavily impacted, thereby positively benefiting the entire national economy.

I firmly believe the potential for insurance as a tool for economic empowerment cannot be understated.

Not only does it offer farmers financial protection, but it also creates an environment where they can plan and invest for the future with greater confidence. By guaranteeing a level of income stability, insurance could reduce Zambia’s reliance on food aid during times of crop failure and boost overall food security.

Therefore, for Chipoka, who grows maize and other staple crops but lost his entire harvest last year to a combination of drought and floods the only solution was insurance.

But with the introduction of this crop insurance mechanism, Chipoka and thousands of farmers in similar circumstances now have a chance at survival.

The insurance payout will provide immediate financial relief, allowing farmers like Chipoka to purchase food and keep their families nourished during tough seasons, reducing the risk of malnutrition and hunger.

After my initial discussion with Chipoka, months later i went to follow up on how most farmers were coping.

This time, I met Chipoka in high spirits.

He narrated that after he had done his part in claiming for his insurance payout because of the drought, he was one of over 500,000 farmers that received payments.That week over K8.8 million in crop index insurance payouts for the 2023/2024 farming season was disbursed by four insurance companies: ZSIC General Insurance, Savenda General Insurance, Professional Insurance Corporation, and Madison General.

During the payout,Zambia’s Agriculture Minister, Reuben Mtolo, disclosed that due to the drought experience, his ministry was in the process of contracting expatriates to formulate an insurance mechanism aimed at finding modern and effective ways to enhance insurance provision for farmers.

Mr. Mtolo said as things stand in the country,about 3 million farmers do not have access to insurance services.

“We cannot afford to leave so many farmers without coverage. By working closely with the insurance sector and introducing more inclusive models, we can ensure that every farmer has the tools they need to protect themselves and their families,” Mtolo said.

However, he also noted that reaching farmer beneficiaries of insurance was challenging as most provided incorrect contact details, often due to low literacy levels.

Insurance as Collateral

For Professional Insurance Corporation Zambia Managing Director, Moses Siame, Zambia needs to enhance insurance coverage to a level where it can be used as collateral for small-scale farmers.

“By making insurance mandatory, we ensure that every farmer has a safety net, and that safety net can even serve as collateral for loans, allowing small-scale farmers to access much-needed capital for expansion and improvement of their farms,” Siame said.

I too firmly believe that this shift would not only safeguard farmers from financial ruin but also encourage greater investment in Zambia’s agricultural sector. Banks and other lending institutions could be more willing to provide loans to farmers if they know there is insurance coverage to reduce the risk of loan defaults due to crop failure.

Moreover, as Siame points out, mandatory insurance would allow farmers to demonstrate their viability to lending institutions, making them more likely to receive loans. This could also promote a culture of savings and financial responsibility, as farmers would be encouraged to maintain their insurance coverage in exchange for access to credit.

What would be the Long-Term Implications insurance for Zambia’s Agricultural Sector?

The long-term benefits of expanding insurance coverage and making it mandatory would be substantial.

Firstly t, it would help stabilize Zambia’s agricultural sector, which is highly vulnerable to climate fluctuations, fluctuating commodity prices, and natural disasters. By protecting farmers against these risks, insurance could reduce the number of people falling into poverty after crop losses, thus stabilizing rural economies and promoting sustainable agricultural growth.

Secondly, it would contribute to the overall modernization of the agricultural value chain. In the future, insurance products could be bundled with other services, such as financial literacy programs, to help farmers better manage their finances, increase yields, and access new markets.

A more financially educated and secure farming population is one that can contribute more effectively to national food production and the broader economy.

Finally, making agricultural insurance mandatory could position Zambia as a leader in agricultural insurance innovation on the continent. As the country moves toward enhancing its insurance mechanisms, it could serve as a model for other African nations grappling with similar challenges in their agricultural sectors.

To ensure that all farmers have access to this vital protection, the government must continue to push for greater coverage, improved accessibility, and, most importantly, the introduction of mandatory agricultural insurance.

Farmers like Denis Chipoka, who have often been left vulnerable to the vagaries of weather and economic instability, stand to benefit the most from a comprehensive insurance framework. This framework would protect their livelihoods and ensure that they are not left to face hunger and poverty when disasters strike.

In the end, a mandatory agricultural insurance system could prove to be the key to a more resilient and prosperous agricultural sector. It would support both farmers and the national economy in the face of growing environmental and economic challenges.

The Author is an economist and a multiple Award Winning Journalist