Ethiopia’s agricultural development witnessed a significant milestone today as key stakeholders of a recent public-private partnership (PPP) came together to witness the historic payout ceremony of the country’s largest ever crop insurance initiative. This initiative reached 122,000 smallholder farmers in Meher 2023 protecting them against various climate risks, including drought, excessive rainfall, hailstorms, pests, and diseases and provided compensation totaling ETB 39 million to those who suffered losses, according to a press release from Pula advisors.
In response to the pressing need for climate risk solutions in Ethiopia’s agricultural sector, this effort was initiated by the Agricultural Transformation Institute (ATI), World Food Programme (WFP), and Pula Advisors, and funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) through KfW Development Bank. The initiative aims to offer a comprehensive climate risk solution to farmers which is affordable, protects farmers against many risks and was executed by key Ethiopian stakeholders with support from international experts.
Following extensive research and a benchmarking visit, the first phase of the Area Yield Index Insurance was designed and executed by Pula Advisors, a global insurtech firm that provides agriculture insurance design and execution services across several markets in Africa and Asia. This endeavor aimed to bundle crop insurance with the established Input Voucher System (IVS) – the formal input distribution channel in Ethiopia to provide comprehensive and affordable insurance coverage for smallholder farmers.
The initiative primarily insured inputs, particularly fertilizers for smallholder farmers in the Amhara Region, with prospects to extend its reach to 7.5 million farmers across various regions utilizing the IVS infrastructure. The innovative approach resulted in the largest-ever crop insurance program in Ethiopia with a straightforward process, where farmers access crop insurance when they buy their inputs.
Pula’s approach centered around farmer sensitization to ensure program sustainability, which was possible through the support of Mercy Corps AgriFin. Road shows and training sessions led by Development Agents (DAs) established trust and encouraged farmers to enroll in the insurance program. Radio ads, posters and flyers, and enhanced the visibility of the program. Additionally, capacity-building programs for key federal and regional stakeholders have facilitated better understanding of agricultural insurance, aiding scaling up of such climate risk solutions in Oromia, Amhara, Sidama, Tigray and other regions.
In an exclusive interview with The Ethiopian Herald, Dagmawi Haileyesus, Pula Advisors’ Country Manager in Ethiopia said that pula is a systems enabler that bridges the gap of agriculture insurance. They present in 18/19 markets globally in Africa and Asia and have insured over 16 million smallholder farmers of which about 40% are women and they have insured close to 2.4 billion Dollar of their investment.
As to Dagmawi, the need for companies like Pula is a result of the huge supply and demand side gap in agriculture insurance. “If we take Africa alone, in a year, over 10 billion USD worth agricultural loss is caused partly five billion comes from crop loss and the remaining five billion comes from livestock.”
At the moment, only 3% of African farmers have access to agricultural insurance. This is among the reasons why companies like Pula need to be in the market to support the supply side of agriculture with local insurance companies. There are over 17 insurance companies in Ethiopia but only four or five of them are engaged in agriculture because of the sector is not lucrative business for them compared to other portfolios. The insurer parties those engaged in the sector take part of the risks.
From the demand aspect, government usually needs agriculture insurance and want to include smallholder farmers given climate related risks are increasing and farmers are facing a lot of challenges but not fully aware how to do that. Companies like pula support government and development partners that want to fund such initiatives, Dagmawi said.
Apart from being non lucrative business, according to Dagmawi, the agriculture insurance cost insurance companies more when compared to others like motor insurance, for example, so that many insurance companies prefer to stay at the bay. He further elaborated comparing motor accident and crop loss that motor accident does not happen to all vehicles on the same day and the damage might be very different.
Regarding the crop insurance, however, there is great possibility for gross loss to happen in one or many areas like what happened to Tigray and Amhara farmers when there was desert locust attack three years back. In this case, pay out comes in the same day on the end of the season; it’s not distributed across the year. That will literally bankrupt the companies because it is a hefty amount. This is not the Ethiopian case alone; rather it is the global reality, Dagmawi underlined.
Regardless of the risk, there are countries and insurance companies committed to work with Pula that introduces reinsurers which take part of the risk, he noted.
Noting the driving force initiated them to come to the market, Dagmawi recalled the meeting held with the Ministry of Agriculture two years back in November 2022. From that meting they learned government’s interest to support smallholder farmers build climate risk resilience because farmers are getting affected by multiple things of drought, excessive rainfall, hailstorms and many others. Agricultural Transformation Institute was tasked by Ministry of Agriculture to study the gaps of the insurance sector.
Though there are many insurance companies in the country, none of them are interested in the field because of unique character of agriculture insurance that needs bundle of protection like drought, locust attack, disease and flood among others. Farmers lose interest toward insurance companies provide coverage for only a single damage and will not come to buy insurance. Besides, unless the number of farmers those buy insurance is not larger, the premium is not affordable for smallholder farers.
Among the measures taken to relieve this problem based on experiences gained from an African country, Zambia, was enrolling large number of farmers that makes premium affordable for the smallholder farmers. In so doing, they used bundling mechanism which means providing insurance premium with Input Voucher System and when the farmer comes to buy agricultural inputs, he/she buys the premium. This can be undertaken at the kebele level where there is the access of agricultural inputs.
Pula mostly operates in Africa and Asia because the global north, the Americas and Europeans, are entertaining developed agriculture. Most African farmers need support and Pula is registering success in this regard working hand in glove with many governments. Contribution of credible partners is also commendable because they trusted the companies’ business model and invested in them.
In the case of Ethiopia, as to Dagmawi, their success lies under creating a successful public private partnership (PPP). They have brought together local insurance companies as a private sector and distribution partners such as Tsedey Bank who are distributing the insurance on the kebele level. Employing this mechanism, they are able to reach 7.5 million farmers throughout the country hoping more to go.
They also brought together government institutions like MoA, ATI and regional agricultural bureaus as the part of their effort. Development partners like German Federal Ministry for Economic Cooperation and Development (BMZ) through KfW which avails premium as subsidies for the smallholder farmers and Mercy Corps which helps design farmer engagement and sensitization content so that they can create awareness because farmers’ awareness is critical.
The company is working hard to bring different programs that incorporate livestock into the insurance service for the reason that the pastoralist communities in Ethiopia face risks that cause animals’ loss during natural disaster like drought. They have designed a highbred cover that serves farmers and pastoralists, Dagmawi said.
For the fruitfulness and success of agriculture insurance, awareness creation both from the farmers’ side and the government side at all levels is essential, Dagmawi underscored.
BY BACHA ZEWDIE
The Ethiopian herald May 17/2024
