Govt must support agric insurance

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Unpredictable rainy seasons, livestock and crop diseases outbreaks, uncertain markets and other risks in the agricultural sector call for appropriate insurance packages for the country to fully enjoy the benefits of Command Agriculture.

Financial Matters with Tinashe Kaduwo

Agriculture is a high-risk economic activity and investment in that sector without insurance is an added risk factor.

Agriculture is a source of livelihood of more than 40% of Zimbabwe’s population. Insurance can play an important role in securing farmers’ livelihoods and boosting the efficiency of the agricultural sector. Access to agricultural insurance remains low, which calls for proper government planning and support.

Commendably, the government has been assisting agriculture through subsidies and input credit under the Command Agriculture programme. However, credit without insurance is an added risk factor which calls for strong government support in making insurance accessible to all farmers.

Considering the new dispensation’s focus on agriculture, agricultural insurance should be part of the country’s agricultural policy and any other government intervention in the agricultural sector. Government should take the strategic lead for insurance especially for rural agricultural communities.

It should ensure that insurance is included in national agricultural policy as a part of a broader strategy that creates capacities and incentives for agricultural risk management. Inputs that are being given to farmers under the command agriculture initiative should automatically carry an insurance package which will assist farmers in times of bad harvests. This may entail adding an insurance premium on the price of inputs.

The government, through the Reserve Bank, may also push for integration of agriculture insurance activities with those of microfinance institutions, rural savings and credit co-operatives and/or other suppliers of credit for agricultural inputs.

Aligning the agricultural value chain with the financing value chain will make insurance valuable to all stakeholders.

Government support may also come in the form of market development of agricultural insurance.

Through command agriculture and the Presidential Input Scheme, the government can use the interventions to build a farmers’ database. Accurate, affordable and accessible data are critical for developing scalable insurance products. The government is well positioned to bridge this gap.

The government may also consider incentivising rural markets. Public policy and regulation can be used in a way that helps government facilitate development of rural insurance markets, for example through a facilitative tax and regulatory intervention, and by protecting the interests of the consumers. Some governments have attempted this by removing the tax on agricultural incomes as in India or by reducing or removing the value-added tax on insurance premiums as in Uganda and Rwanda.

Policymakers need to explore ways of improving the interaction between government programmes and the private sector. The private sector can effectively assist in implementation of government programmes, for which they can leverage the agriculture extension services for education campaigns and redress for consumer grievances. Limited financing in the agricultural sector, especially for smallholder farmers, may be the result of limited insurance packages that suit this important segment of the economy.

Farmers need user-friendly insurance instruments covering production, right from sowing to post-harvest operations, stockbreeding to slaughtering and also to cover the market risks for all crops and livestock throughout the country.

Proper policy support is needed in Zimbabwe and given limited private player participation, it therefore requires the government to come up with an affordable policy that will cement its command agriculture initiative.

Kaduwo is an economist at Econometer Global Capital. — tkaduwo@econometerglobalcapital.com or kaduwot@gmail.com

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