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Crop insurance: The missing link

“Agriculture is the most healthful, most useful and most noble employment of man” — , George Washington.

This prescient statement by one of the founding fathers of the United States and the first US president seems to have fallen on deaf ears in Zimbabwe, where year after year farmers can be heard pleading for more government funding and relief, especially when adverse weather devastates crops. Zimbabwe over the past years has been ravaged by drought and increasingly unpredictable weather patterns. This year, crop and livestock production is highly likely to be negatively affected by poor rainfall being experienced in the 2018/19 season. Already, the start of the 2018/19 rainfall season has been delayed and rains have been erratic so far.

Rainfall levels across most parts of the country are below the normal long-term average. This has adversely affected on-farm activities such as land preparation, planting and casual labour opportunities which are below typical levels for this time of the year. More so, farmers who planted early, are already counting their losses as crops are showing signs of serious moisture stress. Without insurance, these farmers are likely to continue turning to government for support. The government is already overburdened by the support it is providing to the agriculture sector through various forms of subsidies and input support.

Supporting farmers through inputs and subsidies is good but incomplete without an insurance package attached to it, to manage the rising risks associated with unpredictable weather patterns. The government as the major supporter and financier of agriculture, has to be proactive in protecting farmers. Over 100 countries around the world have introduced crop insurance, which has now become big business in the US, Canada, EU, China and India. Zimbabwe’s neighbour, Zambia, also introduced a crop insurance scheme, at government level. Crop insurance is simply a risk management tool that protects farmers in times of low production so that they are able to meet their financial obligations and safeguard the agricultural sector. The general principle behind crop insurance is not much different from that of car insurance. Many of us would pay our car insurance yearly but never claim from it, yet we continue to do so in order to avoid the probability of a high severity loss.

In the US, the government-owned Federal Crop Insurance Corporation offers multi-peril crop insurance, which must be purchased prior to planting and covers loss from most types of natural disasters including floods and droughts. In 2017, more than 300 million acres of farmland in the US were protected by crop insurance. Run as public-private partnerships, under these crop insurance programmes, the insurer is responsible for the delivery of the policy while rates are set by the regulator, which is the government. The federal government also subsidises the insurance premiums paid by farmers while providing reimbursements for insurers to assist with their administrative and operating costs. By doing so, crop insurance remains affordable to the majority of American farmers, thus preventing any debts from increasing whenever losses occur.

A US-type multi-peril crop insurance model is definitely applicable here in Zimbabwe. Government in partnership with the private sector may come up with an insurance package that may be made mandatory to all farmers that will be contracted on command agriculture. Farmers may have to purchase that insurance as a condition for qualifying for command loans or various Government input schemes prior to planting. This may help make agriculture financing more sustainable and self-financing. Agriculture is an important sector in Zimbabwe from both economic and social points of view. If we are to promote food security, reduce our food import bill and protect our farmers, then crop insurance must form part of the framework to manage agriculture and weather risks. A financially empowered farmer is a productive farmer and insurance is the missing ingredient in government’s agriculture financing model.

Tinashe Kaduwo is a researcher and economist, contact kaduwot@gmail.com.

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