Mary is a maize farmer in Northern Tanzania and cultivates a plot of 1.2 hectares. Most of the maize is consumed by herself and her three children, with a small excess sold at market. Every few years, Mary’s family encounters a shock, often climate or health-related, which wipes out any savings and requires external assistance for mere survival. This chronic flirtation with the poverty line is characteristic of smallholdings across sub-Saharan Africa. Mary has little excess because labour productivity is virtually unchanged in 200 years, primarily due to sparse use of inputs. High yielding varieties of staple crops and other inputs are not utilised, due to fear of crop loss. It is safer to produce little, rather than spend sparse cash on seeds which may or may not return an earning. Yet the appetite of growing sub-Saharan Africa populations requires a doubling of food production by 2050. So far, large scale farms, who favour a monoculture, intensive tillage and non-discriminate chemical application, have met this demand. Unsurprisingly, 12 million hectares and 24 billion tons of top soil are degraded every year, an area equivalent to the size of the Gambia. The very ecosystem services which support food production are being rapidly eroded. Despite Mary’s low labour productivity, her farm benefits from a high efficiency. The manageable size allows close attention, enabling a rich diversity of crops and plants; Mary also intercrops groundnuts, sunflowers and beans. This is a result of generations worth of knowledge, lending agro-ecological synergies which enrich and anchor soils and build pest and weather resilience. Combining inputs with smallholder agronomy can grow the food supply whilst restoring the health of soils. With 500 million smallholders forming 80% of all farms across sub-Saharan Africa, unlocking productivity gains is essential. Moreover, given that agriculture is the largest employer in rural areas, the sustainable development prospects could be revolutionary.
The Mechanism Climate
Insurance is one pathway to enhanced productivity. By providing formal protection against risk, smallholders are freed from fear of loss and can engage in a higher output strategy. Boosted productivity coupled with intercropping and conservation tillage means soils remain nourished and anchored as the food supply grows. Insurance provision to smallholders is now feasible due to advanced satellite and remote sensing technology. These innovations allow for ‘index-based’ insurance which uses a weather indicator such as rainfall or soil moisture to predict crop performance. Previous schemes have proven too costly, but the use of an index streamlines operational and monitoring costs. Most prominently, insurance can incentivise adoption of high yielding varieties. Use of conservation agronomy and improved inputs is rewarded with a lower insurance premium. This signalling mechanism is potent and is the particular appeal of insurance. In effect, insurance encourages the commercialisation of smallholder farmers. Bundling insurance with improved inputs organises actors in the value chain through an alignment of incentives. Greater output offers greater produce to be handled, generating income for the smallholder to purchase more inputs for the crop cycle. Inherent to this process is responsible stewardship and helps build the business case for smallholder agriculture. The benefits extend beyond the rural landscape. A compelling rural livelihood dampens push factors which drive rural-urban migration, whilst increased output relieves land pressure in adjacent localities. The Impact Interest and capacity from the insurance industry in protecting the most vulnerable members of society is rapidly accelerating . Both the G7 and Paris Agreement recognised insurance as a valuable climate adaptation instrument. The Insurance Development Forum is a public-private partnership which explicitly targets the outreach of insurance to the underserved. Agricultural insurance pilot schemes in Kenya, Tanzania, Rwanda, Zambia, Uganda, Ethiopia, Ghana, Burkina Faso and Senegal indicate the growing momentum. The standout example is ACRE Africa, which insures 1.1 million farmers across Kenya, Tanzania and Rwanda. The index-based insurance product is distributed to smallholders by input providers, agribusinesses with contract farmers, local cooperatives and professional farmers. Weather forecasts and planting advice are texted to the farmer, who are returning a 30% improvement on yields. A unique advantage in sub-Saharan Africa is the proliferation of mobile phone payment platforms, such as M-Pesa. Boasting over 30 million users, M-Pesa is a readymade platform for rapid scaling and financial inclusion. Integrating insurance with M-Pesa builds a digital financial profile of the previously unbanked and aids the codification of land rights. These databases form the basis for the provision of other financial services such as banking and loans, widening the economic opportunities for smallholders and drawing in private sector finance. Primary challenges to insurance provision include affordability, farmer understanding of insurance, accurate data collection and regulatory uncertainty. Importantly, insurance must be a tool in a wider set of measures, including social safety nets, investment in transport infrastructure and restoration programmes. Land degradation occurs at the nexus of poverty, food and climate. Insurance is not a panacea, but will allow Mary and other smallholders to utilise agronomic expertise to expand output and earn a dignified income. The implications for sustainable development are substantial. The World Bank estimates that GDP growth in agriculture is at least twice as effective in poverty reduction as non-agricultural growth, due to extensive participation in the sector. Financial services are a cornerstone of the food system in the developed world, yet smallholders are expected to manage alone, with declining ecosystem services. It is a matter of justice that a programme of well-designed, well-implemented weather index-based insurance reaches Mary, who is on the front line of degrading landscapes.