They’ve been hailed as the ‘resilient unsung heroes’ of the Covid-19 pandemic: the half a billion small-scale farmers worldwide who produce so much of the food we depend on. According to the International Fund for Agricultural Development (IFAD), more than two billion people depend on small farming operations for their livelihoods, and around 70 percent of the world’s rural poor rely on farming for income and employment.
Recent research suggests that because of the rise of agri-industrial mega farms, the proportion of the world’s food grown by smallholder farmers is shrinking. While this may be true, farms of less than two hectares still produce between 30 and 34 percent of the world’s food supply. In some emerging economies, small farms produce about 80 percent of the food consumed.
Clearly, then, we should all be concerned with helping rural economies manage their risks - not just from the pandemic but, increasingly, from climate change. “Agricultural insurance has the potential to generate a wide range of benefits for poor small-scale farmers – and other vulnerable agricultural value chain actors – in developing and emerging contexts,” says a recent report from the UN Food and Agriculture Organization (FAO). “An agricultural insurance scheme can act as a fundamental shock-responsive component within a broader social protection system, providing low-income farming households with an essential (and timely) layer of protection against natural hazards.”
Scaling up insurance for smallholder farmers, their families, and their communities against climate-related extreme weather events remains a major challenge - mainly, according to the Initiative for Smallholder Finance (ISF), due to a lack of sufficient funding. “Of the $148 billion in public financing dedicated to combating climate change in 2014, only $6 billion went to the agricultural sector,” says the ISF. “The high risks and upfront costs of investments in climate smart agriculture can make them risky for both the lenders that finance them and the farmers that adopt them.”
“In a provider market that receives large government subsidies to gain market access, we need a better approach to matching capital demand with capital supply,” notes ImpactAlpha. “Despite progress in recent years, we can do better in matching the demand for loans with the supply of capital. In short, subsidies can get smarter.”
This failure to provide accessible finance - including insurance - to low-income rural communities is a major missed opportunity. “Smallholder farmers represent the single biggest new market segment for the financial services industry,” say MIX’s Blaine Stephens and Mike Warmington of the One Acre Fund in a recent blog. “In all probability, no other industry in the world would ignore a $200 billion market clamouring for its services.”
Protecting the world’s favourite drink – and its producers
One of the agricultural value chains in need of better risk protection is tea production. According to Fairtrade, tea is the world’s most popular drink (after water), with about 70,000 cups drunk every second. Today tea is cultivated all over the world, with China, unsurprisingly, topping the list of exporters.
However, tea is highly vulnerable to climate change, meaning economies which rely on tea exports face significant challenges. Volatility in world tea markets is also difficult to manage- the price of wholesale tea leaves jumped by 50 percent in the second half of 2020, following a slump to the lowest levels seen in more than a decade. That’s a big problem for small-scale tea producers in low-income countries such as Rwanda, where tea exports generated more than US$93 million in 2019/20, representing 8.5 percent of the country’s total export revenues.
Some 43,000 Rwandan farmers and their families rely on the income generated by growing tea, yet they face an uncertain future: average temperatures in the country have risen faster than the global average and, in the long term, lower lying areas are expected to become too hot to be suitable for growing quality tea. In 2015, unusually heavy rains washed away more than 2,000 tea bushes in southwest Rwanda, with farmers telling local media that they were worried about repaying the bank loans they had taken to establish their young plantations. Three years later, 150 hectares were lost to flooding.
A safety net for Rwanda’s smallholders
It’s precisely this type of risk that inclusive insurance could help to mitigate. Rwanda features on the list of countries eligible for help under the Smallholder Safety Net Upscaling Programme (SSNUP) - a new, €55 million project run by ADA, the Swiss Agency for Development and Cooperation and the Luxembourg government to boost the development of agricultural value chains. MiN members Oikocredit and Grameen Crédit Agricole Foundation are among the investors. Other initiatives, such as IDH’s Service Delivery Model (SDM), aims to create climate-resilient supply chain structures in Rwanda which provide farmers with services such as training, access to inputs, finance and information.
Clearly, inclusive insurance could help Rwandan tea growers manage their risks - but many Rwandans are uninsured and have limited access to formal finance. Paying for traditional insurance premiums is well out of reach. MiN member Bert Opdebeeck of Microinsurance Master, partnered with Board of Innovation to help four of the biggest local insurance companies come up with their very first microinsurance products - resulting in a prototype tested in the field and a business case ready to pitch.
“We went out into the streets, travelled to tea plantations, and visited ‘agakiriros’ (work spaces for micro-entrepreneurs) to interview potential customers,” says Board of Innovation’s Nick Fransen. “Everywhere we went, we heard the same message: people are acutely aware of the risks they face and would jump at the opportunity to get insured if the conditions were right.”
Recognising the role of insurance in managing risk, one tea producer has even bought its own insurance company. In 2017, Rwanda Mountain Tea (RMT) took a majority shareholding in Prime Insurance, whose mission is “to ensure that each and every Rwandan has access to the appropriate insurance cover provided with the highest level of customer service and satisfaction.” In addition, RMT were recently chosen to partner with MTN Rwanda in the GSMA Innovation Fund for Digitisation of Agricultural Value Chains as part of its Mobile for Development programme.
Rwanda’s tea industry is a microcosm of the challenges faced by small-scale farmers and rural communities all over the world. Inclusive insurance can play a vital role in helping them become more resilient to climate change, pandemics, and natural disasters.
The MiN’s Insurance for MSMEs Best Practice Group is currently looking for actors of specific value chains that have a decent grasp of prevalent risks faced by their respective value chain and that would be open to presenting during one of the group’s upcoming calls. The Group is also looking for organisations that provide or implement innovative technological/digital solutions addressing risk management and/or insurance for specific value chains. If you’re interested, please get in touch.
 data from National Bank of Rwanda and Rwanda National Agriculture Export Development Board (NAEB)