Among the tens of thousands attending the recent COP26 climate change summit, one small group did their best to get noticed. Six smallholder farmers from Ghana, Paraguay, India, Malawi and Côte d’Ivoire travelled to Glasgow with a stark message for political leaders: you represent the last and best chance to reverse climate damage to our livelihoods, crops, and communities.
“We have come to ask for justice: climate justice and trade justice,” said Benjamin Franklin Koume, a Fairtrade cocoa farmer from Côte d’Ivoire. “The profession we have chosen is to feed the whole world and we are proud of that, but we are hindered in that aim by climate change. I want to ask the politicians to go beyond their promises. How is the money going to be shared with the farmers?”
Globally, according to IFAD, less than 2% of global climate finance targets small-scale farmers. Millions of farmers could be at risk of financial collapse as their livelihoods come under growing climate pressure. In developed countries, NatCat losses are covered in large part by insurance, but for developing nations that already suffer disproportionately from extreme weather events, insurance only covers about 10% of the damage. Each year, natural disasters push 26 million people into poverty, inflicting an estimated USD 300 billion in financial losses – and that’s on top of the additional 97 million people which the World Bank estimates were tipped into extreme poverty by the COVID-19 pandemic in 2020.
“Rural people living in extreme poverty are disproportionately reliant on natural resources,” said Aparna Shrivastava, Deputy Chief Climate Officer with the US International Development Finance Corporation. “Globally, 3 out of every 4 people living in poverty rely on agricultural and natural resources to survive. Crop insurance helps smallholder farmers recover more quickly from these climate hazards and become more resilient against future shocks.”
Benjamin and his fellow farmers were by no means the only voices pushing to have global food security taken more seriously at COP26. CGIAR announced that a coalition of funders have pledged USD 575 million to deliver climate-smart solutions to farmers in low-income countries, on top of USD 256 million already committed. IFAD’s agreement with Honduras was just one example of a commitment to promote climate-smart agriculture (CSA), and there was more support for smallholder farmers with the launch of the new Agriculture Innovation Mission for Climate (AIMC).
CSA was one of the big talking points of COP26. Rather than waiting for a climate-related extreme weather event to strike, CSA (also known as ‘agro-ecology’) aims to reduce the need for social protection by helping farmers adapt and mitigate the worst impacts of climate change. As the EU Global Climate Change Alliance (GCCA+) points out, CSA, like insurance, is just one element in a holistic approach. “Many of the solutions to climate change lie in rural areas, in the way we manage our land,” Carla Montesi, Director of the European Green Deal and Digital Agenda told a COP26 side event on nature-based solutions. “Agro-ecology can help to restore and protect ecosystems, ensure food security and develop the livelihoods of the most vulnerable people.”
Away from the Glasgow summit, many small-scale farmers continue to struggle. As highlighted in October’s Network Exchange, the inability of many smallholder farmers to manage climate and other risks not only threatens to drive them back into poverty after disaster strikes, but has significant negative impacts on global food security. However, focusing solely on catastrophe risk transfer mechanisms such as index insurance runs the risk of downplaying the many other factors that impact farmers’ ability to earn a living wage, such as volatile markets and unfair global value chains.
“Smallholder farmers matter to us because they are exposed to poverty that is exacerbated by climate change, but also because they are inherently connected to us for us all to eat,” said MiN Executive Director Katharine Pulvermacher, the Leaders Dialogue - Bringing climate change down to earth: building the resilience of smallholder farmers - a joint session of the InsuResilience Annual Forum and the International Conference on Inclusive Insurance (ICII). “Food security and anti-poverty measures have become more urgent due to the acceleration of climate change. It’s about putting people first – we are all connected, and together we can make this work. But we must act now.”
Speaking in the same session, Blue Orchard Deputy CEO Maria Theresa Zappia added, “We need to be thinking about how we can reach smallholder farmers with adequate distribution channels, how to provide adequate insurance instruments with insurance companies and brokers, and how we can get access to InsurTech data that could improve the protection of smallholder farmers and better their livelihoods overall,” she said.
Fellow panellist Olga Speckhardt, Head of Global Insurance Solutions at the Syngenta Foundation for Sustainable Agriculture, said that smallholder farmers face many challenges, from market price risk to limited access to resources. “Build risk transfer models where inclusive insurance offers a strong business case and value to each actor, creating resilience. Insurance in isolation is not viable – other banking concepts such as agri-finance are also important and can help farmers unlock access to better coverage.” But, she asked, “Who will take up the initiative to building this model, and how can such solutions be priced as a single package? How do we target to reach scale?”
Agri-insurance in a post-pandemic world was also under the spotlight at the ICII. “The world is changing, the climate crisis is escalating, extreme weather events are increasing, and the COVID pandemic has highlighted rural communities’ extreme vulnerability to shocks and governments’ lack of preparedness,” said Matthew Shakhovskoy, Senior Advisor at ISF Advisors in Australia. “We need a new emphasis on how agri-insurance is positioned in an interconnected global food system.”
ISF research, carried out in 2018 with the Syngenta Foundation, shows that globally around 270 million smallholder farmers require an annual premium of between USD 8-15 billion – but protection gaps vary significantly from around 97% in sub-Saharan Africa to 25% in South-east Asia. “In other types of insurance, the end-consumer has the demand and insurers develop the offering. In agricultural insurance, the end-consumers are relatively disengaged. Farmers know that they need to deal with these risks, but don’t have the willingness or ability to pay. Insurers are following intermediaries and InsurTechs and reinsurers who work with donors to bring a lot of these solutions to market.”
Well before the world heard of COVID-19, efforts were already underway to help smallholder farmers become more resilient to catastrophic shocks. The 2018 Syngenta Foundation conference New routes to smallholder prosperity; Unlocking the potential of farm insurance and finance brought together the development sector, insurers and reinsurers, regulatory and policy bodies, academia and the private sector. “A single actor cannot move the market for smallholder insurance,” Shakhovskoy told the gathering. “It requires the commitment, investment and innovative thinking of us all. I believe that it is entirely possible to create a socially significant and profitable insurance market for the millions of smallholders who need risk protection.”
Aiming to build on this momentum, the MiN and ISF are working with a consortium of interested donors, including the Bill and Melinda Gates Foundation, Swiss Re Foundation, Syngenta Foundation and FSD Africa. The MiN aims to establish a Best Practice Group next year to develop inclusive financial and insurance solutions for the rural enterprise market. All this takes place against a heightened awareness of the role that insurance can play in tackling climate change. As the 2021 Landscape of Microinsurance report notes, “interest and support for addressing climate risk, and related insurance products, is growing among governments and regulators.”
“Smarter, integrated approaches, technology, and partnerships are key to attain sustainability,” according to Ingrid-Gabriela Hoven, Managing Director of GIZ. “Governments need to invest much more in insurance literacy, data infrastructures and comprehensive risk management tools.” Tools such as the increasingly important index (or parametric) agricultural insurance for both crop and livestock cover.
A May 2021 briefing paper from the International Water Management Institute notes that “In recent years, agricultural technologies such as stress-tolerant seed varieties and index insurance, and climate information are increasingly assisting smallholders to adapt to climate change. However, these technologies cannot work in isolation. While stress-tolerant seed varieties could protect farmers from moderate weather risks, they provide no insurance for extreme weather events. A risk-averse farmer may, therefore, underinvest in such seed varieties unless extreme weather events are covered by crop insurance to cope with the financial losses following such events.”
This is a key point, underlined by Ingrid-Gabriela Hoven. “When smallholder farmers suffer a loss, they invest less in their crops and therefore they produce less. This drives them further into poverty. The resilience of smallholder farmers needs to be a priority of the climate change agenda. We need to push governments to provide the enabling conditions to reach scale.”