A new crop insurance scheme designed for Ethiopian smallholder farmers has targeted farmers who are vulnerable to weather related risks and occurrence of drought. However, the insurance coverage includes mainly the agricultural inputs that smallholder farmers procure and use in their production.
The insurance scheme is one of the recent insurance products which are availed by the Ethiopian Insurance Corporation (EIC) to the agricultural sector. And the coverage plans to compensate smallholder farmers in the amount of the value of the agricultural inputs that farmers procure and use in their production.
During the launching this week at the United Nation Economic Commission for Africa, Wondwossen Etefa, Chief Executive Officer of the Ethiopian Insurance Corporation, expressed that this insurance will be based on the agricultural inputs the smallholder farmers use to produce their crops.
The farmers have to pay a risk premium of 10 percent on the inputs which includes fertilizer, seed, herbicides and pesticides. Megersa Meresa, director of Micro Insurance Program at Kifya Financial Technologies, said that the payment will be executed through agricultural cooperative unions and microfinance institutions close to farmers and serve as agents for the insurance corporation.
Agricultural Transformation Agency will supply the agricultural inputs with a credit scheme and when they take these products they will automatically be the beneficiary of the insurance. However, the insurance scheme would not wait for the farmers to claim loss of crop due to weather failure. EIC will make the compensation covering 100 percent of their total loss in agricultural inputs investment if the crop fails due to weather and other related risks without waiting for farmers to make the claims.
This is possible since the insurance scheme is based on Normalized Vegetation Index, a scientific measure that examines the chlorophyll level in the crops.
At the national level, the Ethiopian Meteorology Agency will collect satellite imagery information of the greenness level of crops. The insurance scheme would be based on this greenness level in crops. According to Dula Shanqo, Deputy General Director of the National Meteorology Agency, the satellite maps the greenness level of identified crop varieties and growing areas and report to the 11 branches of the agency every ten days.
Following the satellite information that is received, the EIC will send the insurance compensation through their respective cooperative unions and microfinance institutions provided that the crops have been verified to have fallen due to weather conditions.
This year, around 200 thousand smallholder farmers in Amhara, Oromia and Southern regional states will be beneficiary of the micro credit insurance. Crop insurance is not a new initiative. According to Dula, in 2006 there was a pilot project in collaboration with the World Food Program. Dula said that this became unsuccessful because the benchmark that was taken was the year 1984; a period of severe drought. “They designed a mechanism making the crops of 1984 as level of measurement for the other crops. If the crops do not reach that level it was ok if not the farmers will get insurance. This was not accurate because there are various ranges of crop failures in between,” Dula said.
In order to develop an accurate mechanism, the Netherlands University of Twente did a research on 60 identified crop planting sites and 800 pixel pictures were taken and traced to the past 16 years.
According to Wondwossen, currently an Ethiopian smallholder farmer spends 2,500-3,000 birr on average on agricultural inputs in one season. “When crops fails, the farmers are forced to sell even their livestock to pay for the inputs which have been procured by credit. We do not think this insurance will resolve all the problems rather we think this money will help in their utmost crisis times,” Wondwossen said.
In the coming five years, there is a plan to cover a total of 15 million smallholder farmers and, according to Wondossen, in the future, there will be yield based insurance.
This program is launched in partnership with various stakeholders namely Public Financial Enterprises, Ethiopian Insurance Corporation, Agricultural Transformation Agency, National Meteorology Agency and University of Twente of the Netherlands.