Risk Insurance Models

Production and transactions risks are pervasive in family agriculture and constitute a major impediment for smallholder farmers in investing in farm technology that will boost quality and quantity of produce, and so enhance access to remunerative markets as well as improve prospects of obtaining formal credit. Not surprisingly, risk mitigation and insurance appears topical in many countries. The research described and analysed typical insurance and risk mitigation models, including traditional crop insurance systems; re-insurance systems and government-funded calamity funds as well as micro-insurance systems. Cases that have beenexplored included identifying the conditions that improve supply and assure sustainability of insurance products as well as accessibility for smallholder farmers.

Researchers in NRI and WUR delivered a paper on risk insurance. The paper provides a brief summary of the types of risks that smallholder farmers are exposed to: including both pre and post-harvest risks and uncertainties. Also important to include how farming risks and uncertainties impact on the farm household, in terms of farm income and therefore rural poverty and access to credit, etc. It describes typical insurance and risk mitigation models, including traditional crop insurance systems; re-insurance systems and government-funded calamity funds as well as micro-insurance systems. The paper analyses why most of the insurance products are unavailable to smallholder farmers in developing countries. It discusses why these instruments may be effective in markets in the developed countries but generally have been ineffective or inaccessible in developing countries; and it identifies innovative instruments which have been supplied in markets in developing countries and are accessible to smallholder farmers; briefly documenting why they have been successful and what needs to be taken into account in replicating any success.

Smallholder farmers face a range of risks related to production, transactions and human resources which often impact on their farming operations as well as their livelihoods. Farm output may vary from season to season because of the vagaries of the weather, especially in countries where agriculture is predominantly rain-fed. Crop production can also be affected by diseases, pests and other natural factors. They face human resource risks associated with death, disease and disability affecting the farmer and his/her family members. They may incur losses as a result of inability to enforce contracts and may themselves be vulnerable to legal risks arising from farm legislations or regulatory standards.  Smallholder farmers are also exposed to uncertain access to markets and high price risks which may sometimes occur, or are accentuated by inefficiencies in markets or policy interventions. This brief provides an overview of different insurance tools that can be used by farmers to manage risks.

ESFIM Risk Insurance Policy Brief