The army worm invasion - A threat to agric insurance?
While dealing with the headache of the numerous challenges that the agricultural sector is being bedevilled with for some time now, another terrible unexpected plague has reared its deadly head! Undoubtedly, the invasion of farmlands by fall armyworms has the potential to worsen the plight of many a farmer if not nipped in the bud.
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The ripple effects will certainly not spare the agricultural insurance project.
Agriculture as the Mainstay of the Economy
It is an undisputable fact that agriculture remains the mainstay of many economies, including Ghana. Thus, the sector remains a dominant force in the country’s economic development, as it employs over 50 per cent of the population. Sadly, its contribution to the country’s Gross Domestic Product (GDP) has dwindled to 19 per cent in 2015 against 21.5 per cent in 2014.
Existing Challenges
The agricultural sector’s major challenges are headlined by unreliable rainfall patterns (accounting for over 50 per cent of crops failures), poor and unreliable climatic conditions, continuous reliance on outmoded technologies, poor storage and processing infrastructure, among others. These, therefore, endanger the source of livelihood of both large scale commercial farmers and small-scale peasant farmers in particular, as they tend to record poor yields and are often unable to repay contracted loans.
Indeed, reports of some farmers even committing suicide, as a result, have also come to the fore. It is in recognition of the enormity of these challenges that the Ghana Insurers Association (GIA) established the Ghana Agricultural Insurance Pool (GAIP) to address the myriad of issues threatening the sector. Much as the sustainability of this project is really key, the woes may be deepened by the invasion of these fall armyworms.
The IIPACC Project
In order to mitigate the risks associated with the Agric sector, the German Development Co-operation (GIZ) in concert with other relevant stakeholders, established the project dubbed “Innovative Insurance Products for the Adaptation to Climate Change” (IIPACC). The three-year project, which started in December 2009, is seeking to facilitate the development and introduction of agricultural insurance for farmers in the form of an innovative, demand-oriented and economically-sustainable agricultural insurance product. It is expected to also facilitate the development of other innovative agricultural risk mitigation products, particularly through investments in meteorological infrastructure, to improve data collection and analysis, under the joint supervision of the NIC and the GIZ- IIPACC, in collaboration with the GIA.
As a risk mitigation project, the project is targeted at farmers, agro-processors, rural and financial institutions and input dealers, among others, so that compensation is paid them in the event of crop failure due to extreme weather conditions such as drought, excess rainfall and floods. The picture here does not seem to include anything on pest invasion.
Establishment of Drought Index Insurance Product
Similar to the IIPACC Project, the Ghana Agricultural Insurance Pool (GAIP) also introduced the Crop Drought Index Insurance (CDII) as a risk-mitigating mechanism which works on the basis of rainfall measured at weather stations operated by the Ghana Meteorological Agency (GMet). Thus, it provides protection for beneficiaries against the negative effects of extreme weather events; thereby helping farmers and their financiers to manage drought risks thus providing a comprehensive insurance cover for all the growth stages of crops such as maize, which is a major staple in Ghana. With a focus on the local farmer, the product employs simple language terminologies to interfacing with beneficiaries in order to ensure message clarity and thus avoid ambiguities with claims expectations.
The development of the Drought Index Insurance Product was a result of concerted efforts by stakeholders such as the German International Cooperation (GIZ), National Insurance Commission (NIC), Ghana Insurers Association (GIA), Ministry of Finance, Ministry of Food and Agriculture (MOFA) and the Ghana Meteorological Agency (GMET) with support from Swiss Re, a reputable international reinsurance company.
Currently, the GAIP comprises 19 non-life insurance companies in Ghana and operates under the guidance of the GIA. While making access to loans from the banks a lot easier for farmers, the pool also ensures that crop revenue, particularly during adverse weather, is not lost and thus the farmer will remain in business in spite of the disaster. Invariably, in the event of losses owing to adverse weather, the farmers will not be directly liable, as the creditors (e.g. banks) will fall on the insurers to recoup the credits advanced.
Now what happens in the event of pest invasion such as this threatening plague of armyworm invasion?
Army Worms - the new threat on the block
Indeed, the invasion of the fall armyworms on thousands of acres of maize farms in the country leaves much to be desired. The invasion of ‘these forces’ to the existing earlier challenges enumerated requires a more drastic approach to deal with.
The GAIP must, therefore, ensure that victims of this plague are also adequately compensated while looking at the future adjustment of premiums to enable a prudent and a more balanced sustainability of the scheme. If premiums being received cannot meet the claims payments as a result of this plague, then the future of the GAIP could be endangered and short-changed.
Challenge and way forward
Since the CDII is the beginning of a journey through unfamiliar terrain though with good prospects, government must urgently treat the case of the fall armyworms as a ‘national disaster; and deal with it holistically. This will also give creditors some confidence while they also relentlessly conduct effective appraisal and risk assessment procedures before advancing credit facilities to farmers. Farmers, on the other hand, must also ensure strict compliance with best farming practices, including pest control.
Premium Affordability and Claims Paid
Most farmers, while appreciating the CDII model, appear unable to afford the premiums charged.
At inception, the project registered over 3000 farmers who paid their initial premiums, but these numbers have since dwindled to less than 10 per cent, owing to their inability to sustain the payment of premiums. In 2015, for instance, total claims paid under the scheme was about GH¢159,740 against premium of GH¢553,000. In this regard, the Government of Ghana, through MOFA, should consider the advocacy of the NIC by introducing subsidies on Agricultural Insurance (appropriated in the annual budget) in order to encourage farmer participation, as it pertains in Nigeria.
Indeed, given the negative impact of the fall armyworms invasion in recent times, farmers are encouraged to insure their crops not only to protect themselves against the adversities of the weather but also against plagues/pests incidental to farming activities. If the current GAIP package covers plagues/pests such as the army worms, then farmers and creditors need not worry much but GAIP should be, as claims payable could largely affect the reserves of the scheme.
