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Africa: Farmers need a financial umbrella says World Bank

Johannesburg, 24 October 2007 (IRIN) - Helping small-scale farmers in Africa cope with risks such as natural disasters, extreme weather events and price fluctuations should be a priority, according to agricultural experts and the World Bank's annual report, released last week.

Exposure to these "uninsured risks ... has high efficiency and welfare costs for rural households" said the World Development Report 2008: Agriculture for Development, the bank's first analysis of agriculture since 1982. "Selling assets to survive shocks can have high long-term costs ... [distress sales of land and livestock] creates irreversibilities or slow recovery in the ownership of agricultural assets."

The agricultural sector is essential to overall growth, poverty reduction and food security, particularly in agriculture-based countries, most of which are in sub-Saharan Africa, where the sector employs 65 percent of the labour force and generates 32 percent of gross domestic product (GDP) growth.

"For many [small-scale farmers], asset accumulation is like the game of snakes and ladders: a decade of additions to one's assets can be eroded in a single storm or drought," Harold Alderman, the World Bank's Social Protection Advisor for Africa, told IRIN.

"Without programmes to reduce widespread risks, or to insure or otherwise respond to the remaining risks, farmers are often unable to accumulate enough capital to invest," he noted.

"Many studies have confirmed this for Africa, including a number of studies that show the lasting effects of droughts on health (nutrition) and education, leading to an intergenerational transmittal of poverty. Similar studies have shown how conflict leaves the survivors stunted, as well as with fewer years of schooling."

Lennart Båge, president of the International Fund for Agricultural Development (IFAD), commented that "Increasing crop failures and livestock deaths are already imposing high economic losses and undermine food security in parts of sub-Saharan Africa, and they will get far more severe as global warming continues." More than 80 percent of the rural sub-Saharan population live in agriculture-based countries.

Call for investment

The World Bank report urges greater investment in agriculture, pointing out that GDP growth originating in agriculture is about four times more effective in reducing poverty in Africa than growth in any other sector. 

Yet public spending on farming constitutes only four percent of total government spending and the sector is still taxed at relatively high levels. "But where is the investment going to come from?" asked James Breen, an agronomist based in Southern Africa.

He said small-scale farmers in Africa were trapped in a "vicious cycle of poverty ... and they cannot raise the working capital as they don't have collateral - they don't even own the land they work on" to cope with risks such as natural disasters and the impact of climate change, which will halve food production by 2020, according to the latest projections of the Intergovernmental Panel on Climate Change (IPCC).

Insurance against risk

The World Bank report acknowledged that, in spite of multiple initiatives, "little progress has been made in reducing uninsured risks in smallholder agriculture" and insurance schemes run by governments had proven "largely ineffective".

"Index-based insurance for drought risk, now being scaled up by private initiatives in India and elsewhere, can reduce risks to borrowers and lenders and unlock agricultural finance. However, these initiatives are unlikely to reach a critical mass unless there is some element of subsidy, at the very least to cover start-up costs."

Weather-based index insurance, for instance, links insurance to historical weather data on rainfall or temperature, with payouts triggered by the effects of a difference in these during the current growing season. It does not require on-farm inspections, loss assessments or collateral. The insurance could be sold like traveller's cheques or lottery tickets, and presentation of the certificate would be sufficient to claim a payment when one is due.

IFAD is supporting one such project in China, implemented in partnership with the World Food Programme, to provide insurance to poor rural farmers in selected provinces. To ensure strong local ownership, all activities will be planned and implemented in close collaboration with government and donor partners at the country level.

"Any such step would be welcome, but it would still involve some investment," Breen said. IFAD's Båge called for greater investment from the international community to help "climate-proof" farming systems in developing countries.

The World Bank report noted that sharply increased investment was "especially urgent" in sub-Saharan Africa, "where food imports are predicted to more than double by 2030 under a business-as-usual scenario, the impact of climate change is expected to be large with little capacity to cope, and progress continues to be slow in raising per capita food availability".

Adaptation

Most experts agree that emphasis on adaptation is key at this stage. "Indeed, adaptation is at the heart of agricultural growth, even when climate change is not as rapid as projected; technology and institutions are continually adapting to changes in economic environments," said Alderman, of the World Bank. "Similarly, even with no major changes in crop varieties, research is always responding to changes in the diseases that affect plants."

''Small-scale farmers in Africa are trapped in a vicious cycle of poverty ... and they cannot raise the working capital as they don't have collateral - they don't even own the land they work on - to cope with risks such as natural disasters and the impact of climate change, which will halve food production by 2020''
Henri Josserand, chief of the FAO's Global Information and Early Warning Service, said, "If climate change induces greater volatility and unpredictability in weather patterns, African producers will need to rely on a wider and more adaptive range of both 'regular' and coping, or adaptive, strategies.

"This will require investment in new technologies, practices, or even productive assets. Given the low level of income of these producers, doing so under risky conditions will be almost impossible." Risk-management instruments, including weather-indexed insurance, would still be needed to help to make the necessary investment in adjusting to change "less costly", he said.

Other strategies could include, for example, better on-farm storage facilities, community cereal banks, community-based credit systems, public social safety nets for the most destitute, and facilities to better move or market livestock in times of drought.

"There is no single, simple answer to risk management," Josserand said, but the problem was that African "producers have so far little knowledge of, and access to, such instruments".

jk/he/oa

Theme (s): Economy, Environment, Food Security,

[This report does not necessarily reflect the views of the United Nations]

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