De-risking agriculture sector requires a multistakeholder approach.

Thursday December 13 2018

farmers

Man inspects his farm in Rwanda's Eastern Province. Farmers took loans to buy seeds and fertilisers. PHOTO | FILE 

RWANDA TODAY
By RWANDA TODAY
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Farmers are struggling to produce food for consumption and sale due to adverse weather shocks, pests, disease and unpredictable prices.

The situation is increasingly getting worse, as the adverse impact of climate change unfolds. Just early this year, farmers across the country were counting losses with many still facing the risk of losing their land, which is the source of their livelihoods, after the recent floods destroyed thousands of hectares of farmland.

For instance, in Rurambi marshland, more than 1,801 rice growing families under Corimaru — a co-operative in Bugesera — estimate that out of over 550 hectares, only 3ha can be harvested, translating to losses amountingto about Rwf900 million.

The amount includes over Rwf223 million in bank loans and Rwf611 million worth of input. Most incurred costs for fertiliser and seeds, which they paid after harvesting alongside the loan from different banks.

Therefore, that the government is piloting agriculture insurance to cover 40 per cent of expenses is a step in the right direction. This is because the agriculture sector remains too risky to private investors.

Already, we know that despite the government offering guarantees, lending to the sector has failed to pick as banks continue to shy away from a sector they considertoo risky. The few banks that attempt to lend to the sector, increase lending rates to cover their risk.

And according to the African Development Bank, less than three per cent of total bank lending in Africa goes to a sector that accounts for about 70 per cent of all employment and more than 40 per cent of gross domestic product.

Yet the impact of climate change on agriculture is expected to be greater, increasing the risk. However, given that agriculture is both a cause and a casualty of climate change, research shows that climate-smart interventions can also help farmers reduce their own carbon footprints.

Climate-smart agriculture helps to de-risk agricultural lending and insurance by making climate-related crop failures and other risks less likely to occur or less severe when they do occur. However, interventions in the agriculture sector must not only be left to the government as they are insufficient.

We need to see the private sector actively complement government efforts by developing innovation products particularly insurance companies targeting farmers. Already some private insurance companies are insisting that the government should cover 60 per cent, which would be ideal but is not sustainable.

By offering to cover 40 per cent, the government is giving an opportunity to the private sector to come up with innovative products that will not only help farmers, but also give them enough profit margins.

For instance, the Ministry of Agriculture has chosen to start with a weather-based index insurance that covers crop production losses caused by adverse weather.

Private insurers need to increase their risk appetite, come up with products that can help farmers adopt not only to the adverse weather shocks but also price fluctuations.

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