Farmers in Kenya are a worried lot. The onset of the El-nino rains has significantly affecting their harvests, which to reduced revenues and low disposable incomes.

Mr. Lazarus Owade a small-scale farmer in Asumbi, South Nyanza is a farmer, who depends on his 15-acre farm for sustenance. Rainfall in this area was in near-normal ranges according to the national meteorological reports but it was delayed by a prolonged dry spell in April. He planted sorghum this season, the drought resistant one advised by agro-dealer extension officers. But the rains started after it had flowered. “It is going to be a total loss,” he said in a resigned tone over the phone.

Regardless of his preparation, Mother Nature still seems to have the upper hand. There were early predictions of floods by various State and international networks, but he still chose to grow brown sorghum, which is becoming increasingly important due to its drought resistance ability and high yield potential. The highly nutritious grain matures within 100-120 days.

Of course he is aware of crop insurance and was among farmers who insured last season's crop against drought. But the rains were favorable then and so was the harvest. From a depressed market, he earned KSh150,000, which he used to pay the school fees for his four children in boarding school. “At least I had something to write home about,” he said, obviously thinking of his next move after an impending crop failure, for which he had not taken insurance.

Although the farmers were prudent to plant sorghum this season, it was not among crops covered by the available crop insurance providers.

Kenya is currently forecast to be much wetter than usual, from October 2015 to January 2016. With the heavy rains going on, the country’s exports revenue are in peril. Tea, which accounts for 22% of world export is set for a decline with as much as a 12%, according to the Kenya Tea Board. Lower production of tea would have a deafening effect on Kenya’s economy.

To strengthen food production, small scale farmers need to be in control. A small-scale farmer needs certified seeds that are weather resistant, cheap irrigation systems, infrastructure and cover from climate change.  

Agriculture insurance is among several micro-insurance products available in the market under general insurance. Categorized into crop and animal covers it aims at cushioning farmers’ investments against the vagaries of weather.

The practice has been common among the large-scale farmers and their small-scale counterparts are fast appreciating the need to safeguard their animals and farm produce against unforeseen losses. The insurance is classified under miscellaneous in the Insurance Act.

Tough start

Crop insurance for small-scale farmers has faced many barriers particularly financial. And what has made it successful this time round is probably technology.

Previously, it was almost impossible for a single company to run the programme on its own. A farmer who wants to insure two bags of seeds — a KSh900 investment, may be paying an insurance premium of KSh90. If there’s drought, Insurers will have to visit the farm to verify the farmer’s loss. And because an insurer’s expense is the same for a KSh900 policy as it is for a KSh900, 000 policy it was unfeasible.

An innovative product that made cost of signing up farmers, veryfying claims and making payouts process low was needed. Using technology and creating partnerships with financial institutions and private organizations, insurance firms have launched products relevant to small-scale farmers.

According to Association of Kenya Insurers (AKI) crop and livestock insurance is new and at its elementary stage of development. “They are not sophisticated and are tailored to the basis of weather conditions,” explains Tom Gichuhi, executive director of AKI 

Referred to as Weather Index based (WIB) insurance, policy varies with companies. Insurance companies have customized the product according to location of the farm, size of the produce being insured and health of animals among other considerations. ”Therefore, what you will find here is not as sophisticated as crop and livestock insurance in developed countries.”

Crop and animal insurance available in the market are mostly against either drought or excessive rainfall. WIB means that a threshold is determined on basis of micro-climate of a selected area. Data from a weather station is monitored in a 15-20km radius to give the insurer dependable data on rainfall amount and distribution. Mr Gichuhi says if rainfall falls below the threshold, drought is declared. All farmers in the prescribed area who bought cover are compensated. “This also happens when excessive rainfall is experienced.”

For this to happen, companies are utilising developments in technology to enable real time transfer of information regarding changes in weather and how they affect crops and animal health.

Cost reduction

UAP in partnership with Syngenta Foundation for Sustainable Agriculture and Safaricom have deployed a low-cost mobile phone payment and data system that is linked to 32 solar-powered weather stations.

When a farmer purchases insurance the agro-dealer uses a camera phone to scan a special bar code that sends the policy details to UAP Insurance over the Safaricom network. The farmer is then registered with a local weather station and receives a text (SMS) message confirming the policy. When data from a particular weather station indicates drought or other extreme conditions, including excessive rains, all farmers registered with that station automatically receive payouts through their mobile phone via Safaricom's M-PESA money transfer service. This eliminates the often lengthy claims process involving an agent visiting the farm to estimate losses.

Crop insurance is available in Kenya’s bread basket regions of Western, Nyanza, Rift Valley and Mount Kenya. Using solar-powered weather stations, insurance policy is issued against farmers’ investments in seeds, fertilizers and other inputs that are lost to harsh weather.

Excluding horticulture, virtually most small scale farmers depend on rain for irrigation.

Ashok Shah Chief executive officer of APA insurance says crop and animal covers are designed for small scale farmers who account for 75% of the total agricultural output. “We realized that farmers are willing to pay for low-premium products that mitigate against such grave risks,” he said, adding that statistics indicate some 1.5 to 3 billion people living in poor countries are willing to buy this critical security if offered in attractive packages.

The Kenya insurers’ umbrella body cannot agree more. “If households achieve food security, the nation is secure,” said the executive director. He explains that food insecurity arises when farmers are financially unable to recover from produce loss to replant. Sometimes, they are unable to cater for their household basic needs translating to pressure towards the national food reserve which is also depleted. “But when farmers recover their cost of inputs, they have a disposable income to budget on.”

In the last four years there has been notable growth in uptake with companies increasing their customer numbers and projecting increased uptake of the product in future. 

Opportunities abound

Meanwhile CIC notes that the market is geared up for agriculture insurance.  “Farmers are securing loans from banks with insurance as collateral,” says Mr. Kimani. Besides boosting farmers’ confidence farmers are increasing their acreages as risk is reduced.

The insurance firm estimates the cost of most farmers in securing an acre of maize at between KSh800 to Ksh1, 800 for an acre of land.

Technology has significantly contributed to the growth of the insurance product. “The use of mobile phone technology to speed access and payouts to rural farmers has opened up the market," said the AKI director.  

Additional funding and partnerships from more experienced players is another contributor. To launch Kilimo Salama, UAP partnered with agriculture specialist Syngenta Foundation to develop a relevant product into the market. The Foundation does research on improving harvests on small farms. The non-profit foundation is financed by the Swiss agri-giant Syngenta and the product is financed by the International Finance Corporation, a sister organization of the World Bank.

The partnership made the insurance product affordable. Farmers were required to only pay 5% of their premiums.

Kilimo Salama also has a helpline that is staffed by agriculture experts to provide callers with free advice on improving agricultural production and protecting their investments and it is estimated that 16,000 farmers have already used the helpline. "Some farmers have reported that their maize performed better as they had more knowledge of agricultural practices," said Rose Goslinga, the Programme Coordinator from the Syngenta Foundation. "We expect that this will stimulate renewal rates in years where the rains appear to be good."

CIC general manager says the prospects are endless. “Agriculture insurance is the thing of the future,”he says. “Banks are slowly asking clients to insure their crops as a condition to get funds.

This is an indication that training and marketing funds will increase significantly as competition intensifies. “More farmers are realizing the risks of having no insurance just as any cost of production.”