Transcript insurers
3rd West and Central Africa Agricultural Science Week
and 10th General Assembly of CORAF/WECARD
Ndjamena, Chad, 14th – 18 th May 2012
Index based crop insurance in West Africa :
principles, existing projects and prospects
L’Assurance agricole indicielle en Afrique de l’Ouest:
principes, premières réalisations et perspectives
Bertrand MULLER1, Moussa SALL4, Antoine LEBLOIS5, Alpha BALDE2,
Moustapha FALL3, Patrice KOUAKOU3 et François AFFHOLDER1
1
2
3
4
5
Introduction : constraints/risks limit productions
Crop productions are limited by constraints and risks
Many constraints(problems) and risks can be controlled or
prevented: good practices, inputs, organization …
But residual risks: rainfall variability (droughts)
massive locusts and birds attacks
extremes temperatures, winds, floodings
And those risks are generally extremely covariant : affect
numerous people at the same time
2
Quelea Quelea
Introduction : constraints/risks limit productions
Soudanian (600-1200mm) and Sahelian (200-500mm) areas:
very important rainfall spatio-temporal variability
Spatially, inter-annual and intra (seasonal) annual
Very variable (uncertain) start, dry-spells/droughts
Sharp decrease in 1970 -> 1990 : 1st sign of CChange
Increasing since 15 years …
Pluviométrie annuelle de Bambey (1923-2010)
1100
1923-2010
1923-1969
1970-1979
2000-2010
1000
Pluviométries 2007 - Dept. Diourbel - 26 postes
(AMMA DMN-CERAAS-CIRAD)
900
Pluviométrie annuelle (mm)
600
550
Pluviométrie (mm)
500
450
400
350
:
:
:
:
586,5
667,5
465,8
593,7
mm
mm
mm
mm
800
700
600
500
300
400
250
300
2007
2003
1999
1995
1991
1987
1983
1979
1975
Années
1971
1967
1963
1959
1955
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
1951
8
1947
7
1943
5 6
1939
4
1935
3
1931
2
1927
1
1923
200
3
Introduction : constraints/risks limit productions
Risks and economic conditions affect productivity
WA farmers are used to climate variability and CChange : aim
at securing medium/low yields and don’t want to loose
investments in bad years : “risk aversion” (pertinent)
Risk aversion reinforced by economic conditions : low prices,
markets, organizations “value chains”, etc..
=> extensive systems : low productivities
=> food dependency
(some exceptions : irrigated rice ..)
But African population will increase by 2,5 – 3
And Asian production seems to not increase more …
Agricultural productivities must increase to feed Africa
Under climate change with probably more climate variability
4
Introduction : constraints/risks limit productions
Agricultural (crops, animals) insurances appear as a
possible tools to cope with residual risks by paying
indemnities in case of low productions (losses)
May secure part of farmers incomes
May secure credit programs : more sustainable
Mays allow access to credit for much more farmers
May generate credit rate decrease
May contribute to a virtuous circle conducing to more
investments (inputs, works) and productivity increase
Also considered as an adaptation tool to CC and CV
Interest of backers : many money is coming
Very ”fashion” theme for many stakeholders …
and a new market for (re-)insurers
Just starting in West Africa but 10 years in Asia, S.Am., E.Af.
5
Insurance and index based insurance principles
Insurance is a service :
the insurer pays compensations in case of bad production /
losses due to one(some) problem(s) (residual ones)
the insured farmer must pay an annual premium
nobody know when compensations (payouts) will come ..
Premium prices depend on:
compensations/payouts : statistical average (on time and space)
service management costs : same for credit and all services
but insurance specificity is losses evaluation
commercial margin : same for credit and all services
re-insurance costs : to allow the insurer to be able to
compensate simultaneously numerous customers if necessary
… that is often the case in agriculture since risks are
extremely covariant
6
Insurance and index based insurance principles
Damages/losses evaluation is difficult/costly, particularly in South
Countries where fields are small, disseminated, heterogeneous, etc..
risk of conflicts and “moral hazard”
Index based insurances (since early 2000s)
No direct damages/losses evaluation (at fields)
Damages/losses indirectly assessed through the value of
an index (indicator) related to some measurements
For instance measures of temperature in one reference site
=> reduced cost
Allow to insure several farmers of an area at the same time,
and/or to have group contract => reduced cost
Additional ways to decrease costs
Management linked with credit
Mobile phones technologies (sms) for contracts and payments
7
Insurance and index based insurance principles
Calibrated to protect investments and then credit systems :
not for production/profit losses: would be too costly considering
markets and risks frequencies (1 year out of 5-10)
“Real insurance” (private sector) is a priori reserved to “intensive
(using inputs) and market linked productions” because farmers
(or other stakeholder) have to pay premium
Cotton, peanut, maize, rice, vegetables …
But could be partially subsided by Governments/Backers -> PPP
Index system can be used also for “social protection system”
Aggregated (average) yields index : “all-risks insurance”
Specific index allow to link losses to only one specific risk
(whatever the other problems)
Climate index : on temperature, rainfall measurements
Satellite data index : NDVI, biomass, ET%...
8
Insurance and index based insurance principles
Main problem: “basic risk” i.e. risk that index values and
thus payouts aren’t correctly linked to damages
Depend on kind and quality of index
On spatial variability of reference observed factor ..
On variability of other conditions: soils, sowing dates, varieties
Development of insurance requires efforts (time, money) to
explain and convince farmers and others stakeholders:
difficult to install “confidence” (trust) since there is no
“insurance culture” and because of “commercial” aspects …
Also some initial investments in technologies : secured
raingauges, satellite data, yields controls …
9
Insurance based on aggregated yields
Payouts depend on average yield compared to a reference
yield level that is a fraction of the mean inter-annual yield
Requires a very good and confident “yields measurements
Moyenne historique
Seuil protection 80%
Indemnisations 80%
Seuil protection 30%
Indemnisations 30%
300
400
200
200
100
0
-
pluies
rendements
Lin. rendements
20
06
Rdts moyens
600
20
04
2000 2002 2004 2006
400
20
02
1992 1994 1996 1998
800
500
20
00
1986 1988 1990
1 000
19
98
200
0
1 200
600
19
96
800
600
400
700
19
86
1 200
1 000
Evolutions rendements arachide et pluies Diourbel
rendements (Kg/Ha)
800
cumuls annuels (mm)
rendements et
indemnisations (Kg/Ha)
Exemple fonctionnement assurance sur rendements agrégés
1 600
1 400
19
94
19
92
19
90
19
88
system” : cotton, sugarcane, vegetable
Quite expensive
Difficult now with national statistics : spatial cover and “quality” ..
Better if also some control of practices at farmers fields
Problem if bad yields due to human factor such as bad fertilizer for
instance … or decrease in tendency
Lin. pluies
10
Rainfall index based insurance
Based on rainfalls = “drought insurance” : most frequent
Many kinds of rainfall index:
Simple : total rainfall amounts but don’t perform well
Most complex : simulated yield (or stress index) by crop model
Intermediate (IRI, World Bank) and most used since it is
quite good and easy to explain to farmers and insurers :
composite index based on rainfall amounts on different phases
of crop cycles
Whatever the index : its parameters must be precisely defined
based on agro-climato-economical analysis
Attention to pure statistical index as “payout if observed value reach
percentile x%” : not recommended
payouts not calibrated according to crop status
induces differences in protection level between areas
11
Rainfall index based insurance
Composite index:
Simulation of a “virtual crop cycle” that starts within a recommended
sowing period according to a reference rainfall value (20 mm)
Fixed cycle and fixed phases (2 to 4) considered for insurance
“Trigger/Strike” and “Exit” reference rainfalls values for each phase to
pilot payouts according to rainfalls during the phases
Déficit Pl. (mm)
PHASE 1
Semis et installation
Déficit Pl. (mm)
PHASE 2
Croissance et Floraison
Déficit Pl. (mm)
PHASE 3
Développement Fruits
Calendrier Cultural
Démarrage Période
Indemnités = min (Coût prod. Total ; Somme paiements phases 1 + 2 + 3)
12
Rainfall index based insurance
Several parameters in the contract
Peanut 90
Fonctionnement contrat arachide qualité Paoscoto-Nioro
First Dekad of Sowing Window
Last Dekad of Sowing Window
Sowing Trigger for Contract (mm)
Dekadal Cap (mm)
Phase 1 Start (dekad)
Phase 1 End (dekad)
Phase 2 Start (dekad)
Phase 2 End (dekad)
Phase 3 Start (dekad)
Phase 3 End (dekad)
Phase 1 Trigger (mm) (/4mm)
Phase 1 Exit (mm)
Phase 2 Trigger (mm) (/5mm)
Phase 2 Exit (mm)
Phase 3 Trigger (mm) (/4,5mm)
Phase 3 Exit (mm)
Total Insured Production Costs (FCFA)
Insured Prod. Costs Phase 1 (FCFA)
Insured Prod. Costs Phase 2 (FCFA)
Insured Prod. Costs Phase 3 (FCFA)
19
21
20
80
2
2
3
5
6
8
10
0
120
60
80
30
100000
70000
100000
100000
Indemnisations (FCFA/Ha)
Contract Parameters
180 000
1,00
160 000
0,90
140 000
0,80
0,70
120 000
0,60
100 000
0,50
80 000
0,40
60 000
0,30
40 000
0,20
20 000
0,10
Indemnité phase 1
0,00
Indemnité phase 2
Indemnité phase 3
Année
Série4
RDT Stat Nioro
Main problems : potential “basic risks” due to
Rainfall spatial variability
No good time synchronization between contract functioning
13
and farmers crops
INDEX RDT
Nioro
How to improve “rainfall” index based insurance
Favorable environment promoting homogeneity and
adequate practices limiting insured risks (sowing date,
variety) and other problems (diseases, etc..)
Index are calibrated and perform well for “good practices”
Losses due to other factors are not considered
Mathematical solutions to partially limit basic risks:
Use of majored dekadal (10 days) rainfall amounts
Index related to several raingauges
14
How to improve “rainfall” index based insurance
Most recommended : use of geospacialized data from
satellites : pixelised rainfalls or relative evapotranspirations
ET% (or mix), controlled/calibrated using some ground
observations
But researches are required to assess
accuracy of those methods and of
their pertinence for crop insurance
Agrhymet - EARS project
IFAD/WFP/AFD project
Will be required also for extension/upscaling
EARS figure
Already on-going pilot projects in Mali, Burkina and Benin by
PlaNet Guarantee and EARS, using 3km x 3km Meteosat info
15
How to improve “rainfall” index based insurance
Other points to consider to improve insurance systems
in the future
“Personalized” contract considering sowing date (within
sowing window): info transmitted by mobile phones
“Sophisticated index”: simulated yield (or ET%) by crop
model : more accurate and will allow to consider also overrained period and/or integer other factors (Temp)
Because farmers who invest need precision / quality : in focus
groups and meetings they ask very pertinent questions about
index functioning
And since technologies allow (will allow) to do it
16
Index based insurances experiences in West Africa
Up to now only in Burkina Faso and Mali : on cotton and maize, less than
1000 farmers in 2011 ; PlaNet Guarantee / GIIF / EARS
20.000 farmers expected in 2012 …
Pilots will be implemented in 2012 in Senegal on maize and peanut :
PG/GIIF+WorldBank+Cirad : 1000 farmers (??)
Pilots will be implemented in 2012 in Bénin on maize ; PG/GIIF
Different studies : Ghana (GTZ), Bénin (WB), Cameroun, BOAD
17
What we can learn from experiences
USA : fully subsided (EU : prices are subsided ..)
India : different programs sustained by Government which
subsides premium : more than 20 million farmers
Positive for credit and allow government to help small farmers
Malawi, other projects: strong investments
GRET (2011) : “insurance programs could be economically
profitable but require at the beginning many investments
from Governments or Backers”
feasibility studies (experts)
equipments/technologies
explanation/information, capacity building …
Subsides generally required for small farmers
18
What we can learn from experiences
When there is no subside (Mali, BF) : strategies consist in
proposing very cheap products to launch insurance culture :
but they poorly protect farmers … is that pertinent?
Subsides may also contribute to create equity between areas
Senegal : subsides higher for Northern region in order to have
same premium and protection everywhere
Better to consider insurance in agricultural policy
Basic risk is a problem
IFAD/WFP (2010) : “The future largely depends on how the
industry will be able to expand the technology frontier”
(satellite and communications technologies)
19
Conclusions
Insurance could contribute to enhance productivity by
securing credit (at least)
Index based insurances are quite cheap and thus allow
providing insurance to much more farmers
Major technical issues to be addressed to reduce basis risk
and improve quality of insurance products : satellite and
mobile phone technologies and crop models also
Satellite technology also necessary for extension
Insurance development requires expensive investments at the
beginning, including eventual premium subsides
Subsides/other mechanisms are also required for equity
Insurance must be considered in agricultural policy
Government must also regulate the sector (legal issues)
Recommendations
Let be optimistic : crop markets and agricultural policies in
Africa will allow insurance development ..
Researchers must work on technical issues and also
on economical and policy ones
what are the adequate Private-Public-Partnership ?
how to integer agricultural insurances and index based
insurances in global food security management system??
Researchers and development stakeholders must participate
to insurance projects / feasibility studies
to technically help them
to ensure transparency, equity and balance between
development and commercial issues
to capitalize experiences in order to advise Governments
Thank you very much
Bertrand Muller
[email protected]
With Moussa SALL (ISRA-BAME), Antoine LEBLOIS (CNRS-CIRED),
Alpha BALDE (AfricaRice), Moustapha FALL (ISRA-CERAAS), Patrice
KOUAKOU (ISRA-CERAAS) et François AFFHOLDER (CIRAD)
« l’assurance agricole est un sujet trop sérieux pour être confiée
aux seuls assureurs, ré-assureurs et acteurs du crédit et de la
micro-finance »