Risk Management

To be a farmer is to live with risk. The Syngenta Foundation is currently investigating the design of risk management products tailored to smallholder needs as well as the best possible delivery systems.

How do smallholders manage risks?

For a small farmer like Elias in Kenya, each agricultural season brings with it opportunities as well as risks. In a good year, he can harvest up to 15 bags of maize on his one acre plot and make good money on his investment. But as his region experiences periodic droughts he also grows beans next to the maize to make sure he can still get an income from the beans if the rains and thus the maize crop fail. Elias has become cautious in taking risks with his farm, such as investing in fertilizer and improved seed, as he has seen his neighbours struggle to repay loans in drought years. Elias is not the only one who is cautious; the banks in his region have lost money due to droughts and have become equally cautious, giving loans only to those farmers who can provide them with title deeds or other types of guarantees.

 

Elias' case is typical for smallholder farmers. They have only very limited options to manage farming risks every year. This holds back investment in their farm, thereby constraining income possibilities. Risk management strategies such as intercropping and staggered growing help them secure a harvest but also hold them back inasmuch as sub-standard yields result.

Large farmers may be able to access more formal risk management tools such as crop insurance but the product(s) in question tend to be beyond the reach of smallholders. Weather index insurance is a new kind of insurance for farmers. It covers weather related risks such as drought and excess rain, and can be affordable for smallholders, since costs are kept low by taking measurements at nearby weather stations instead of visiting individual farms. Weather index-based insurance is usually offered to small farmers through their cooperative, input dealer, a microfinance institution or bank and can help them mitigate the weather risks that they cannot control.

Weather index insurance was first piloted in India in 2003, and now some 40,000 policies are sold each season to cover over 50 crops against a range of weather risks. Weather index insurance has great potential to support small farmers in Africa, and there is a World Bank supported pilot in Malawi operational since 2005. The Syngenta Foundation is looking into solutions that could be implemented in Kenya. The Foundation is committed to further developing weather index insurance products so that they may protect farmers against agricultural risk more comprehensively and be accessible to many farmers.

 

It has been estimated that 60% of all Kenyan farmers regard drought as the main threat to their income (FinAccess 2006). It is with this fact in mind that the Foundation is looking to pilot such products in areas where weather data are available, using delivery structures which can be replicated across the country at a later stage. The pilot areas have been chosen to reflect areas with climates that are representative for Kenya such as drought-prone regions.