Cambodia’s population of more than 16 million is growing by around 1.4% per year. About four out of five Cambodians live in rural areas, primarily depending on agriculture for their livelihoods. Rice, cassava, and maize are widely grown. Like that of other countries in South-East Asia, Cambodia’s agriculture is heavily exposed to weather-related damage. The country has experienced rapid economic growth over the last few decades. However, many households, particularly smallholders’, hover around the national poverty threshold. They can easily fall into poverty when faced by natural disasters and other economic shocks.
The Cambodian government acknowledges the vital role of agricultural insurance in de-risking weather-related threats to farming communities. However, financial institutions and insurance companies have so far been reluctant to invest in this area. The reasons are insufficient experience, design, and implementation capacity and a lack of relevant infrastructure and the necessary data.
Joining the government to support and promote the growth of Cambodian agriculture, SFSA started an insurance market development program in 2018. After an in-depth feasibility study, we launched an index-based crop insurance scheme linked with financial education. Our partners here are Forte Insurance (Cambodia) plc and AMK Microfinance. The initiative is funded by the Swiss Capacity Building Facility. We are also exploring aquaculture insurance (see below).
Index-based agricultural insurance for Cambodian smallholders
Aiming to launch three commercial index-based crop insurance schemes, we are now implementing a project that runs from August 2021 to October 2024. It focuses on rice, maize, and cassava in the provinces of Pursat, Battambang, and Pailin. The project focuses on the following:
Area Yield Index Insurance (AYII). This scheme covers yield losses for rice farmers from drought and dry spells, flooding, storms, and cyclones. Yield data are satellite-generated. Payouts are based on the average yield of the commune in question.
Weather Index Insurance (WII) protecting cassava farmers against drought and excess rainfall. The scheme uses ‘CHIRPS 5 km’ data and automatic weather stations.
WII for maize farmers facing drought or excess rainfall. This scheme uses the same data sources as the cassava WII.
We aim to reach 6200 smallholders. If the schemes succeed, this should encourage agricultural input aggregators, lending institutions, rice millers and exporters, cooperatives, development agencies, and donors to engage in crop index insurance. Our work will help to scale up commercial AYII and WII schemes in the long run and improve the regulatory and policy framework for agricultural insurance.
Financial education and awareness creation for crop insurance schemes
The main objectives of the education project are to raise smallholders’ financial literacy and insurance awareness and to train financial institutions on crop insurance. This project consists of the following main activities:
(a) development of educational videos and materials on financial literacy, including crop insurance and good agronomic and farm management practices,
(b) Training-of-Trainers at partner organizations and other key stakeholders. The latter include government agriculture and extension departments, input/output dealers, and aggregators. They will also receive training on financial literacy, crop insurance, and modern farm management for rice, maize, and cassava.
By June 2024, about 10,000 smallholders should have received personal training. At least 50,000 more stand to benefit from information via mobile apps, social media, and other digital channels. Financial institutions should by then be confident to reach out to large numbers of smallholders.
Feasibility study for aquaculture insurance
The Cambodian aquaculture sector currently employs some 6 million people, many of them small-scale farmers. In 2018, the sector contributed 2.4 percent to GDP. It is highly diverse with a broad spectrum of systems and practices. Facilities range from simple backyard ponds to large-scale, highly intensive operations. Aquaculture in Cambodia is in its infancy compared to nearby countries. Constraints include a lack of finance for investment and strategies for climate change risk mitigation. Knowledge of aquaculture technology is also generally low.
So far, aquafarmers have carried all the production risks on their own. World Vision Cambodia, Forte Insurance Company, and SFSA are now partnering to explore insurance opportunities for fish farmers. Our first joint aim is to study the feasibility in more detail. This work runs under the country’s Commercialization of Aquaculture for Sustainable Trade Project (CAST). The feasibility study continues until October 2022. It aims to understand the risks from various biotic and abiotic factors and to develop suitable index insurance products. The study will provide valuable information on aquafarmers’ current risk management and the tools required for improvement.