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Image credit: One Acre Fund

Inside the One Acre Fund’s plans to safeguard Africa’s smallholder farmers facing climate disaster

January 10, 2024

Cyclone Freddy’s destruction in Malawi last year was a stark reminder that Africa’s smallholder farmers are a vulnerable lot.

The tropical cyclone’s impacts were devastating for farmers in a country that ranks among the poorest in the world. More than 2 million farmers lost their crops after Freddy destroyed 440,000 acres of land; over 1.4 million livestock were drowned, starved or lost, according to the Malawi government’s Post-Disaster Needs Assessment.

“This proves that we need to rethink climate resilience for smallholder farmers in Africa,” Annie Wakanyi, director of global government partnerships at One Acre Fund, tells AgFunderNews.

A social enterprise that addresses problems in agriculture, One Acre Fund recently announced a reinsurance fund to protect smallholder farmers facing the impacts of extreme weather events. 

The One Acre Fund Re launched in December 2023 in partnership with the International Finance Corporation (IFC), U.S. International Development Finance Corporation (DFC) and the African Risk Capacity (ARC) group.

The fund is intended to be a “resilience shield” addressing a huge gap that exists in Africa’s agricultural sector, where 97% of smallholder farmers lack insurance coverage for their farms, leading to absolute losses when disasters strike.

At launch, One Acre Fund did a trial in Malawi, where Cyclone Freddy-inflicted losses have awakened farmers to the reality that insurance is no longer a necessary evil.

“People want to buy insurance when something bad happens. That is not the best way to do things,” notes Johannes Borchert, global head of risk and resilience at One Acre Fund.

The reality is that smallholder farmers cannot wait for disasters because they are already witnessing the devastating impacts of the climate crisis on their crops, harvests, diets and families.

‘Their only insurance is to pray’

Predictive models foresee rising temperatures (0.5 to 2.5°C) and erratic rainfall across the sub-Saharan Africa region in coming years. This means higher likelihood of droughts, floods and soil erosion.

Under a vigorous warming scenario, there could be a global decline in crop yields of 3–12% by 2050 and 11–25% by 2100; up to 90% of soils could become degraded by 2050. Experts also expect the proportion of category four and five tropical cyclones to increase by 10% at 1.5 degrees of heating and 20% at four degrees of heating.

For the more than 50 million smallholder farmers in Africa depending mainly on rain-fed agriculture to produce food, lack of buffers to absorb losses caused by climate shocks means that a majority can only “pray.”

“Their only insurance is to pray… when they plant that it will rain. Pray when they harvest that there will not be rains or pest devastation and pray when they market their crops that prices will not collapse,” Akinwumi Adesina, African Development Bank (AfDB) president noted at the COP28 summit in Dubai. 

Image credit: One Acre Fund

Closing the subsidization gap 

Granted, farmers in Africa are not entirely to blame for failure to protect themselves. Currently, affordable agri-insurance is only available in four out of 54 countries. For this reason, only 3% of farmers have insurance coverage for their farms, according to the One Acre Fund.

Unlike in the western world, these limited insurance products are also expensive. This is largely due to failure by governments and other partners to subsidize insurance coverage, thus making it impossible for private sector companies to offer affordable premiums. Smallholder farmers in Africa are forced to pay market rates, the impact of which puts products out of reach.

The reality in Africa compares badly with the United States, for instance, where the Farm Bill subsidies most of the cost of agricultural insurance.

“It makes sense to subsidize,” notes Borchert, adding that de-risking of insurance enables providers to design products that address specific farmer’s needs and shields them the providers from risky exposures.

Rwanda is among the few governments in Africa currently prioritizing subsidized agricultural insurance. Through the National Agricultural Insurance Scheme (NAIS), the government subsidizes 40% of the insurance costs, with farmers catering for 60%. The government has invested $1.2 million in the scheme since it launched in 2019, benefiting over 500,000 farmers so far.  

Inability by most governments to intervene has prompted financial institutions like ARC and AfDB to close the subsidization gap.

During the COP28 summit, AfDB launched the Africa Climate Risk Insurance Facility for Adaptation that aims to mobilize $1 billion for protecting more than 40 million smallholder farmers in the continent.

“These kinds of facilities are crucial in affordability and in helping reach more vulnerable farmers,” says Borchert.

Image credit: One Acre Fund

Replicating the One Acre model across Africa

One Acre Fund, which already works with 4 million farmers across nine African countries, reckons that collaborations will be critical greater insurance adoption rates amongst smallholders.

Starting with a premium volume of $1.5 million, which it intends to increase to $4 million in a couple of years, One Acre Fund will offer insurance to 1 million smallholder farmers this year at premiums up to 30% lower.

The fund has started out with Kenya, Rwanda, Nigeria and Malawi; initiatives in Tanzania, Burundi and Zambia are planned for later in the year.

One Acre Fund’s ultimate target is to offer a safety net to all 4 million farmers under its wing by 2030, and encourage other underwriters to replicate the fund to increase agriculture insurance coverage across Africa.

“Insurance will be part of a package of services that we offer farmers across these markets,” notes Wakanyi, adding that One Acre Fund offers a wide range of solutions from quality inputs, financing, training on climate-smart farming, among others. It also runs a tree-planting initiative, a farmer-led movement with the goal of planting 1 billion trees over the next 15 years.

One Acre Fund is confident that One Acre Fund Re will be revolutionary. Apart from the 4 million-strong existing base of farmers, it has been deliberate in seeking to address market failures that make agricultural insurance expensive and unattractive.

One of the biggest failures is inability by insurance companies to design farmer-friendly products because they mainly work through brokers and agents.

Unlike private insurance companies, One Acre Fund works directly with farmers. Thanks to its field officers and the deployment of technologies like remote sensing, the non-profit can gather crucial data that will help inform premiums and timely payouts when disasters strike.

For example, Borchert says data on historical rainfall records is critical for climate models that can inform regional crop yield predictions. Data collection on crop yields, flooding, drought also creates a field of predictability, eliminating the need to hedge against the unknowns through higher premiums.

“We are coming with own capital and trying to change the equation and shift to the benefits of the farmers,” he states. Since One Acre Fund is a social enterprise, farmers will be the ultimate beneficiaries.

“We do not need to earn the same margin as private players,” he notes.

Of critical importance is that One Acre Fund has no intentions of running private insurance companies out of business. While ideally the market is big enough for both, the firm hopes the fund can be a prototype that other underwriters can replicate and turn into a sector-wide value.

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