What if one day disaster strikes and your livelihood is eroded or erased by droughts, floods – or like we have seen recently in the Eastern Cape, a tornado?
As a small-scale farmer, are you insured should a natural disaster hit and result in you losing crops, livestock and infrastructure? Or do you simply plant and pray nothing happens?
In agriculture, there will always be risks beyond a farmer’s control and agricultural leaders are calling on smallholder farmers to regard insurance as a vital component of their business. However, many are still reluctant and not entirely convinced by this argument.
According to Neo Masithela, Afasa chairperson, their organisation understands why farmers are showing hesitancy towards investing in crop insurance.
“Farmers feel as if they are investing in something they’ll never use,” Masithela states. “As a result, they decide to save or use that money elsewhere. The problem is, after disinvesting from that insurance, disaster suddenly strikes.”
Masithela further states that not all farmers can afford crop insurance.
He believes with the arrival of covid-19, the hard lockdown and subsequent economic shocks, farmers took a conscious decision to tighten their monthly budgets, with many aborting their crop insurance plans.
“Farmers are risk takers who are prepared to invest their money into the ground, hoping and praying that everything will be ok,” Masithela says.
However, he urges smallholder farmers to not view crop insurance as a luxury, but rather see it as a vital component of their agricultural business.
Why do small-scale farmers not invest in crop insurance?
Kobus Laubscher, agricultural economist and strategist, thinks insurance does not figure on the radar of small-scale farmers because they consider it expensive and as a “cash drainage”.
“Whenever they (small-scale farmers) experience losses, they apply self-funding to recover. In most instances they rely on own capacity and even extended family support. That is not sustainable.
“Small farmers must get better support and a consideration could be to allow them to farm with inputs provided until such time that they can tolerate the inherent risks,” says Laubscher.
According to Piet Potgieter, manager for developing agriculture with the VKB Group, several smallholder farmers are opposed to insurance because many of the crop insurance products are simply not available to them.
“Certain products offered by insurance companies are only available to larger farmers and not smallholder operators, because they (the insurers) believe it’s not worth it,” Potgieter explains.
He continues to say that there exists a lot of confusion among some of the small farmers and they do not always understand how the premiums work. Many think that because they are ensured, they are guaranteed a high return after making an insurance claim.
“This is not always the case,” Potgieter says. “Crop insurance only pays out a farmer’s damage. Farmers are then disappointed and no longer want to invest in the cover.”
Potgieter says that crop insurance is crucial to farmers who have taken out debt to farm. This, he says, is to ensure that the loan will get paid should a farmer gets into trouble.
“However, for most smallholder farmers, crop insurance is not applicable. This is simply because sometimes the farmer’s harvest potential is on the low side and the insurance costs are just too expensive. It, therefore, does not make sense, considering the crop potential on their fields.”
Asset insurance is not a ‘savings account’
According to Wilco van Heerden, crop insurance specialist at VKB, farming risk does not discriminate between a commercial farmer and a small-scale farmer.
He says farmers generally think that insurance is an expense that they can go without.
“It’s not only the small-scale farmers that have this view, but many commercial farmers also have the same perception.
“Farmers need to know that it is not a savings account that will pay out for everything when they make a claim. There are rules and policy conditions that need to be adhered to,” Van Heerden says.
He explains that insurance premiums are usually calculated according to a specific district location, which means that small-scale and commercial farmers pay the same cost per hectare.
For example, “The Eastern Free State is one area in South Africa where crop insurance is so expensive. This is because there is frequent hail in the area, especially in Harrismith where a lot of small-scale farmers operate,” Van Heerden adds.