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Symposium 2010

Implementation - Kilimo Salama

The Challenge

It is becoming increasingly difficult to satisfy the rising global demand for food in a sustainable manner. A number of factors contribute to uncertainty about the world’s ability to meet the food ...

It is becoming increasingly difficult to satisfy the rising global demand for food in a sustainable manner. A number of factors contribute to uncertainty about the world’s ability to meet the food demand of an increasing population: average living standards are rising; land use is shifting from agriculture to urban and industrial uses; the production of nonfood crops for biofuels is on the rise; investments in increasing agricultural productivity are growing slowly; water and arable land are increasingly becoming scarce; and global warming is making it more difficult to produce food in some poor countries. Moreover, the food price crisis of 2008 added fuel to the fire and put food security on top of the policy agenda.

Kilimo Salama ("Safe Agriculture") is an insurance designed for maize and wheat farmers so they may insure their farm inputs against drought and excess rain. Kilimo Salama is a product launched under the Agricultural Index Insurance Initiative, a partnership between UAP Insurance and the Syngenta Foundation for Sustainable Agriculture (SFSA). The product is furthermore implemented in partnership with the agribusinesses MEA Limited and Syngenta East Africa Limited, the telecommunications company Safaricom, the Kenya Meteorological Department, and the NGO CNFA/AGMARK. The project offers farmers who plant on as little as one acre insurance policies to shield them from significant financial losses when drought or excess rain are expected to wreak havoc on their harvests. Reflecting Kenyan farmers’ cash flow, where farmers invest in their farm as they plant, farmers can insure as little as 1 kg of maize seed or fertilizer.

Farmers in Kenya generally do not have access to insurance for their farms since traditional agricultural insurance relies on on-farm monitoring of losses, evaluated through farm inspections. And since the transaction costs to insure one acre are similar to insuring a 200 acre farm, the premiums from the one acre farm would never cover the related transaction costs.

Kilimo SalamaWeather index-based insurance offers a method to insure farms as small as one acre by replacing costly farm visits with measurements from weather stations as the indicator of drought conditions. The weather stations measure the rainfall and these measurements are compared to an agronomic model specifying crops rainfall needs. If the needs are not met, all farmers insured under that station receive a payout. If the needs are met, none of the farmers receive a payout. Kilimo Salama features many elements—like the mobile phone registry and payment system and distribution through rural retailers—that are microinsurance firsts.

Kilimo Salama was designed based on the learning of a pilot in Laikipia district where several hundred maize farmers insured their farm inputs against drought in the long rains season of 2009. Following the drought that season, both weather stations showed that there was a payout and all farmers were compensated depending on the extent of the drought as measured at their weather station (a 30 percent and 80 percent payout, respectively). The pilot was the first of its kind in Kenya.

Since the concept of weather index insurance for farmers was developed, several pilots have been launched around the world (Mexico, Morocco, India, Malawi, Rwanda, Tanzania, etc.) However, in order to create an impact similar to that of microfinance, the foremost challenge is to reach sustainable scale. Only in India has a commercial insurer, ICICILombard, reached some scale, selling some 40–50,000 policies per season. But even they consider that after five years they are still very much in the early stages of product development.

Index insurance, in a way, needs to make the leap from the laboratory to become a product for the mass market. To reach scale, there are many barriers, three of which are addressed through Kilimo Salama:

  • Firstly, insurance products need to be affordable for farmers, without reverting to subsidies.
  • Secondly, distribution channels relevant to smallholder farmers need to be identified and developed.
  • Thirdly, investment in renovating automated weather stations that can monitor the local weather patterns and the related insurance contracts is needed.

     

    This "pay as you plant" type of insurance allows farmers to "try out" insurance, a product they have never bought before and which has a negative reputation in Kenya. Experience shows that as farmers learn to trust insurance, they expand their coverage and are comfortable investing more in their farm, raising their productivity and increasing their food security.

    Kilimo Salama is distributed in a new way that is relevant to farmers, through local agro-vets, of which there are an estimated 8,400 in Kenya. This year, there are close to 40 stockists distributing Kilimo Salama in five regions in Kenya. This distribution channel is a first for agricultural micro insurance.

    Local agro-vets register Kilimo Salama using a scanner with tailor-made software that allows for paperless registration and immediate confirmation to the farmer of the policy. The technology used allows transaction costs to be as little more than the cost of an SMS (5 Ksh). Agro-vets collect premiums and transfer these in bundles through MPesa to the insurance company. This method is also a first for agricultural micro insurance.

    Kilimo Salama is made affordable through partnerships with agribusinesses who sponsor half of the premium’s price, leaving the farmers to pay 5 percent on top of the cost of the inputs, a first for agricultural micro insurance. The insurance uses automated weather stations to monitor the rainfall. Based on the stations‟ measurements and a predefined formula of crop rainfall needs, payouts are made. This method enables farmers as small as one acre to be insured. This method of using weather stations' measurement in combination with a predefined crop growth formula is often referred to as "index-based insurance."

    If the weather stations' measurement and related rainfall formula shows that there is a payout, these are sent to individual farmers using MPesa.

    For the first pilot, two fully automated weather stations were installed. For the second phase, 30 stations have been installed in cooperation with the Kenya Meteorological Department in the five areas where the insurance is available.

    Kilimo Salama offers farmers more than just insurance: insured farmers receive tailored extension messages using the local weather information from the nearby automated weather stations. This will enable farmers to improve their productivity and make the best of the rains in years when these are sufficient to grow a crop.

     

    Source: Syngenta Foundation

      Related Solutions

      Solution
      Symposium 2009

      Promote micro-insurance (e.g., rainfall insurance) and incomesmoothingassistance by governments and aid organizations; develop and elaborate social insurance systems for vulnerable groups.

      Promote micro-insurance (e.g., rainfall insurance) and incomesmoothingassistance by governments and aid organizations; develop and elaborate social insurance systems for vulnerable groups.

      Promote micro-insurance (e.g., rainfall insurance) and incomesmoothingassistance by governments and aid organizations; develop and elaborate social insurance systems for vulnerable groups.

      Polity, Academia, Business, Civil Society
      Solution
      Symposium 2010

      Concentrate on productivity increases and improved market access for small-scale farmers using public-private partnerships and modern communication technologies to disseminate technical assistance.

      Concentrate on productivity increases and improved market access for small-scale farmers using public-private partnerships and modern communication technologies to disseminate technical assistance.

      Concentrate on productivity increases and improved market access for small-scale farmers using public-private partnerships and modern communication technologies to disseminate technical assistance.

      Polity, Business
      Solution
      Symposium 2010

      Increase access to index-based insurance systems to enable farmers to manage harvest risks, which are likely to increase as a result of climate change.

      Increase access to index-based insurance systems to enable farmers to manage harvest risks, which are likely to increase as a result of climate change.

      Increase access to index-based insurance systems to enable farmers to manage harvest risks, which are likely to increase as a result of climate change.

      Polity, Academia, Business, Civil Society