By World Vision
What is weather insurance?
Weather insurance protects small-scale farmers from the unpredictable hazards that impact successful harvests. The official name for this coverage scheme is the Weather-Index Crop Insurance plan. The pilot-project, pioneered by World Vision in Tanzania’s northeast, gives small-scale farmers access to insurance that will cover their crops in case of drought or climate change.
How does it work?
Microfinance institutions (MFI) are reluctant to provide loans to small farmers, since the rate of default is generally high due to weather-related problems that can often wipe out entire crops. Working together with Vision Fund and MicroEnsure, World Vision Tanzania and World Vision Canada developed a weather-based insurance program designed to reduce risk for both farmers and MFIs.
It is part of World Vision’s efforts to bring small farmers together to ensure they can improve their livelihoods through establishing cooperatives to help them access services and goods that were previously out of reach. In doing so, farmers now have more purchasing power. This improves business productivity, which ends up boosting the living standards of communities, and reduces the food security challenges associated with climate change.
The program involves reviewing weather data for the area and, working with the microfinance institutions to establish a series of “triggers” that would have to be met to allow participants to make claims. These triggers could involve rainfall levels, natural disasters or disease outbreaks that would affect crop yields. If the triggers are met, participants could make a claim and use the money that’s paid out to pay off the loans that were taken out from the microfinance institutions.
Where did World Vision use weather-based crop insurance?
In 2011, World Vision was working in the Same District of northeastern Tanzania, implementing MLAP programming, which stands for Market-Led Agricultural Production. Under MLAP, small farmers are encouraged to band together to create larger organizations, known as Commercial Producer Groups (CPG). Membership in these groups allows farmers to use their joint buying power to obtain lower prices for improved agricultural inputs such as seeds and equipment and be large enough to compete to export into higher value markets beyond their borders.
In the Same District, more than five thousand rice farmers were organized into 165 Commercial Producer Groups, which were in turn confederated into 17 Commercial villages. Members of the groups were given the option of participating in the crop insurance plan as part of their eligibility for receiving a microfinance loan.
Two floods occurred in the Same District in December 2011, with the heaviest damages recorded in the Maore, Ndungu and Kihuro wards. A total of 283 out of the 537 farmers who took microfinance loans in these areas were severely affected by the flooding, which also caused infrastructure damage to local irrigation schemes.
The insurance program was designed to be implemented if certain weather-related triggers were activated, including heavy rainfalls that damaged crops significantly. Although the trigger levels were not met in both of these flood situations, there was significant damage reported and the project determined that action would be taken to compensate affected farmers after an assessment was conducted.
Of the 283 affected farmers, 54 were given a rice variety of paddy seeds, worth approximately $2.7 million Tanzanian shillings (Tshs). Distribution of the seeds took place less than a week after the assessment. The remaining 229 farmers received financial compensation for their losses work almost $18 million Tshs. This money was paid to farmers through their accounts with the Commercial Producers Group to which they belonged. As well, affected farmers also received a two-month extension on their loan repayments, worth more than $12 million Tshs in accumulated interest.
The insurance program is described as a “win-win” situation for both farmers and the microfinance institutions that provided loans to them. Microfinance institutions were more comfortable in granting loans to the farmers with the insurance program to provide a backstop, while farmers who were affected by a natural disaster were able to use the compensation they received to pay back their loans.
Why did the farmers need the loans and how did this tie in with the MLAP program?
Because the small-scale farmers joined the Commercial Producer Groups as part of the implementation process for MLAP, they became eligible for loans that were available to group members. More than 75 percent of those who received the loans used the additional money to build the working capital of their farm/business or to hire casual labor. Almost half of the recipients said they were able to expand their farm or business, while others paid their children’s school fees or purchased needed food or medical supplies.
Reaction to the loans from the recipients was uniformly positive, as these quotes from the participants show:
“I look so good; my children eat and study well in good schools because of the loans.”
“For us widows, SEDA (the loan organization) has become our husband.”
“Ooh, now my children can eat meat at home twice a week.”
As well, the CPGs, with their larger buying power, gave participants access to improved seeds, organic fertilizer and regular consultations with extension service representatives. The Commercial Producer Groups have also been linked to global organizations such as the International Rice Research Institute and are jointly conducting trials of various rice seeds.
As an example, the implementation of MLAP allowed farmers to have access to a new type of rice paddy seed known as TX305 (SARO 5). Almost half of the five thousand participating farmers decided to adopt the improved seeds, and this trend is expected to continue in the coming year.
Heavy flooding in the Same District of Tanzania in December 2011 led to compensation, either financial or product-based, for 283 farmers who took part in a World Vision sponsored weather-based crop insurance plan.
This blog is part of AlertNet’s Solutions for a Hungry World special report.