Daniel Stevens | Head | Agriculture Crop Insurance | Santam | mail me |
The agriculture sector is vital for economic growth. It contributes 3% to GDP, supports 941,000 jobs, and generated US$13.2 billion in export revenue in 2023 – South Africa produces 10% of the global citrus production. But climate-induced changing weather patterns threaten the outlook for certain crop yields in 2024.
Changing weather patterns and the rising frequency and severity of inclement weather impact seasonal crop production. Agriculture is more exposed to the effects of the El Niño and La Niña weather phenomena than any other sector.
Seasonal crops battle climate change
Crop farming is seasonal. This means that various grain crops such as wheat, maize, soya, sunflower, dry beans; and vegetables such as potatoes and onions; and fruit, including citrus, avocado, pome, and prone fruit are only produced over a portion of the year – falling into either the summer or winter production season. Each season has its risks.
Hail is the biggest risk to South African crop farmers and typically affects crops including maize, sunflower, beans and wheat from October to April every year. The fruit production areas of the Lowveld, Western Cape, and Northern Cape are also at risk, particularly at the beginning of the summer season and again in April when Autumn sets in.
A hailstorm can cause different levels of damage to crops depending on the growth stage at the time of the event, along with some other factors.
For instance, maize is planted around October/November and stays in the ground for three to four months. During that time, it goes through germination, a vegetative stage, and a reproductive stage but it’s most sensitive during the flowering stage. Recovery of the crop will depend on the growth stage of the crop when the damage occurred, the geographic location of the crop, and the weather conditions after the damage occurred.
Similarly, if hail damages fruit trees, it can result in a 100% loss or partial damage. For instance, if apples are damaged by hail the damaged crops can still be used to make apple juice – and though apple juice does not fetch as high a price tag as export-grade apples, it’s not a total loss.
As with grains, some of the crops can still grow back, depending on when the damage occurred. South Africa is heading into a La Niña season, which is wetter with higher rainfall and hail. Hail, frost, and fire are the biggest crop risks and have escalated due to the increased severity and prolonged effects of the dry El Niño (drought) and wet La Niña cycles.
Demonstrating the effects of climate change, we experienced a significant rise in the occurrence of frost and the resultant damage to crops every year since 2014, forcing the insurer to revisit its ratings for the peril.
Proactive approach to crop insurance
The insurer invests heavily in managing its risk exposure by conducting hail simulation trials and assessments at its farm outside Bloemfontein. It can take months to conclude a full assessment as the full extent of the damage can only be determined at the end of the season after allowing for recovery time.
New, cultivars are being planted every year and we need to know how the seeds will react after hail damage occurs to a particular cultivar at a particular time. That’s why we do the simulations.
We don’t just do it in Bloemfontein, we do it in eight locations around the country including Limpopo, Free State, KZN, and Eastern Cape – crops in each location will have a different response. We rent up to half a hectare of land from various farmers to conduct our simulations across different regions.
At the end of the trials, we collate the data to determine if we should change our assessment procedures as our goal is always to pay the farmer what he should be getting out.
Effective planning and risk management
To mitigate the ever-increasing weather risks, farmers must keep up to date with proper farming practices like planting different cultivars that are adapted to the environment. Other practices are focused on moisture conservation and soil health with the application of precision farming to minimise the impact of climate variation.
Larger commercial farmers may also choose to mitigate their crop-related risk by diversifying geographic exposures and income streams. Farmers with sufficient resources also tend to self-insure through structured insurance models where a particular risk may be uninsurable.
Production and climate risks can negatively impact a commercial farm’s profitability, liquidity, and in extreme cases, its sustainability. Crop insurance is an ideal instrument for farmers to mitigate these risks but farmers should always use a combination of risk management through proper farming practices and risk transfer, which must be built into the operation’s balance sheet.
Related FAQs: Climate change impact on insurance for agricultural
Q: How does the impact of climate change affect agricultural production?
A: The impact of climate change can lead to unpredictable weather patterns, increased frequency of climate extremes and shifts in climate variables, which can adversely affect agricultural production. These changes can increase risk exposure for farmers, making it crucial to consider climate change impacts when planning.
Q: What types of insurance products are available to mitigate the impact of climate change on agriculture?
A: Farmers can purchase insurance products such as multi-peril crop insurance and weather index insurance. These types of insurance provide coverage for agricultural loss caused by extreme weather events and other climate change risks, helping to protect farmers from economic loss.
Q: How can farmers use insurance to adapt to climate change?
A: Farmers can use insurance as part of their climate change adaptation strategy by purchasing insurance coverage that protects against climate-related risks. This can help them manage financial losses due to adverse weather and ensure the sustainability of their agricultural development efforts.
Q: What is multi-peril crop insurance and how does it relate to climate change risks?
A: Multi-peril crop insurance is an insurance product that provides comprehensive coverage against various risks, including those caused by climate change. It protects farmers from losses due to a range of climate extremes, such as droughts, floods and storms, mitigating the financial impacts of climate variability.
Q: What are the common climate change impacts on the agricultural sector?
A: Common climate change impacts on the agricultural sector include reduced crop yields due to changing weather patterns, increased pest and disease prevalence and higher variability in climate conditions. These factors can lead to significant economic loss and make agricultural production more vulnerable to climate risks.
Q: How do insurance premiums for agricultural insurance differ in regions affected by climate change?
A: The cost of insurance premiums for agricultural insurance can vary significantly in regions affected by climate change. Areas with higher risk exposure to climate extremes may experience higher premiums, reflecting the increased likelihood of agricultural loss due to adverse weather events.
Q: What role do insurance companies play in supporting farmers dealing with climate change?
A: Insurance companies play a critical role in supporting farmers by offering products that help them manage the risks associated with climate change. By providing insurance contracts that cover climate-related losses, they help stabilise farmers’ incomes and encourage sustainable agricultural practices.
Q: How can the insurance market address climate change risks?
A: The insurance market can address climate change risks by developing innovative insurance products that cater to the unique challenges posed by climate variability. This includes promoting weather index insurance and multi-peril crop insurance, which can provide farmers with necessary financial protection in the face of climate change impacts.
Q: What are the challenges in purchasing insurance for climate change-related agricultural risks?
A: Challenges in purchasing insurance for climate change-related agricultural risks include understanding the various insurance policies available, determining appropriate coverage levels and navigating the cost of insurance premiums. Additionally, farmers may face issues with insurance demand and access to adequate insurance products tailored to their specific climate risks.
