Driving Growth and Sustainability

Reaping the benefits of agricultural insurance in South Africa

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The agricultural industry is among South Africa’s key sectors; the industry accounts for 6%1 of employment and contributes 2.5%2 directly to the country’s GDP, and as much as 15% to 20%3 indirectly. In a country where almost half the population does not have regular access to food4, the sector is becoming increasingly important and the pressure to grow is that much more.

The National Development Plan (NDP) acknowledges the potential of the agricultural industry, aiming for the sector to create a million jobs by 2030. Despite a number of very real challenges currently impacting agriculture in South Africa, insurance can assist in the mitigation of certain risks, as well as help drive exponential growth and sustainability in the following areas:

Climate change

The drastic effects of climate change, across the globe, are being seen more frequently than ever before. Even though efforts are being made to address the issue, such as the negotiations at the recent United Nations (UN) 2015 COP 21 summit held in France – which aims to limit global warming to less than 2 degrees Celsius above pre-industrial revolution times – the reality is that these discussions centre around long-term solutions rather than interim measures.

Closer to home, South Africa itself, has experienced its worst drought in more than two decades, resulting in multi-billion rand losses within the agricultural sector. Some drought relief is underway with the Minister of Finance’s recent announcement of the re-appropriation of funds to enable the delivery of water tanks, drilling of boreholes and even moving of cattle to state land. While the announcement gives farmers hope, it is also important to note that such measures will need time and resources to implement, and can only provide a certain level of respite as budgets are limited.

Understanding that drought conditions are worsening and so is the vulnerability of farmers and their insurers to such weather related events, appropriate insurance is a crucial element of the agricultural risk management equation. These developments will see a steep increase in the dependence on, and need for effective irrigation systems, the construction of dams, more resilient, drought resistant seeds or crop stock and investment in comprehensive insurance cover.

Securing livestock

The water shortages in particular, have meant that farmers have taken to slaughtering their livestock before these animals fall prey to the ongoing drought. The consequence is a rapidly diminishing herd (impacting breeding) and huge financial losses as farmers have to sell the meat at a reduced cost. Livestock insurance is an essential form of cover in mitigating the extent of the losses experienced, ensuring that farmers do not face bankruptcy.

Embracing diversification

Agriculture, like any other industry, needs to consider diversification and the exploration of new markets. This can be seen, for example, in the move from livestock to game farming, or engaging in more downstream farming. However, critical to diversification is the need to look at alternative crops and varieties for different seasons, as well as systems that foster the need for a balanced approach with natural resources management on the one side, and socio-economic and market demand on the other.

There has been a significant increase in the promotion of the ocean economy with Operation Phakisa identifying aquaculture as one of the four critical streams. The South African Department of Agriculture, Forestry and Fisheries (DAFF) also recently reviewed fishing rights allocations, licensing and quotas, further driving the growth of the sector. There is no doubt that the expansion of this industry is a welcome development in the fight to attain food security, and is a growing opportunity for agricultural insurance providers.

It is essential for the agricultural industry, insurers and government to work together in order to minimise the extent of the financial impact the challenges outlined above present.

Water and food security are critical components of the growth of any economy, making planning, insight and flexibility key to ensuring that the agricultural industry prospers.

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