Agriculture is the mainstay of many economies, particularly developing countries, as well as the foundation for world nutrition.
Indeed, agricultural development means increasing the quality and quantity of food production in which climatic conditions play a dominant role â€• despite technological advancement.
Climatic change â€•extreme weather conditions like drought or excessive rainfall or even high temperatures â€• has continued to threaten agriculture and increase risk for small-scale farmers who depend on subsistence agriculture as their source of livelihood as well as for commercial farming enterprises.
Erratic and inadequate rainfall is known to account for about 50 per cent of crop failures where there is over-dependence on rainfall, with little or no irrigation systems.
To protect against the risks in crop production in the agricultural sector which employs over 50 per cent of the population and contributes over 33 per cent of the Gross Domestic Product, a project dubbed “Innovative Insurance Products for the Adaptation to Climate Change” (IIPACC) was initiated by the German International Co-operation (GIZ).
The three-year project, which started in December 2009, seeks to facilitate the development and introduction of agricultural insurance solutions for farmers in the form of an innovative, demand-oriented and economically-sustainable agricultural insurance product.
The project also aims at laying the foundations for the development of further agricultural insurance products potentially through investments in meteorological infrastructure to improve data collection and analysis.
It is being implemented by the National Insurance Commission (NIC) and the GIZ- IIPACC, in collaboration with the Ghana Insurance Association (GIA) and funded by the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety.
The insurance packages under the project are intended to protect farmers, agro-processors, rural and financial institutions and input dealers, among others, in the event of crop failure due to extreme weather conditions like drought, excess rainfall and floods.
Developed under the IIPACC initiative is the Ghana Agricultural Insurance Programme (GAIP) which represents a structured and systematic approach to issues relating to agricultural insurance in Ghana.
Consequently, the GAIP has also designed a product â€•the Crop Drought-index Insurance â€• a risk management instrument that protects against the negative effects of extreme weather events and helps farmers and their financiers to manage drought risks.
The Crop Drought-index Insurance product, which is available for the 2011 crop season onwards, is a comprehensive insurance cover for all the growth stages of the crop (maize).
The product is designed with the ordinary farmer in mind as the prospective insured and employs simple language terminologies unlike other general insurance policies; and to avoid any ambiguity, what will constitute a claim is known to all parties before the contract takes effect.
The main focus of the roll out, which is being implemented in the Northern, Upper East and Upper West regions for the maize crop season, effective May 2011, is on Bank Portfolio Protection (also known as the Meso level approach) involving Stanbic Bank, Agricultural Development Bank, Bangmarigu Community Bank and the Bonzali Rural Bank.
Apart from these financial institutions, farmers’ groups associated with Innovations for Poverty Action (IPA) â€• a research organisation operating in the Northern Region of Ghanaâ€• will also be purchasing crop insurance at the individual level.
Protection from crop revenue losses in times of adverse weather events will enable farmers remain in production even after disasters.
With crop insurance cover, many more farmers can have access to bank credit or input support.
Agricultural insurance also provides protection for their agricultural loan portfolios, i.e. loans to clients involved in agricultural production. Thus when clients suffer crop losses as a result of adverse weather conditions, these institutions can cover their default rates with payouts from the insurance industry.
It also offers protection for the investment of agricultural-input suppliers â€• so that in the event that the farms for which they provide pre-financing of inputs such as seeds and fertilisers experience crop failure due to extreme weather events, these input suppliers would be paid claims by GAIP, based on their contract.
Crop Drought-index insurance is, no doubt, new in Ghana and to the insurance industry. It is the beginning of a journey through unfamiliar terrain but the prospects are good and the intention is to lift the small-holder out of poverty and make the commercial farmer more competitive.
One word of caution, however, comes from the President of the GIA, Mr Benjamin Acolatsey, who urged participating banks not to relax their appraisal procedures for advancing credit facilities to farmers as a result of the availability of insurance.
Mr Acolatsey also stressed the need for farmers and extension service providers to ensure compliance with best farming practices. He was speaking at the launch of IIPACC project in Accra in June this year.