Maximizing Agricultural Potential in Nigeria Through Index-Based Insurance – Agrodomains Offers Multi-faced Solutions

Once an agricultural powerhouse that held a dominant position in Africa in exports in the 1960s, Nigeria has become a net importer of agricultural produce in the past decades. The agricultural sector in Nigeria is now characterized by low productivity, low-quality inputs, limited market access and inadequate use of agricultural land. Despite the challenges, agriculture is still central to the economy, accounting for 42 per cent of GDP and employing approximately 70 per cent of the workforce. Agriculture — one of the more labour-intensive sectors — provides income to at least one in five adults in Nigeria and accounts for 45 per cent of total employment in the country. If managed well, the agricultural sector holds enormous potential to grow output by 160 per cent to reach USD $256 billion by 2030.

Transformation of the sector requires addressing key bottlenecks, focusing on agricultural finance. Access to finance is a major challenge, mainly taking the form of low availability of capital. Where available, the price of capital is often unaffordable for smallholder farmers. Nearly 40 per cent of Nigerian adults are financially excluded with a higher incidence in rural areas. The challenges faced in the agriculture sector in Nigeria thus require a suite of innovative solutions that encourage the uptake of good agriculture practice and help to mitigate risks faced by actors.

Agriculture insurance uptake, in particular, remains significantly low, with penetration currently standing at 3 per cent (based on farmers enrolled and crop area covered). The sector remains largely underdeveloped and has been characterized by very few players in retail agriculture insurance. In particular, there exist very few providers of weather index-based insurance, such as the weather index insurance program launched in 2014 by Doreo Partners, Swiss Re Corporate Solutions and the Hollard Insurance Group. Figure 1 indicates how the product is structured. While index-based insurance in Nigeria is still at a nascent stage, it faces several challenges that have limited it from achieving full scale. These challenges are both on the farmer’s end and on the insurer’s end.

There are several hypotheses outlining why agri-insurance has not taken off in Nigeria. According to a feasibility study conducted by the World Bank Group in 2011, the main challenges that hinder the traction of index insurance products are mostly due to climate variability, low access to finance and financial information by farmers, and insufficient data for creating insurance products.

Climate variability; First, the variability of climate patterns is increasing, and insurance companies are increasingly vulnerable to taking on risks in the agricultural value chain. For instance, in the first half of 2017, farmers experienced losses due to heavy rains in December 2016 — two months after the end of the normal rainy season.

Low access to finance and a poor understanding of it ; Second, the majority of farmers in Nigeria are mostly subsistent and often lack access to formal finance, lack storage access and have do not have guaranteed markets for their produce. These challenges constrain the ability of insurance companies to forecast revenues.

Insufficient data; Finally, insurance companies and agricultural value chain actors struggle to get credible information on inputs, agricultural practices and yields, which makes it hard to price insurance products on the part of insurance companies and compromise the “willingness to pay” on the part of consumers.

Agrodomains solution “Agro Weather” is calculated agricultural climatological forecasts provide the data and information for planning agricultural practices that change on a time scale of months to years. Agro Weathercast predicts accurately agrometeorological projections covering all aspects of agriculture with over 84% reliability backed with its insurance scheme “Agro Insurance hub” is focused on helping farmers, cooperatives and  SME/MME , Agri-businesses and low-income earners create and protect their wealth by leveraging technology to provide insurance services at affordable and convenient premium.

Agro Insurance hub is projected to reach one million farmers across Nigeria by the end of 2020 (given the deployment of marketing methods for this product), bringing greater economic security in the face of climate change.

To learn more visit www.agrodomain.com

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