The Insurance Gap for Agribusiness in Sub-Saharan Africa

Innovative micro-insurance schemes can be one tool to help African agribusiness owners and small-holder farmers cope with climate variability and change. Farmers with a poor understanding of insurance are less likely to use it. In the past ten years, the field of smallholder finance has grown in both size and complexity. As new players and products have entered the market around the world, there is an ever-present need to understand the many innovative business models and product classes that are developing to support smallholder farmers in their quest for economic advancement.

One of these emerging product classes is agricultural insurance in developing nations. Historically, agribusiness have had limited access to risk-management options, but increasingly, formalized agricultural insurance is offering them a chance to avoid devastating financial losses and securely invest in their own productive capacity. This article focuses on the current status and future development of agricultural insurance for smallholder farmers around the world especially the Sub-Saharan Africa.

The income and livelihoods of smallholder farmers are increasingly affected by financial shocks and natural forces beyond their control, such as extreme weather or crop damage from pests and diseases. Globally, less than 20 per cent of smallholder farmers have insurance to protect themselves against the impact of unexpected events.

The Role of Agricultural Insurance for Smallholder Farmers

Smallholder farmers around the world face a large number of challenges beyond their control that can impact their income, often drastically. These challenges come from different sources, health shocks, market fluctuations, severe weather, and pests are only some of the unforeseen events that can hamper a farmer’s ability to earn enough to support their household and society. Within this range of potential risks, ‘occasional events with large economic impacts’ to crops and livestock are garnering increased attention within developing markets as a target for formalized risk-management products. Research conducted by ResearchGate across Africa revealed that 30%, of farmers respectively indicated that their crops had been destroyed by weather at least once in the past five years. Furthermore, 26% of farmers respectively saw their crops destroyed by pests in the field at least once during that same period. Not only do these events severely depress farmers’ income when they occur, but they also inhibit farmers’ economic advancement over time.

To increase their productivity and incomes, smallholder farmers must invest in farm professionalization and modern technologies such as improved seeds, mechanization, irrigation, etc. But the high prevalence of these ‘occasional’ but disruptive agricultural shocks presents a serious risk of these costly investments going to waste. Without adequate access to financial services, both credit and risk-management options, farmers simply do not make these investments. Thus, formalized agricultural insurance is not only a valuable tool to help agribusiness avoid devastating financial losses, but also acts as a major potential enabler of progress by limiting farmers’ downside risk from investing in their productive capacity. However, formal agricultural insurance in the developing world faces the same challenges as many other financial products—the need for niche smallholder-friendly products, high costs to acquire and serve smallholder customers, and low coverage/premium values that make profitability difficult to sustain. To increase the availability of these valuable services, we must first understand where and how the market has developed to date.


Smallholder farmers have been unable to access indemnity-based insurance services, which require farm-level loss assessments. Low awareness and knowledge of insurance, coupled with the high cost of premiums, have restricted farmer uptake. Insurance providers have largely overlooked smallholder farmers due to the cost of acquiring and serving rural customers in remote locations, making farmers a less profitable customer segment for the industry.

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