Africa: Farmers need a financial umbrella says World Bank

AllAfrica: Helping small-scale farmers in Africa cope with risks such as natural disasters, extreme weather events and price fluctuations should be a priority, according to agricultural experts and the World Bank's annual report, released last week.

Exposure to these "uninsured risks ... has high efficiency and welfare costs for rural households" said the World Development Report 2008: Agriculture for Development, the bank's first analysis of agriculture since 1982. "Selling assets to survive shocks can have high long-term costs ... [distress sales of land and livestock] creates irreversibilities or slow recovery in the ownership of agricultural assets."

….The World Bank report urges greater investment in agriculture, pointing out that GDP growth originating in agriculture is about four times more effective in reducing poverty in Africa than growth in any other sector. Yet public spending on farming constitutes only four percent of total government spending and the sector is still taxed at relatively high levels. "But where is the investment going to come from?" asked James Breen, an agronomist based in Southern Africa.

…The World Bank report acknowledged that, in spite of multiple initiatives, "little progress has been made in reducing uninsured risks in smallholder agriculture" and insurance schemes run by governments had proven "largely ineffective".

"Index-based insurance for drought risk, now being scaled up by private initiatives in India and elsewhere, can reduce risks to borrowers and lenders and unlock agricultural finance. However, these initiatives are unlikely to reach a critical mass unless there is some element of subsidy, at the very least to cover start-up costs." Weather-based index insurance, for instance, links insurance to historical weather data on rainfall or temperature, with payouts triggered by the effects of a difference in these during the current growing season. It does not require on-farm inspections, loss assessments or collateral….

…The World Bank report noted that sharply increased investment was "especially urgent" in sub-Saharan Africa, "where food imports are predicted to more than double by 2030 under a business-as-usual scenario, the impact of climate change is expected to be large with little capacity to cope, and progress continues to be slow in raising per capita food availability".

Most experts agree that emphasis on adaptation is key at this stage. "Indeed, adaptation is at the heart of agricultural growth, even when climate change is not as rapid as projected; technology and institutions are continually adapting to changes in economic environments," said Alderman, of the World Bank. "Similarly, even with no major changes in crop varieties, research is always responding to changes in the diseases that affect plants."

…Henri Josserand, chief of the FAO's Global Information and Early Warning Service, said, "If climate change induces greater volatility and unpredictability in weather patterns, African producers will need to rely on a wider and more adaptive range of both 'regular' and coping, or adaptive, strategies….