Agriculture is a fundamental pillar in the intricate web of global economies, providing sustenance, livelihoods, and economic stability.
In Kenya, agriculture directly accounts for 21.2 per cent of the country’s overall Gross Domestic Product and makes an indirect contribution of 27 per cent through its linkage with other sectors. The sector also contributes to at least 65 per cent of Kenya’s export earnings, with horticultural exports among Kenya’s key agricultural exports.
Despite its immense contribution, this vital sector faces a myriad of challenges. The risks are ever-present, from unpredictable weather patterns to market fluctuations, threatening livelihoods and food security.
Moreover, post-harvest losses further exacerbate the challenges, leading to significant economic losses. For example, reports by the Fresh Produce Consortium of Kenya indicate that nearly 40 per cent of the food produced in the country’s horticultural value chain is lost through poor post-harvest handling, knowledge gaps on best practices, and improperly structured markets.
Building resilience within the agricultural value chain is necessary and a strategic imperative in the face of such uncertainty.
Our agricultural value chain comprises diverse actors, from smallholder farmers to agro-processors and exporters. It is interconnected, and each actor’s resilience impacts the entire system. However, the vulnerability of these actors to various risks threatens the stability and sustainability of the whole value chain.
In this context, insurance emerges as a powerful instrument for mitigating risks and enhancing resilience across the agricultural value chain.
To cover climate-related risks affecting this sector, agriculture insurance, for instance, provides farmers with financial protection against adverse weather conditions. By compensating for crop losses, this type of insurance helps farmers recover from setbacks and maintain their livelihood, ensuring food security and stability in rural communities.
Furthermore, insurance solutions tailored to other agricultural value chain actors, such as farm input suppliers, transporters, and agro-processors, play a vital role in safeguarding against operational risks. For instance, business interruption insurance can help agro-processors mitigate losses from supply chain disruptions or equipment breakdowns, enabling them to recover swiftly and resume operations.
Beyond risk mitigation, insurance also facilitates access to credit for agricultural stakeholders. Lenders are more inclined to extend credit to farmers and agribusinesses equipped with insurance coverage, as it reduces the lender’s risk exposure.
However, despite its undeniable benefits, insurance penetration within Kenya’s agricultural value chain remains relatively low. Several barriers, including low awareness, affordability concerns, and inadequate infrastructure, impede insurance uptake among smallholder farmers and other stakeholders.
Addressing these barriers requires a concerted effort from policymakers, insurers, and other stakeholders to promote financial literacy, develop innovative insurance products, and enhance the accessibility of insurance services.
In 2020, the Kenyan government partnered with six local underwriters, including CIC Group, in the Crop Insurance Programme (CIP), with international backing from Swiss Reinsurance Company, to release KShs 117.5 million (US$1.08 million) in compensation to 25,000 smallholder farmers in 27 counties for climate-related crop losses. Strengthening such partnerships is essential for scaling up insurance solutions tailored to the needs of Kenya’s agriculture value chain.
Furthermore, government support in subsidies, incentives, and regulatory frameworks can encourage insurers to expand their offerings and reach underserved segments of the agricultural sector.
Collaborations between insurers, agribusinesses, and farmer organisations can also facilitate the co-creation of insurance products that address the specific needs and challenges different actors face within the value chain.
In conclusion, insurance is a linchpin in building resilience within Kenya’s agricultural value chain. By providing financial protection, enhancing access to credit, and fostering risk management practices, an insurance approach will enable farmers, agribusinesses, and other stakeholders to withstand shocks and seize growth opportunities.
Fred Ruoro is the Managing Director at CIC General Insurance Ltd
