As a ray of sunlight filters through the hovering clouds above, Rogers Atuhaire meticulously sifts through heaps of dirt with his bare fingers on his 20-acre potato farm. He uses the back of his hand like a tool, slowly and carefully to part the rich green potato vines, revealing tiny red shoots too premature for harvest.
With the weather becoming increasingly unpredictable due to climate change, Atuhaire diligently monitors his crop, checking regularly to ensure everything is in order. In the previous year, the 34-year-old took out a bank loan to plant groundnuts, but the harvest was very poor.
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“Last year, we experienced a setback where everyone suffered losses, myself included. I had planted 5 acres of groundnuts, and I only ended up harvesting one sack. If it weren’t for my passion, I don’t think I would venture into agriculture again,” Atuhaire says anxiously.
Not far from Atuhaire, in Muliika Village, Wakiso district, Edmon Musisi Mulenga, a farmer with 30 years of experience, laments that unpredictable rain has been disastrous.
“People engaged in other jobs have something to show for their effort, like land or a motorcycle, but as a farmer, I have nothing to show,” the old man says with a tinge of disappointment, yet something compels him to persevere.
Despite previous losses, Mulenga continues to cultivate cabbage and tomatoes. Additionally, he is in the process of constructing a fish pond, with the bricks and concrete quickly drying up in the heat, in anticipation of the rains to come.
Satellite data helping insurance counter the impact of drought
Drought, one of the most significant threats to agriculture in Africa, results in an estimated US$ 907 million in losses to crops and livestock in Uganda alone, according to researcher Erastus Ndege Ochieng. This figure represents 6.6% of Uganda’s current financial year 2023/24 national budget.
This loss is more than twice the combined revenue Uganda earns from exporting sugar (US$ 163 million), cement (US$ 87 million), plastics (US$ 61 million), soap (US$ 31 million), and beer (US$ 29 million).
The situation is even more severe in other African markets. In Somalia, drought consumes an estimated US$ 3.3 billion, and in Kenya, it amounts to US$ 8.9 billion – the report says. On a better day, this is money that could have gone to hardworking farmers and other individuals in the value chain such as wholesalers (agents or traders) and processors, manufacturers, and retailers.
Agricultural insurance seeks to cover such losses for farmers. Newton Jazire, an insurance expert explains that with agricultural insurance, insurance companies are using satellite technology to determine compensation.
Weather index products ensure that the drought component is fully covered by insurance. “If the satellite detects that the pasture is parched and insufficient for the livestock’s survival, then it triggers a payout from the insurance company to the farmer,” Jazire explained.
The utilization of drought index insurance marks a significant advancement for the insurance industry, employing monitoring systems from space such as the EARS Relative Evapotranspiration (RE) Index based on satellite data.
The accuracy of the data is bolstered by a strong correlation between satellite index data and crop yields. This relationship stems from the fact that biomass and yield, generated through carbon dioxide entering the plant, are directly proportional to evapotranspiration, or simply put, the amount of water exiting the plant.
The Ugandan insurance regulator, the Insurance Regulatory Authority (IRA), reveals in its 2022 Insurance Industry Market Report that technology has significantly increased the uptake of agricultural insurance by firms within the agricultural insurance consortium and has enhanced the client experience.
“The Consortium has effectively utilized technology to enhance the claims process and improve client experience. It has been actively digitizing the inspection process for multi-peril crop insurance assignments, enabling inspectors to be appointed digitally and facilitating real-time report submission to insurers through a portal,” the report states.
Furthermore, the Consortium is employing technology to monitor the geo-location of crop fields using satellite imagery and gather information on crop productivity and conditions through a mobile and web application. The report indicates that these efforts are aimed at continuously enhancing efficiency and customer satisfaction to foster the growth of agricultural insurance.
The IRA is collaborating closely with a firm called “Innovation Village” to foster innovation of products and processes within the agricultural insurance value chain under the Insurance Regulatory Authority of Uganda sandbox.
Pilot products suggested include soil moisture index and livestock medic-aid insurance which will leverage technology to unlock opportunities for those in hard-to-reach communities.
Strong growth of agriculture insurance in Uganda, despite the challenges
Agriculture contributes to about 24% of Uganda’s Gross Domestic Product (GDP) and employs approximately 68% of Uganda’s working population, according to data from Uganda’s official statistics body, the Uganda Bureau of Statistics (UBOS).
In recognition of the significant role of agriculture in Uganda’s economy, the Government of Uganda established an Agriculture Insurance Scheme to mitigate risks. Under this scheme, the government subsidizes farmers’ access to agricultural insurance with US$1.3 million (Ugx 5 billion) every year.
This initiative operates through a public-private partnership with selected insurers under the Agricultural Insurance Consortium. Its primary goal is to alleviate financial losses suffered by farmers due to crop and livestock damage or destruction.
Farmers, either individually or as part of cooperative schemes, pay a premium equivalent to 5.5% of the insured crop value. However, premiums are higher in disaster-prone areas such as Isingiro, Kasese, Mt. Elgon, Teso, Karamoja, and West Nile, where premiums are set at 10%.
Data from the Insurance Regulatory Authority (IRA) shows that by December of the Financial Year 2022/23, a total of 316,496 farmers had been covered, generating Ugx 11.38 billion (US$ 2.99 million) in Gross Written Premiums (GWPs). During the same period, total claims amounted to Ugx 8.75 billion.
This represents a significant increase from the inception of the scheme in 2016, when only 26,741 farmers were insured, with premiums totaling Ugx 1.6 billion (US$ 419,068). The compound annual growth rate (CAGR) stands at 32%.
The IRA’s Insurance Industry Market Report attributes the increase in covered farmers to the progressive reopening of Uganda’s economy following the Covid-19 pandemic. However, challenges persist.
It indicates that the allocated subsidy is no longer sufficient to meet the growing demand for agricultural insurance.
“The expansion and increased recognition of agricultural insurance have led to the complete depletion of the subsidy. There is an urgent and pressing need for an augmented allocation of premium subsidies to ensure coverage for farmers,” the report says.
Current projections indicate a necessary annual increase of at least Ugx 15 billion.
Moreover, the report concedes that public perception of agricultural insurance remains a significant challenge that needs to be addressed. To combat this, the report advises that it is a crucial need for more extensive mass campaigns to enhance sensitization and awareness activities.
This requires additional resources in the form of cash, personnel, and logistical support. Connected to this, is the critical need for more intermediaries, such as farm inspectors and loss assessors, to facilitate efficient farm inspections and claims management processes.
“With the expansion of agricultural insurance coverage, the demand for such service providers has increased significantly,” the report points out.
More room for growth
Alhaj Kaddunabbi Ibrahim Lubega, the IRA’s Chief Executive Officer, revealed that insurance penetration had slightly improved by 0.085% in 2022, rising from 0.8% in 2021 as a portion of Uganda’s Gross Domestic Product (GDP).
Additionally, he noted that insurance density, a measure of insurance deepening, had increased to Ugx 31,663, representing a 6.98% growth over the year. The growth in agricultural insurance significantly contributed to this improvement.
Furthermore, Alhaj Lubega revealed that the regulator expects to license approximately 10,000 new agents specifically tasked with selling agricultural insurance products in 2024.
In line with growing agricultural insurance, Bernard Opel, the director of supervision at the IRA, emphasized the importance of book keeping. He stressed that farmers should maintain well-documented records of costs and expenditures.
Additionally, adopting good farming practices is essential not only to improve the compensation process but also to protect farms from yield losses resulting from negligence, which may not be compensated for otherwise.
“The common complaint we receive is that losses are often overestimated by farmers. Farmers accuse the insurance firms of understating their losses,
“We have a complaints bureau at the IRA where grievances with insurance companies are addressed, and we always invite all parties to present their side of the story before making a ruling,” Opel stated.
Dr. Abubakar Moki, the commissioner of the Policy Development Office of the President, emphasized that for agricultural insurance to be effective, farmers must improve from rudimentary, rain fed agricultural farming methods to more modern systems of farming.
“The agricultural insurance scheme can only work better when farmers modernize and change their methods of production. As long as people rely solely on rain-fed agriculture, sustainability will be a challenge,” Moki cautioned.
