Written by By Kobus Janse van Rensburg, Santam Agri Head of Sales and Distribution
The agriculture sector is integral to both the South African economy as well as our food security.
According to the latest Santam Insurance Barometer report, the industry contributes around R400 billion to GDP each year, supports 870 000 jobs, and weighs in with USD13 billion in export revenue. It is due to the dedication and resilience of the country’s commercial farmers that South Africa has the highest food security status score in Africa, scoring 61.4 points on the 2022 Global Food Security Index Report.
But both locally and globally, food security is under threat. In a recent report the World Bank cited food security as one of the critical challenges for the world to face this year. Demonstrating the severity of the situation, the organisation said it has mobilized $45 billion in resources to tackle issues and protect livelihoods worldwide.
On the local front, our domestic agriculture sector is more exposed to the systemic risk of climate change than any other sector. Drought, flood, hail, and wildfire can cause tremendous damage to both crops and farm infrastructure. Crop insurance is therefore vital in enhancing food security in South Africa. It ensures that agricultural growth is sustainable and resilient amid increasing climatic and weather-related risks.
Seasonal credit is the backbone of agriculture in South Africa
Farmers usually borrow capital to purchase seed, fertilizers, equipment, and labour during the production season. This loan is usually settled with money generated from a successful harvest. Weather perils in combination with environmental pressure threatens the very existence of the sector. Hail, fire, frost and or environmental perils like pests can devastate crops and result in total or partial yield losses translating into huge financial detriment to the farmer.
The fortuitous nature of these perils and the associated risks emphasize the importance of crop insurance for the provision of a safety net for farmers.
Farm debt in South Africa increased sharply to above R200 billion
This translates to an increase of 6% since 2019. This debt is purported to be well balanced in relation to the value of agricultural assets. Nevertheless, the immense financial pressure faced by farmers can never be de-emphasized. Crop insurance curtails these pressures by offering farmers financial protection against yield losses. Without this much needed risk-based product, many farmers will not settle their loans and will be prone to liquidation and/or be forced out of farming altogether which will be a huge setback to their livelihoods and country’s food security.
The high risk of farming in today’s agricultural era without crop insurance
Farming in our current era without the correct insurance can drastically increase financial risk for farmers. In a worst-case scenario, farms can also be lost. Crop insurance is therefore not ‘just a financial product’ but a risk-based solution for the sustainability and growth of agriculture in South Africa. This safety net financial protection against yield losses, ensures settlement of seasonal credit and it also safeguard food security in the country. In the face of growing climate related risks, fortuitous as they occur, farming without crop insurance is something South African farmers cannot bear.
Relevant Agribook pages include “Risk management and insurance” and “Weather and climate“.
Photo by Kat Smith: www.pexels.com/photo/brown-bare-tree-551615/
