STiR coffee and tea magazine

58 STiR coffee and tea / Issue 2, 2019 (April / May) Source: FAO, World Bank Environmental Constraints Impacting Agricultural Potential Dry or cold areas with low production potential Low soil suitability Erratic rainfall and cold stress risk Steep slopes and mountains Severe and very severe land degradation Low to medium climatic production potential High climatic production potential A landslide Marquetalia, Caldas claimed lives and property in October 2018 Photo by Caldas Department of Disaster Management After the devastating 1992 El Niño, the worst in history, there were some attempts to launch and sustain agro-insurance, notably for small holders. But, so far they have not attracted a lot of uptake. Farmers essentially don't trust insurers because even though premiums are low, they add to costs for growers, and badly structured policies mean they often receive nothing when crops are damaged or even destroyed: the terms and conditions for collecting don't fit the realities of what ruins crops and how. In 2015, the total farmed land area in Colombia covered by insurance was 2.4%. Coffee sector coverage was so low it did not even figure in World Bank agricultural insurance reports. Enter weather-indexed microinsurance. Index insurance is insurance that's linked to an index, such as rainfall, temperature, humidity or crop yields, rather than actual loss. First introduced for other crops in 2015, it will hopefully take hold in the coffee sector thanks to the pilot program in Caldas. This type of insurance, specially tailored to smallholders, combines low premiums with risk shared by a consortium of insurers. But most innovative and important, it uses both satellite technology and past data to estimate losses due to weather events: researchers take historical records of crop yields, average them out over the years, and compare them with lower yields after weather damage — floods, mudslides, etc., as well as the relatively recent vegetation imagery — as shown by satellite and data from rain gauges near the grower's plot. If these data show the rainfall amount is be- low the threshold, the insurance payouts are triggered automatically and directly to the grower's bank account. This elimi- nates the need for assessors to go on-site and verify the damage on the ground. All this keeps their costs down and premiums lower. This also reduces "distress sales" of assets. The process also removes moral hazards such as the 'perverse incentives' of crop insurance, where in certain con- ditions farmers may actually prefer their crops to fail so that they receive a payout. With index insurance, the payout is not linked to the crop's survival or failure, so the farmer still has incentives to make the best decisions. Insurance consortium Blue Marble Microinsurance is a consor- tium of nine companies set up to provide commercially viable insurance options to low-income individuals and co-opera- tives. The consortium includes American International Group; Aspen Insurance Holdings; Guy Carpenter & Company, LLC; together with Marsh & McLennan Companies; Hamilton Insurance Group; Old Mutual Emerging Markets; Trans- atlantic Holdings; XL Insurance (UK) Holdings; and Zurich Insurance Compa- ny, and the latest addition, ASSA Insur- ance (Panama). The pilot program was founded with support from local farmers from the Aguadas and Norte de Caldas coop- eratives in the department of Caldas and started with 1,975 participating farmers with territory covering 5,724 hectares. Cooperatives in Caldas have demo- cratically chosen to use their Fairtrade International premiums to pay for the pilot weather index insurance program- specifics from Norte Caldas Cooperative. "Having an insurance solution that protects our members from the devastat- ing effects of climate change is critical for the cooperatives," said Cesar Julio Díaz, Head of the Aguadas and Norte de Cal- das cooperatives. Nespresso and Blue Marble intend to expand this program to other regions outside of Caldas in the future, accord- ing to the National Federation of Coffee Growers of Colombia (FNC).

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