Crop insurance activities

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Food security and weather risk management are inextricably linked: weather risk management, or the lack of it, determines the level of systemic risk in the food security system, tte exposure to weather risk drives overall food insecurity. At the farm level, weather-based index insurance allows for more stable income streams and could thus be a way to protect peoples' livelihoods and improve their access to finance. Weather-based insurance instruments provide financial protection based on the performance of a specified index in relation to a specified trigger and they offer protection against the uncertainty in revenue accruement that results from volume volatility.

Weather based index insurance is slowly gaining recognition as one of the methodologies that can be used to sustain livelihoods and reduce poverty as part of the Millennium Development Goals (MDGs). A few countries in Africa are piloting the methodology and among the countries include: Malawi and Ethiopia. In Malawi the pilot drought insurance program has been introduced for local groundnut farmers, tte main aim is to help mitigate the risks associated with periodic droughts as the country is prone to drought. Due to high levels of poverty, the farmers are not credit worthy and hence they cannot access loans to purchase inputs. tterefore, the insurance helps farmers obtain financing necessary to obtain certified seeds, which produce increased yields and revenues as well as greater resistance to disease, tte program is currently being utilized through the pilot program by nearly 900 farmers in four areas. Once the project has achieved the intended goals, it will be scaled up to other crops and other areas of Malawi and Africa.

tte stakeholders include National Smallholder Farmers' Association ofMalawi (NASFAM), Insurance Association of Malawi and with technical assistance from the World Bank and Opportunity International Network financed by the Swiss State Secretariat for Economic Affairs, tte stakeholders have designed the index-based weather insurance contract that would pay out if the rainfall needed for groundnut production was insufficient. If there is a drought that affects production, the calculated index then triggers a pay out from the insurance contract. In the event of a drought that affects the crops, the payout funds will be paid directly to the financial lending institution to pay off the farmers' loans. If there is no drought, the farmers will benefit from selling the higher value production in the marketplace, hence ensuring their food security and livelihoods (World Bank 2005).

tte activity has been welcomed by the Malawi Government as they continue to explore innovative ways to manage weather and price risks to contribute to the food security needs of the country. Malawi is one of the pioneers in Africa to implement such index-based weather insurance policies that have been sold to smallholder farmers. A similar pilot in India in 2003 has now expanded from an initial 230 farmers to more than 250,000 farmers who have access to weather insurance (World Bank 2005).

Ukwe Farmers Association in Lilongwe are happy with the pilot project and said, "It is good to note that in case of severe drought I do not have to worry about paying back loans in addition to looking for food to feed my family. In future I hope to send my children to school with income from this project." tte Insur ance Association of Malawi also notes that, "Drought index insurance is a real breakthrough, as it does not only avail the potential for re-accessing the commercial farming community, but also accessing rural farming folk who need it most" (World Bank 2005).

tte Crop Production Director for the NASFAM commented that, drought is one of the major risks in rainfed agricultural production. In the event of a drought the farmer may face low yields, or even total crop failure. If the farmer uses production loans, he/she may not be able to pay for the loan, tte Drought Insurance Pilot Project has offered an option so that he/she will be covered by the insurance. A further advantage is that by covering the risk of drought, the micro finance institutions will be more amenable to providing loans on otherwise risky crops, hence more farmers will have access to micro financing (World Bank 2005).

A World Bank Country Manager for Malawi, was pleased with the role the Bank and other partners were playing with the Government of Malawi in piloting this program, and is optimistic that it can play an important role in supporting rural agriculture in the country. "Before the pilot, farmers had little cash and no access to finance, and thus could not afford to purchase certified seed. Banks were unwilling to lend to these farmers for a variety of reasons, but primarily because of the risk that farmers would not be able to repay their loans if there was drought, ttis program can mitigate this risk and bring needed resources to this crucial sector of the Malawi economy" (World Bank 2005).

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