A Policy Officer at AGRA, Dr. Dorothy Effa, has said that agricultural insurance could provide a solution to the challenges farmers encounter when applying for loans from banks.

According to a recent study by the Institute of Climate and Environmental Governance (ICEG), smallholder farmers in the northern regions primarily rely on Village Savings and Loan Associations (VSLAs) and assistance from family and friends for funding their production activities.

This is the case despite many years of advocacy and calls for the banking sector to increase financial support to the agriculture sector, especially for the substantial smallholder farming community in the country, the ICEG report said.

Dr. Effa therefore called for the creation of an agricultural insurance fund that will provide a comprehensive agricultural insurance system. “It needs to be subsidised. No private insurance can do that without the funds that will subsidise agricultural insurance,” said Dr. Effa during a press soiree in Accra to brief media on the upcoming Africa Food Systems Forum, as well as discuss AGRA’s new strategy aimed at transforming Ghana’s food systems through agro-processing.

“Farmers require insurance, because without it they struggle to secure loans from banks due to the significant risks in agriculture. An entire farm can be destroyed by fire, flood or pests, resulting in complete loss. Consequently, it becomes challenging for farmers to repay their loans. This is why banks hesitate to lend to farmers. So, I consider agricultural insurance to be highly important if we aim to enhance agriculture in the country,” she added.

Insurance Act Amendment

The Ghana Agricultural Insurance Programme (GAIP) has provided agricultural insurance for Ghana since 2011, providing a risk management tool for the adverse effects of climate change and other risks to agricultural production.

The insurance is provided by a pool of 19 Ghanaian insurance companies – the Ghana Agricultural Insurance Pool (GAIP).

The array of products include drought index insurance for maize, soya, sorghum and millet, as well as multi-peril crop insurance tailor-made to cover the various risks experienced by commercial farmers and plantations.

This was before the National Insurance Act underwent an amendment in 2021 to incorporate agricultural insurance.

This has made private insurance companies disinterested in offering agricultural insurance services because there was no legal framework supporting it, Dr. Effa told the B&FT.

“So, AGRA has partnered with the National Insurance Commission to amend the act and formally include agricultural insurance; and it clearly states the need for creating an Agricultural Insurance Fund, mainly because agricultural insurance can be quite costly,” she stated.

Crucial role of finance

As large-scale farming requires huge capital investment for land acquisition, preparation, procurement of improved technology and advanced inputs like high-yielding seeds, farmers’ inability to access larger funds for investment from the banking sector has crippled their ability to embark on large-scale farming.

“A safety net that helps make households or individuals shock-resistant is access to a production credit…This outcome is not unexpected, given that these organisations frequently have severe terms and conditions which may not be advantageous for local farmers – whose output is frequently modest,” the ICEG report said.

For farmers, having access to finance is crucial because it gives them the funds needed to make investments in their farms. Credit enables farmers to buy necessary inputs like seeds, fertiliser and equipment, boosting agricultural production and crop yields.

Additionally, credit makes it easier to implement cutting-edge techniques and technology that can boost productivity and cut expenses. It can also be used by farmers to lessen risks from changing weather, pests and illnesses, and erratic market prices.

Credit also encourages investments in farm infrastructure such as irrigation systems and storage facilities, which help with efficient farm management.