Agricultural Insurance and Risks in South Africa
The effects of the drought
Farmers in South Africa are facing tough circumstances: the lowest rainfall since 1904 was recorded in 2015, resulting in a devastating drought affecting the entire economy, especially the farmers. The impact of the drought on crop production was felt immediately; for livestock, it will take a bit longer to have effect as the product-to-feed ratio slowly weakens over time. The most powerful El Nino phenomenon on record has been playing out over the recent summer months and is being held responsible for the current drought crisis by global scientists.
While farmers have always faced risk, farming risk has certainly increased over the last year or so. The weakening South African Rand against global currencies may be beneficial to export-oriented farmers but our weakening macroeconomic environment and decreasing profitability per hectare continues to negatively affect the agricultural sector, exacerbated by the current drought crisis.
Most common agricultural risks
In the current circumstances, fire is a real risk due to the dry environment with warm air and strong winds. Other risks include:
Weather is a major current risk globally which includes not only drought but also hail, floods, pests and disease damage. Production risks comprise both the quantity and the quality of output produced. Price risk includes both the input prices, such as feed and equipment, and output prices which is the price farmers receive for their commodities on the market. Financial risk includes debt, interest rates, inflation, increasing costs and undesirable changes in exchange rates, to name a few. Liability risk and significant policy changes make up legal risk.
Available agricultural insurance
South African agricultural insurance falls mainly in two categories: Crop insurance and asset insurance.
Growing crop in South Africa is an unpredictable business, yet some farmers do not have crop cover which means their crop yield is extremely vulnerable to environmental elements and other risks. Crop insurance is essential to any farmer whose livelihood depends on a successful harvest.
Asset insurance includes cover for loss of or damage to buildings, vehicles and other farming equipment, as well as cover for livestock.
As a result of operating dangerous implements and machinery, farm workers are at risk of death or injury while in the employ of the farmer. Liability insurance is advisable to protect the farmer from possible liability claims.
Specialist industry insurance such as vine insurance focuses on, and provides cover for, the unique requirement of wine farmers. Vine insurance provides cover for weather damage, damage to infrastructure and equipment, loss of income and liability.