An agro-insurance subsidy of Ush5 billion ($1.9 million) announced by the Uganda government in June last year will finally take off, but a season later than had been initially promised.
There are fears that the subsidy will not be effected before the end of the season due to delays in releasing the money and insurers who are cautious after projections of a poor harvest due to extreme weather.
“The government released the subsidy money in December, by when it was clear that the harvest in January would be quite poor due to drought. Insurers couldn’t undertake to cover losses of a season that was about to end,” said Mariam Nalunkuuma the spokesperson of the Insurance Regulatory Authority (IRA). The regulatory authority administers the government subsidy.
The Ministry of Finance said the $1.9 million subsidy was meant to help boost uptake of agriculture insurance and save farmers from losses related to extreme weather conditions. But the government missed an opportunity to provide insurance for the sporadic risk faced by the agricultural sector in Uganda due to drought.
An agricultural risk assessment study done in 2015 estimated that the country loses between $606 million and $804 million annually due to pests and diseases in crops and livestock, post-harvest losses, price fluctuations and drought.
Based on a GDP contribution of $5.71 billion, the study estimated that Uganda loses between 10.61 per cent and 14.08 per cent of total annual agricultural production. This translates into an annual GDP loss of between 2.3 per cent and 3.1 per cent.
According to the study, the sector’s annual losses resulting from drought amounted to $44 million. But the study estimated the drought occurs every 5.3 years and affects 25,000 people or more.
In a year when the drought actually takes place, as has been the case with the 2016/17 season, the losses are quite high. The Ministry of Disaster Preparedness has estimated that 3.5 million people will need food aid because of crop failure. Ms Nalunkuuma said the uptake of agriculture insurance was low despite firms coming up with products for both small and large-scale farmers.
The government subsidy was largely aimed at boosting agro-insurance among small and medium-scale farmers, who constitute the most exposed category.
Daka Munyaradzi technical manager of the Agro Consortium at the Uganda Insurers Association (UIA), said the subsidy is mostly taken up by commercial farmers.
The government subsidy constitutes 50 per cent of the premium for commercial farmers and 70 per cent for small-scale farmers. The premium is 5.5 per cent of the harvest value.
So far, fewer than 100 commercial livestock farmers have registered for the insurance. A consortium of insurance companies that consists of Lion Assurance, National Insurance Company, Pax Insurance Company, Jubilee, Phoenix Assurance, UAP Old Mutual Insurance Uganda Ltd and First Insurance Company are expected to make claims at the end of January worth Ush500 million ($137,785) from IRA for the government subsidy.
According to Onesimus Muhwezi, team leader for energy and environment at the United Nations Development Programme, governments in Africa are increasingly relying on agro-insurance to address climate change-related disasters such as droughts, rainfall shortfalls and floods.