Risk management essential in protecting agricultural industry against increasing environmental hazards

Climate change and erratic weather patterns are threatening the survival of South African farmers who do not have effective risk management policies in place. If the lack of knowledge around this issue continues, South Africa’s food prices could increase and the country’s export produce sector could be at risk.

This is according to Ebbe Rabie, Account Manager of Agriculture at Aon, who says that due to high operating costs and the lack of access to capital, many farmers, particularly smaller producers, don’t have the correct risk management policies in place. With the number of farmers in South Africa decreasing significantly in recent years, the local economy can ill afford to lose more as a result of being financially unprepared for natural disasters.

He says that South African farmers who were previously reliant on seasonal weather patterns as their sole risk management process are becoming increasingly unable to plan ahead due to the frequency of extreme events. “These farmers need to fully understand the importance of including insurance into their risk management processes in order to prevent financial ruin and possible foreclosure.”

He says that rapidly changing weather patterns as a result of global warming have already cost the economy billions of Rands in damages and has prohibited uninsured farmers from recovery due to the high costs of replacing stock, replanting crops and repairing damaged property. “Furthermore, there is little fiscal support from government to bail them out when crops are damaged by storms.”

Rabie says that extreme weather incident rates are becoming greater in areas not previously seen, devastating farms that are unprepared in dealing with such events. “This year floods have occurred in eight provinces, snow has fallen in the Highveld and in Kwa-Zulu Natal, and tornados have occurred on the East Rand. Even the Western Cape has had hail, which is an uncommon occurrence.”

He says that there is a definite trend of underinsurance in the agriculture industry, particularly when it comes to crops and livestock. “Affordability is the main reason for this. While the last few years have put a strain on most people’s finances, farmers have felt the squeeze more than most. When things get tight, unfortunately insurance is one of the first expenses to be cut.

Rabie says that some farmers also try to cut costs by undervaluing their assets or produce, or by paying only a portion of their insurance premium. “This will however come back to haunt them if a major incident does occur. Insurance is not something that can be skimped on and farmers need to cover their bases by insuring at the correct value and paying the full agreed premium.”

He says that if more farmers have Crop Insurance, it would lead to lower insurance premiums as a far bigger group will be carrying the financial load.