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Agricultural index insurance can help secure the incomes of smallholders, who are particularly vulnerable to climatic hazards. It can therefore improve livelihoods in rural areas and reduce food insecurity. One of the aims is also to improve access to credit by reducing the default risk vis-à-vis financial institutions.

Over the past few years, so-called “index-based” crop insurance has been developed and brought to scale, particularly in India and Latin America. Compensation is calculated using an index based on the impact that weather disruptions have on yields (e.g.: rainfall) and therefore on incomes. This removes the need to assess losses plot by plot, which is a long and costly process. However, until now there had been few such experiences in West Africa.

Developing agricultural insurance mechanisms to secure smallholders’ incomes and combat food insecurity

The development of a range of specific “crop” insurance products will protect producers’ incomes in case of climatic hazards, contribute to maintaining their capacity to invest in their farms and will therefore improve food security in this region.

This project benefits from EUR 500,000 of AFD support and is part of a program implemented by IFAD with a total budget of over EUR 700,000. IFAD will be implementing this project in conjunction with the World Food Programme (WFP), a partner with whom IFAD has been cooperating on this issue since 2008 under the Weather Risk Management Facility (WRMF) initiative.

The project aims to establish a climate risk surveillance and management mechanism by developing and testing an innovative index-based insurance system in West African countries. The project more specifically aims to establish customized technical solutions by using satellite technology to measure the impacts that climatic hazards have on crops.

AFD is completing this research program with support to Planet Guarantee, cofinanced with GIIF (Global Index Insurance Facility), an International Finance Corporation (IFC, member of the World Bank Group) program. This component will contribute to the launch and testing on a larger scale of agricultural index insurance programs in the region. It is also expected to provide input to research on measures to mitigate food price volatility on markets in the sub-region.

The financing agreement signed between AFD and IFAD constitutes a new application of the operational partnership between the two institutions, which is already underway through the African Agriculture Fund (AAF), the Agrobusiness and Agro-Industries Development Initiative (3ADI) and the cofinancing of country programs. Agricultural risk management is a core focus of the partnership. It specifically comprises the preparation of a multi-donor platform to improve coordination among donors and better meet the demand of partner countries in terms of this issue (PARM).  

About the International Fund for Agricultural Development
The International Fund for Agricultural Development (IFAD) works with poor rural people to enable them to grow and sell more food, increase their incomes and determine the direction of their own lives. Since 1978, IFAD has invested about US$ 14 billion in grants and low-interest loans to developing countries through projects empowering about 400 million people to break out of poverty, thereby helping to create vibrant rural communities. IFAD is an international financial institution and a specialized UN agency based in Rome – the United Nation’s food and agricultural hub. It is a unique partnership of 168 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD).

Increasing threat to food security for Africans

The 2008 food riots revealed the number of challenges facing Africa in terms of food security:

• the uncontrolled increase in urban populations, which rely on food imports subject to price volatility in agricultural raw materials;
• the chronic dependence on emergency food aid, particularly in destabilized regions such as the Sahel zone;
• the practice of land grabbing by speculative investment funds to the detriment of the interests of village producers;
• the lack of political will to establish regional strategies based on farmers’ production sectors;
• private agricultural companies and cooperatives’ lack of own resources to increase their production and modernize industries.

African Agriculture Fund: a first

The international community has mobilized to address these issues via various initiatives. For the first time, European partners (AFD, European Union, Spanish Agency for International Cooperation and Italian cooperation), African partners (ADB, BOAD, EBID, DBSA and the AGRA Foundation) and UN agencies (IFAD and UNIDO) have pooled their resources and expertise within a single investment fund (African Agriculture Fund or AAF) in order promote agricultural investments in Africa.

A palm plantation in Ghana, © AFD Agency in Ghana

Anti-money laundering and sound land management

This pan-African fund was quoted in the Final Declaration of the G20 Agriculture Meeting in June 2011. It is expected to total over $200m by July 2012 and operates throughout the agricultural value chain (production, processing and distribution), with priority given to the primary sector (cereals, livestock, aquaculture, fruit production…).

The fund’s procedures cover compliance with strict social and environmental standards, systematic due diligence on anti-money laundering and corruption and the application of a code of sound land management.

Two AAF projects already underway

AAF has already invested in two projects: the first aims to refurbish a palm oil processing plant in Sierra Leone via a $10m investment alongside financing from Finnfund . This project is part of the international community’s post conflict initiative. It involves over 8,000 independent planters and will increase production destined for the domestic market.

The fund’s second investment, worth $20m, will extend an egg production farm in Zambia and develop the different sector stakeholders (from soya production for poultry feed to distribution points, including storage improvement).

The next investments are expected to be made in French-Speaking West Africa ( Côte d’Ivoire ) and in a wide range of sectors (mineral water, sugar, crop protection…).

The fund has two instruments which more specifically target small producers or entrepreneurs: a $30m subsidiary fund earmarked for agricultural SMEs and a $15m technical assistance facility to subsidize the professional integration of small producers, capacity building and the development of services for SMEs.

What challenge does the fight against hunger pose today?

Food security today concerns the entire planet. Global turmoil on agricultural markets and the decisions taken in Brussels, Washington or Beijing have an impact on the housewife’s shopping basket in Dakar, Ouagadougou or Niamey, because she buys imported products or local production whose prices are influenced by prices on international markets. At the global level, there are a whole host of problematic issues between Northern and Southern countries and among Southern countries, Sub-Saharan Africa is a really specific case.  

To address this situation, our priority at AFD is agriculture and food security in the broad sense, but in Sub-Saharan Africa where both the potential and needs are enormous. The paradox of Sub-Saharan Africa is that it is the area of the world which has the most available land, the most water and an abundant labor force, but its food deficit is worsening. This phenomenon needs to be remedied, first because of the deficit in the trade balance: why import rice in Côte d’Ivoire or Nigeria when they can produce it? Second, the scale of population dynamics means there is a need to create jobs and agriculture is a highly labor-intensive sector.  

What causes food crises in Africa?  

There are two types of cause: natural causes and causes related to development strategies. The Sahelian band suffers from frequent rainfall deficits, which have major impacts on livestock and crops.

But there are other parts of Africa where for decades there has been a lack of policies to give farmers and investors incentives to see agriculture as a means to earn a living.

This year, there has been quite a major crisis in the Horn of Africa, which was initially due to natural causes, but it has been exacerbated by political turmoil. However, from a long-term perspective and in a stabilized environment, this region could well develop irrigation and new crop-growing practices that respect livestock farming traditions.

A crisis is currently looming in Niger and in six other West African countries. This is combined with the difficulties related to security in the Sahel, which will make it more difficult to come to the assistance of populations.
There is then a problem of population density, because the demographic transition has not yet occurred in these countries. Urbanization creates customers for farmers.

Finally, there are aspects related to migrations, which is why the food security issue must be addressed at the sub-regional level in West Africa.  

If we do not take action, the food crisis may be exacerbated by growing desertification and the increase in the African population.

Does the fight for food security only concern agriculture?  

If we the think in general terms, the real problem is poverty.

In certain rich countries, there are poor people who do not have enough to eat or who eat badly. The planet probably produces enough to feed its inhabitants. If we focus on Africa, the poor are in rural areas. We need to invest in agriculture. By producing more, we can feed urban dwellers without worsening the deficit in the trade balance and the rural poor can increase their incomes and therefore no longer suffer from hunger.

In short, and from the perspective of Africa, hunger continues to be an agricultural problem. We therefore need to invest in agriculture.

What does investing in agriculture mean?  

At AFD, we believe that the first investor is the farmer. He is the one who makes the investment, first through his work and, as soon as he can afford to, by reinvesting his profits or by calling on financing institutions, microfinance or agricultural credit. Helping industries to buy this farmer’s produce at a fair price and share the added value equitably helps the farmer to invest. This is what AFD does by financing companies that act as intermediaries between the farmer and the market in sectors which organize contracts between industries and farmers and by developing the capacities of local banks to lend to the agriculture sector. But the private sector cannot do everything. Governments must also invest, for example in rural roads, irrigation, training and, generally speaking, in ways to improve the functioning of markets and the flow of trade between cities and rural areas. This is another area of AFD’s operations.  

a farming family in Cambodia, © Eric Beugnot, AFD
 

What different operational means does AFD have?  

One of the cornerstones of AFD’s action in West Africa is its support to agro-industrial sectors. This makes it possible to organize balanced relations between farmers, the agro-industry and markets through a system of rules and contracts. We should bear in mind that these export crops, such as the cotton or rubber industries that we support, do not prevent farmers from growing food crops. They can even use the income they earn from their exports to improve their subsistence farms.  

Another major area for AFD’s operations is the support to rural local authorities. Public expenditure and wealth are today concentrated in African cities. Equipping rural areas requires a real political will. We therefore need to support decentralization, by giving responsibilities to local elected officials and giving them the means to invest (in transport, infrastructure, etc.). The aim is to make rural regions attractive and competitive. There are two additional aspects: the preservation of natural heritage and land tenure security.

One of AFD’s noteworthy advantages is that it has a range of financial tools which allow it to finance both public investment and private investment and to do so at financial conditions (grants or loans with different levels of subsidy) which are tailored to the type of project and the level of development of the country. AFD has further increased the complementarity of financial tools by contributing to the creation of an investment fund entirely dedicated to food-based agricultural sectors in Africa.

The Green Morocco Plan, a new strategic direction to revitalise and reform the agricultural sector

Realising the importance of agriculture for its economic and social development, Morocco adopted its Green Morocco Plan in April 2008 in a strategic move to revitalise and reform the agricultural sector, which is seen as fuelling growth and employment and a means of fighting poverty.

The plan, designed to boost investments and reform in the agricultural sector to increase its productivity and creation of wealth and employment, is a new strategy that involves raising public funds both nationally and internationally to support family farming.

Agriculture – Morocco’s leading employer

The agricultural sector contributes 16% of Morocco’s GDP on average, with wide inter-annual variations (12 to 24%) due to climate fluctuations. Agriculture also accounts for almost 18% of Morocco’s exports, of which 60% go to the EU.

photos AFD - E. Baudran

In particular, agriculture is the leading provider of employment in Morocco, creating income for 43% of its active population and up to 80% in rural areas, in a context of high urban unemployment (almost 15%).

The strategy was developed from an in-depth diagnosis of opportunities and constraints for Morocco’s agriculture, conducted by the McKinsey consultancy in 2007. It was validated by the Minister for Agriculture and Deep-Sea Fisheries, Aziz Akhannouch, and presented to King Mohammed VI in April 2008 during the Agricultural Assizes. The Green Morocco Plan was then introduced in the country as a whole in the form of 16 regional plans setting out sectors for priority support according to the specific situation of each.

A new approach for Morocco: development in the agriculture sector  

Previous public funding for agricultural development was essentially devoted to expanding irrigation capacities through a relatively technology-centred approach. The Green Morocco Plan takes a different approach, by catering for the development of the entire agricultural production chain, from input supplies to product marketing.

Innovative “aggregation” models are being explored to integrate farmers into the different sectors and thus improve links the between production and markets as well as advisory services for farmers, access to financing, and so on. By financing productive projects submitted by groups of farmers, the Green Morocco Plan recognises the contributions of farmers and their organisations to the success of agricultural development projects. It stresses the importance of training to help farmers implement their projects, as well as the need to organise inter-professional agricultural bodies.

Public investments and incentives to private financing

The Green Morocco Plan is designed to boost both public investment and private financing incentives for Morocco’s agriculture, with differentiated provisions according to players and regions.

Two “pillars” and one cross-cutting line of action are set out:

• a series of incentives to private investment to boost the development of high added-value agriculture in productive zones and advanced agricultural systems: 400 000 to 600 000 farms will benefit from of total of nearly 7 billion euros in private investments over 10 years ("pillar 1")
• major public investments in family farming in the more disadvantaged zones: 600 000 to 800 000 farms will benefit from public investments of 1 to 1.8 billion euros over 10 years ("pillar 2")
• cross-cutting activities, mainly for infrastructure and rehabilitation of agricultural zones, improved land registration, research and development, etc.

AFD financing for “Pillar 2” of the Green Morocco Plan  

The AFD has been providing financial support to implementation of the Green Morocco Plan since 2010, through a sovereign low-interest loan of 40 million euros and a grant of 500 000 euros to the second phase of the infrastructure project for the irrigated area to the north of Fez, in the Sébou and Inaouen valleys.

This project aims to develop water-saving irrigation and its management by user associations, thus contributing to the cross-cutting components of the Green Morocco Plan.

On request from the Moroccan government, the AFD is supporting “Pillar 2” implementation in the field by financing a support programme in the north of the country.

The programme was defined after an in-depth feasibility study, conducted from January to April 2011 by a French consultancy recruited by the Moroccan authorities through an international call for tenders, and several AFD evaluation missions in close collaboration with Morocco’s Ministry for Agriculture and Deep Sea Fisheries.

Cost and financing

Of the total cost of 68 million euros, the AFD is providing 50 million euros to the programme in the form of a concessional loan (cost partly covered by the French State) to the Kingdom of Morocco. A 300 000 grant has also been awarded to cover additional expertise.

18% of the total is being financed by the Moroccan State and 8% by the beneficiaries. The programme will be implemented by the Ministry for Agriculture and Deep Sea Fisheries and its regional agencies, and coordinated by the Agricultural Development Agency (ADA).

By financing the plan’s regional components in the north of the country, the AFD is supporting the kingdom of Morocco’s efforts to develop smallholder farming and reduce territorial and social inequalities.

This study aims at offering some general suggestions that farmers or their representatives could bear in mind when entering into contract-farming arrangements. It also presents contractual, technological, financial, institutional, political and legal types of innovation that have helped to overcome the challenges that can undermine contract-farming operations.

A late demogarphic transition, an increasing pressure on the land, a complex implementation of a land governance and  a sustainable management of natural ressources...are amongst the challenges related to land in Sub-Saharan Africa. In the future, will the farmers face as many ficulties to live on their land? And will the urban population find it increasingly difficult to get decent housing? 

This study tries to bring some answers to these crucial questions, and others, based on the analysis of the past and current trends in land usage in Sub-Saharan Africa.