Back
Risk Management
August 19, 2024

SA’s Biggest GDP Contributor Battles Climate Change Risk

By: Daniel Stevens – Head Santam Agriculture Crop Insurance

The agriculture sector is vital for economic growth. It contributes 3% to GDP, supports 941,000 jobs, and generated US$13.2 billion in export revenue in 2023 – South Africa produces 10% of the global citrus production. But climate-induced changing weather patterns threaten the outlook for certain crop yields in 2024.Daniel Stevens, Executive Head: Santam Agri Crop says changing weather patterns and the rising frequency and severity of inclement weather impact seasonal crop production. “Agriculture is more exposed to the effects of the El Niño and La Niña weather phenomena than any other sector,” he says.

Seasonal crops battle climate change

Crop farming is seasonal. This means that various grain crops such as wheat, maize, soya, sunflower, dry beans; and vegetables such as potatoes and onions; and fruit, including citrus, avocado, pome, and prone fruit are only produced over a portion of the year – falling into either the summer or winter production season. Each season has its risks.

Hail is the biggest risk to South African crop farmers and typically affects crops including maize, sunflower, beans and wheat from October to April every year. The fruit production areas of the Lowveld, Western Cape, and Northern Cape are also at risk, particularly at the beginning of the summer season and again in April when Autumn sets in.

A hailstorm can cause different levels of damage to crops depending on the growth stage at the time of the event, along with some other factors, explains Stevens. “For instance, maize is planted around October/November and stays in the ground for three to four months. During that time, it goes through germination, a vegetative stage, and a reproductive stage but it’s most sensitive during the flowering stage. Recovery of the crop will depend on the growth stage of the crop when the damage occurred, the geographic location of the crop, and the weather conditions after the damage occurred.

Similarly, if hail damages fruit trees, it can result in a 100% loss or partial damage. For instance, if apples are damaged by hail the damaged crops can still be used to make apple juice – and though apple juice does not fetch as high a price tag as export-grade apples, it’s not a total loss. As with grains, some of the crops can still grow back, depending on when the damage occurred.

South Africa is heading into a La Niña season, which is wetter with higher rainfall and hail. Hail, frost, and fire are the biggest crop risks and have escalated due to the increased severity and prolonged effects of the dry El Niño (drought) and wet La Niña cycles.

Demonstrating the effects of climate change, Santam experienced a significant rise in the occurrence of frost and the resultant damage to crops every year since 2014, forcing the insurer to revisit its ratings for the peril.

Proactive approach to crop insurance

The insurer invests heavily in managing its risk exposure by conducting hail simulation trials and assessments at its farm outside Bloemfontein. It can take months to conclude a full assessment as the full extent of the damage can only be determined at the end of the season after allowing for recovery time.

“New, cultivars are being planted every year and we need to know how the seeds will react after hail damage occurs to a particular cultivar at a particular time. That’s why we do the simulations.

“We don’t just do it in Bloemfontein, we do it in eight locations around the country including Limpopo, Free State, KZN, and Eastern Cape – crops in each location will have a different response. We rent up to half a hectare of land from various farmers to conduct our simulations across different regions. At the end of the trials, we collate the data to determine if we should change our assessment procedures as our goal is always to pay the farmer what he should be getting out,” notes Stevens.

Effective planning and risk management

Stevens says that to mitigate the ever-increasing weather risks, farmers must keep up to date with proper farming practices like planting different cultivars that are adapted to the environment. Other practices are focused on moisture conservation and soil health with the application of precision farming to minimise the impact of climate variation. Larger commercial farmers may also choose to

mitigate their crop-related risk by diversifying geographic exposures and income streams. Farmers with sufficient resources also tend to self-insure through structured insurance models where a particular risk may be uninsurable.

“Production and climate risks can negatively impact a commercial farm’s profitability, liquidity, and in extreme cases, its sustainability. Crop insurance is an ideal instrument for farmers to mitigate these risks but farmers should always use a combination of risk management through proper farming practices and risk transfer, which must be built into the operation’s balance sheet,” concludes Stevens.

Insurance technology with a difference.

Say goodbye to complex legacy technology, and hello to a different kind of software solution.

Book a demo