As maize farmers around the country survey their crops for the 2018/2019 season, many are battling with tight margins that have prompted cutbacks on insurance in recent years.
Santam has seen a decrease in gross written premiums received for crop insurance, with the figure moving down to R729 million in the year to December 2018 from R829 million in 2017
Schalk Schultz, Santam’s head of business development for crop insurance, says insurers in the market are not making profit on multi-peril crop insurance.
“The risk posed by drought is systemic. It’s not the same as hail claims where events are area-specific or isolated. This is why the agri industry wants government to re-examine a public-private-partnership to deal with the effects of the drought.
“If you look at global practice, most countries offer government subsidies or assistance in these situations but that is not the case in South Africa,” he says.
Preliminary talks on government subsidies
Dawie Maree, head of information and marketing at FNB Agriculture, says that following the 2016 drought, there have been preliminary discussions on the issue with government.
“One proposal was to look at a crop insurance scheme where government subsidises the premium to enable more farmers to insure their crops. It has also been suggested that a part of the national budget allocation to agriculture should be earmarked for such a scheme,” he says.
Schultz explains that from the perspective of maize farmers, for example, the margin is insufficient for them to be able to afford multi-peril crop insurance. “A farmer’s running costs such as fuel, fertiliser, labour and electricity are all non-negotiable costs needed to produce a crop.”
Schultz confirms that the take-up of multi-peril crop insurance in the total insurance market has decreased in recent years. “Farmers have to plant within a specific planting window. This past production season, the rains arrived late. If the rain doesn’t arrive in time, then that planting window expires and the farmer either plants late or not at all.
“If they plant late, they runs the risk of early frost negatively impacting on a crop that is not as mature as it should be.
“Many farmers couldn’t plant within the optimal planting window so they did not plant at all, which meant that their policies had to be cancelled. Insurance cover only sets in from the date that the crops emerge.”
Schultz explains that farmers typically take out multi-peril crop insurance in October and plant their crops in December. The insurer then carries out an inspection around February, and it is only once the crops emerge that cover incepts.
Current maize crops underinsured
“This last season [2018/2019] we initially had policies in place covering 158 000 hectares, but at the end of the day only 83 000 hectares of cover incepted and the rest was cancelled,” says Schultz, adding that Santam has capacity to insure 250 000 hectares for multi-peril crop insurance.
“When you consider that Santam accounts for 50% of the market, and that the national crop that has been planted is close to two million hectares – that gives you an indication of how small a portion of the national crop had multi-peril crop insurance this season.”
This scenario ties in with a statement issued earlier this year by the Agricultural Business Chamber of South Africa (Agbiz), which said that the initial optimistic outlook for the 2018/19 production season had taken a downward turn.
“Although the season started on a sound footing, rainfall was erratic and not widespread. As a result, planting activity proved to be a challenge in most areas, particularly the central and western regions of South Africa,” Agbiz said.