Promoting Index-Based Weather Insurance for Small Holder Farmers in Burkina Faso

Project details

Burkina Faso is a landlocked West African country with a population of 20,107,509 people. It is one of the 10 least developed countries in the world, with a Human Development Index score of 0,4 and ~47% of the population living under the poverty threshold, especially in rural areas. Burkina Faso’s economy has grown at an average rate of 5% per year these last 10 years thanks to the good performance of its export industries, mainly mining and cotton, but remains vulnerable to exogenous shocks. 

Over 80% of the population is engaged in agro-sylvo-pastoral activities, accounting for about 40% of the national GDP (FAO, 2014). The majority of the rural population relies on small-scale, subsistence farming as their key source for sustenance and income. It is mostly rain fed and therefore highly dependent on rain patterns.  

Burkina Faso can be divided into three climatic zones:

• The Sahel in the North, which represents about 25% of the territory, with average annual precipitations between 300 and 600 mm (rainy season lasts about 2 months/year); 
• The Sahel-Sudanian region, south of Sahel, which represents about 50% of the territory, with average annual precipitations between 600 and 900 mm 300 et 600mm (rainy season lasts 3 to 4 months/year); 
• The Sudanian zone in the South Wes which represents about 25% of the territory, with average annual precipitations between 900 and 1200 mm (rainy season lasts 4 to 6 months/year).

In recent years, Burkina Faso has increasingly experienced the adverse impacts of climate change in the agriculture sector, in particular due to variations in rainfalls, which have become more erratic with shorter or late rainy seasons and increased frequency of extreme events, including floods and droughts. This is placing serious stress on rural households practicing rain-fed agriculture, especially women-headed households. These are the most vulnerable, as it affects their livelihoods, income, food security and generally worsens poverty.

The adaptation strategies adopted by these populations are not sustainable as they consist mainly of selling assets, which actually increases vulnerability to future shocks. Another way of coping with climate change’s adverse impacts is migration of people and cattle to more promising areas – or out-migration of men seeking employment, leaving some women, children and the elderly destitute. Finally, climate-related shocks may push local communities to resort to activities that deplete ecosystems (e.g. firewood collection, logging, groundwater extraction), which are a key natural asset for them, in order to fulfil short-term needs, again increasing their long-term vulnerability. Risk management instruments, such as insurance, are rare in the target regions. However, thanks to several projects co-financing the proposed project, such as the FAO and AGRIFINANCE projects, adaptive practices are adopted among agro-silvo-pastoral communities, but due to increasing rainfall variability, the communities still experience seasonal losses to their produce, and reduction in incomes.

National Policies on climate change

Burkina Faso is aware of the challenge climate change represents for its development and has developed several policies aiming to address issues related to climate change:

• The framework of the Burkina Prospect 2025 upon which the Government crafted the National Economic and Social Development Plan (Plan National de Développement Economique et Social - PNDES), a five-year plan (2016-2020) meant to sustainably advance the social and economic conditions of the populations, especially, the most vulnerable ones. The PNDS identifies climate change as an important risk for the brukinabè economy and the country’s development. As a result, one of its objectives is to reinforce Burkina Faso’s adaptation capacities, among other things by reinforcing capacities for the relevant actors and increasing the number of sectoral and strategic policies that integrate climate change.  
• The Sustainable Development Goals, in the context of which the Government of Burkina Faso took specific steps towards addressing climate change issues in sustainable ways, by adopting the National Adaptation Plan (NAP 2015-2025) which provides integrated actions meant to enhance the development of relevant areas such as agriculture, livestock, water, forestry and the biodiversity. Burkina Faso had paved the way for its NAP by developing and adopting a National Adaptation to climate change Action Plan (NAPA, PANA in French) in 2007. 
• Burkina Faso has ratified the United Nations Framework Convention on Climate Change (UNFCCC, CCNUCC in French) in 1993 and the Kyoto Protocol in 2005. It has adopted national legislation to implement these protocols. In its Intended Nationally Determined Contribution (INDC), Burkina Faso highlights agriculture as a priority for adaptation as the adverse impacts of climate change are already being felt while the sector is of crucial importance for a majority of its population both for their subsistence and income generation. The actions suggested in the INDC to improve resilience, such as supporting more resilient agricultural practices for example by using drought resistant seeds, will contribute to the success of the proposed project.

Specific barriers to climate change adaptation in Burkina Faso

In this context, several barriers prevent Burkina Faso from achieving an optimum adaptation to climate change:

1. Insufficient integration of climate risks into the agriculture sector at the national and sub-national development planning. Burkina Faso requires, among other things, the appropriate policy incentives and signals to drive both planned and autonomous adaptation. At present, the public administration system does not have the sufficient technical capacities to identify climate risks and adaptation options as development planning take place. There are few mechanisms in place for technical officers in key line Ministries such as agriculture, planning and finance/economy to integrate climate vulnerability information into specific development plans or budgets. Development planning priorities identified through the current dialogue process, remain exclusively based on business-as-usual without taking into considerations additional risks imposed by climate change. 
2. Limited availability and use of data and information on climate risks and adaptation. Risk management requires information with respect to the primary risks involved. Micro-finance insurance institutions, insurance providers, policy makers, planners, and farmers require more reliable seasonal and short-term early warning information to assess risk and the potential returns from their investments and improve decision making processes linked to climate change adaptation. With respect to potential climate vulnerability reducing responses, there are examples of environmental risk reduction interventions (such as weather index based insurance), but they have limitations that make it difficult to provide demonstrable evidence of the benefits of these initiatives for improving climate resilience. 
3. Technical capacity constraints for climate-resilient insurance and alternative risk-transfer instruments to provide climate risk safety nets for the most vulnerable. The design standards and products employed by insurance companies and rural financial service providers for supplying marketable insurance products to rural smallholder farmers currently do not take into account changes in timing and intensity of rainfall, and extreme events such as floods and droughts. Their technical knowledge in designing weather index-based insurance products is limited. 
4. High initial risks and investment costs in research and development for private insurers. As with other innovative financial products, IBWI needs appropriate testing before it can be marketed on a large scale. Such insurers are often wary of financing these start-up costs themselves, as they may be difficult to recoup, and competitors can more easily replicate such products if they prove profitable. Because of this ‘first mover’ problem, when a market based solution is lacking, in most cases IBWI pilot programmes have been initiated with government support, or helped by organizations with a social mission, including bilateral and multilateral institutions, NGOs and private foundations.

The strategy
Index-Based Weather Insurance can address many of the barriers identified above in the agricultural sector and has the potential to greatly improve farmers’ ability to adapt to climate change. For this reason, this specific intervention will focus on IBWI and provide de-risking measures to facilitate the research, design, test and pilot of this new type of insurance scheme in Burkina Faso.

The anticipated long-term impact of the project is to strengthen smallholder farmers’ resilience, including the most vulnerable such as women headed households, to the adverse impacts of climate change by giving them access to an index-based weather insurance (IBWI) for their crops, and to complementary measures that will reinforce their resilience. In doing so, the project will also contribute to the Sustainable Development Goals (SDGs), SDG 13 –Take urgent action to combat climate change and its impacts, as well SDG 12 – Achieve food security and improved nutrition and promote sustainable agriculture. It will equally contribute to the UNDAF 2018-2020 outcome 4.2.: By 2020, populations, especially vulnerable groups, in target zones are more resilient to climate and environmental shocks.

Expected national benefits

By demonstrating impact and having a strong focus on capacity building, the proposed project will strongly contribute to Burkina Faso’s political long term objective of developing nationwide IBWI for agriculture.

Relevant Ministries will benefit from extensive and targeted capacity building activities. This will enable them to realize their long-term objective of developing nationwide IBWI for agriculture as they currently have political will but weak capacity on the subject. By targeting all relevant Ministries, especially the Ministry of Finance, whose Director of Insurance is in charge of the legal framework regarding insurance in Burkina Faso, the Ministry of Agriculture, which is leading the political effort on IBWI for agriculture, the Ministry of Animal and Halieutic Resources, which is considering IBWI for livestock farming and the Ministry of Environment and Sustainable Development, which has the overview and capacities regarding climate change adaptation, the project will enable a better common understanding of the issues and solutions. The inclusion of Ministries such as the Ministry of Women, National Solidarity and Family will ensure that the needs of vulnerable groups including women are adequately taken into account in IBWI policy development. The National Meteorological Agency will also benefit from capacity building regarding IBWI for agriculture, as support to develop technological tools in this area and support for its physical network development as needed.

Beyond public actors, the whole ecosystem of insurance (i.e., insurers, distributors, aggregators and beneficiaries) will be reinforced by the project thereby providing a much stronger enabling environment for further development of IBWI for agriculture. 

In the same way, the work that the proposed project will carry out regarding indexes and premium subventions will produce important technical knowledge that will be handed over to the national institutions and contribute to their delivery of their objectives. 

Expected local benefits  

Benefits at the local level are also expected to be strong.

The capacities of local public actors such as Ministry of Agriculture and Ministry of Environment’s extension agents in the targeted Municipalities will be reinforced in the area of IBWI as well as resilient agricultural practices as necessary. Private actors such as distributors and aggregators, for example Micro Finance Institutions or farmer organizations, will also be reinforced. Direct beneficiaries will benefit from better understanding of insurance thanks to  training methodologies such as role plays in order to put them in simulated real life situations that they can identify with and that will enable them to understand the abstract concept of insurance.

Insurance will allow the farmers to stabilize their revenues, thereby avoiding unsustainable adaptation strategies such as selling their assets which can result in making them destitute when a climate related shock occurs. The complementary measures seek to make insurance a catalyst for resilience by supporting farmers to increase their access to credit and to resilient agricultural practices.

The strong inclusivity of the project will empower vulnerable groups such as women by not only enabling them to access insurance but also targeting them specifically for some of the complementary measures such as support for credit access or training in more resilient agricultural practices.

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Key results & output

Component 1: Enabling environment.

Outcome 1: Enabling conditions for advancing an index-based weather insurance (IBWI) system in Burkina Faso are developed. This includes documenting, assessing and reinforcing the capacities of all actors contributing to the ecosystem of agriculture IBWI as well as assessing the institutional framework in Burkina Faso in light of how the CIMA (Conférence Interafricaine des Marchés d’Assurances) code, which regulates IBWII in fifteen West African countries, is implemented elsewhere in order to identify potential reforms to enhance the enabling environment. This regulatory assessment and gap analysis will identify what is needed to implement the envisaged insurance scheme, and find ways to swiftly overcome any regulatory / supervisory barriers.

• Output 1.1: Review the institutional and policy environment to identify gaps and barriers to implementing IBWI 
• Output 1.2: Conduct an assessment of institutional capacities and key actors to be trained
• Output 1.3: Provide training to policy-makers, decision makers and legislators on integrating climate risk management approaches into core development policies and planning and budgeting processes
• Output 1.4: Conduct financial literacy and awareness programmes for target beneficiaries on IBWI

Component 2: Index based insurance project. 

Outcome 2: Index-based Weather Insurance programme piloted for small scale producers to minimize vulnerability to climate risks. Including the most vulnerable, such as women, is a guiding principle for the design and implementation of this component and is why a selective premium subsidy scheme is suggested. The project will determine the best modalities for these subsidies to benefit farmers, with a plan in place to reach them (e.g. through awareness and educational programmes) and to effectively phase out subsidies in the long term while remaining a realistic affordable option for farmers. This insurance will be part of a “resilience package”, as it will be bundled together with complementary measures such as access to credit and training in resilient agriculture practices, reinforcing the targeted population’s resilience and contributing to increasing their revenues.

• Output 2.1: Procure and install suitable automated weather stations and ensure they are fit for purpose to supply the type and format of usable data needed to support an index based insurance scheme, and that an appropriate system and budget exists for the maintenance of the weather stations. 
• Output 2.2: Develop a weather index insurance scheme incorporating gender dimensions in selected sites.
• Decide the insurance cover claims triggers using a participatory approach, including all stakeholders’ representatives. Identify a set of measures required for comprehensive risk management and the technical, operational and financial sustainability of the insurance scheme.
• Output 2.3: Ensure that insurance is provided bundled with access to credit and agricultural inputs. 

Component 3: Knowledge sharing.

Expected Outcome 3: Lessons learned from the IBWI experience are documented and disseminated. This last component is especially important as the proposed project is planned to roll out as a small scale project in the project targeted area, to pave the way for wider IBWI for agriculture led by the Ministry of Agriculture.

• Output 3.1: Prepare policy briefs to improve the policy environment to promote IBWI  
• Output 3.2: Document, promote and disseminate best practices

The design of this project integrates lessons learnt from previous IBWI projects in Burkina Faso and elsewhere, inter alia:

• Elaborating an index that is relevant and understandable by using data collected by the meteorological network on land instead of satellite data; 
• Using insurance as a catalyst for further resilience building, by being part of a “resilience package” bundled together with access to credit and other complementary measures aiming at reinforcing the target population’s resilience and revenues
• Involving both the public and the private sector;
• Putting a strong focus on capacity building, including using innovative training methodologies such as role play in order to put beneficiaries (e.g. government, farmers, insurance providers) in “real life situations” enabling them to grasp the abstract concept of insurance and make it concrete.

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