HOLLARD MOZAMBIQUE: Securing Better Futures Through Pioneering Agri Insurance Scheme

Manica province, Mozambique – around 62,000km² centrally located within the country, home to almost two million people – has rich agricultural opportunity. Good rainfall, mild climate, large open spaces, fertile soil, and an abundant workforce make for an attractive offering, but there has never been real growth or expansion in the area. Some put this down to lacking investment and slow uptake of technology, others cite an absence of organisation with most farmers being small scale operations with little cooperation. Whatever the reason for slow development, smallholder famers in the area remain challenged. The story is similar throughout the country.

However, 90% of Mozambique’s food is sourced through informal smallholders. 70% of the country’s population is employed in the agricultural industry. There is little or no finance or credit available, and the majority of attempts by large foreign investors to scale in Manica have failed. Researchers are often surprised that thousands of smallholder farmers succeed. Clearly, an understanding of local conditions is essential here, and a carefully considered route to market is critical.

Alongside lacking finance, credit, infrastructure, marketing, and government support, the agricultural space across Manica – and further afield through almost all of Mozambique – continues working every year unprotected. Until 2018, insurance was not an option. There was simply no market for risk management in an area also recognised as highly exposed to natural disasters. Drought, floods, landslides, and cyclones are real threats here. In fact, a report from Germanwatch, commissioned after the killer cyclones Idai and Kenneth, highlighted Mozambique as the world’s most vulnerable country to extreme climatic shocks.

For Hollard Mozambique – a company known for its commitment to the country and upliftment wherever possible – this situation was troubling.

“We looked at all of this and we said we must propose something,” says Israel Muchena, Managing Director – Life & Agriculture.

AGRI MOZAMBIQUE

In 2018, Hollard Mozambique rolled out its first pilot project in the agricultural space – the Agri Mozambique initiative, an innovative concept which sees the company partner with a local seed provider to bring insurance to the traditionally unreachable smallholder farmers in Mozambique.

Using deep knowledge of the local market – developed over 20 years in business in Mozambique, and 42 years as a group – Hollard managed to come up with costings for the industry, and is using ambitious measurement methods to assist in supporting claims. However, its delivery mechanism is the highly impressive differentiator and is pioneering agricultural insurance in the country and region.

“When we came up with the idea of climatic risks and remote satellite sensing, we realised that they could be effective solutions to identify which areas have been affected and how much we need to pay. Our problem was how we distribute the product to the target population – there are no insurance brokers in the rural areas and there are no financial services,” explains Muchena.

Most smallholder farmers are self employed individuals farming on small sites – often around one hectare, using little or no technology, often without access to basics such as electricity and water. These farmers rarely have bank accounts or formal financial arrangements. They are rural and isolated – not connected to Mozambique’s main infrastructure. Cotton, maize, cassava, and sorghum are just some of the commonly grown crops.

“The average smallholder is producing 500-600kg of maize per hectare in Mozambique,” details Muchena. “The same crop in Malawi or Zimbabwe is getting 2000kg per hectare. In South Africa, it’s closer to 10,000kg per hectare. We have low levels of productivity and low application of technology. Less than 10% of smallholder farmers use certified seeds, according to the most recent national agricultural survey. When there is drought, they lose produce -the conditions are harsh, difficult, and exposed to elements of nature.”

The joint study alongside the University of California, Davis helped Hollard to learn that seed providers are probably an ideal element in the value chain to work with in order to reach smallholder farmers. They already have a distribution network in rural areas and there is also a pre-existing relationship of longstanding trust with the smallholder farmers.

“The most exciting initiative we have at this stage is a partnership with Phoenix Seeds in the central province of Manica where high-quality seeds are sold to the target beneficiaries with basic climate risk protection,” says Muchena.

The initiative sees Hollard provide much-needed cover to those active in agriculture, promising the supply of new seeds for replanting should a crop fail for a range of climate-based issues. This support for farmers is invaluable and is something they have never experienced before.

GROWING PARTNERSHIP

Hollard’s offering for smallholder farmers is still being refined and, after initial challenges, the product is beginning to be accepted and demanded. It helps that in the first year of trial, the company ended up paying significantly more than it gained in premium, but for Muchena, this is all part of marketing a good product and proving its worth.

“We felt pressure originally when we conducted a pilot study in 2012 alongside the World Bank,” he says, adding that the initial rollout was to cover 40,000 smallholder cotton producers, earning $100,000 in premium.

“By the end of the season, we paid out $270,000. This doesn’t happen normally with insurance,” he smiles. “We thought it was terrible and we started off with a bad experience, but what better marketing. We were excited and we thought that people would see we paid $2.70 for every $1 paid in premium and they would come to buy.”

But again, the challenges faced by the country’s smallholders presented hurdles. Farmers have limited capacity to store and preserve quality of their produce throughout the year. To protect themselves from post-harvest losses, they try to sell off their excess production as soon as they harvest. As farmers try to sell their produce at the same period at the end of the season, the excessive supply leads to low prices. By the time that the next rainfall season is beginning, their meagre storage would have been exhausted and, in some cases, they do not have enough to feed themselves. The same commodities that they sold off cheaply at the end of the last season, cost much more by the time that they are preparing for the next season. One of the research studies of this phenomenon in the local agricultural sector referred to this period at the beginning of the agricultural season as the ‘hunger period’. The farmers have barely enough to feed themselves let alone to buy inputs for the next season.

“How can we go to a smallholder farmer then and ask them to pay for insurance? In our view, because of the way the agricultural value chain operates at the beginning of the season, the farmer does not have resources,” Muchena highlights.

“We would love to market to farmers and explain about the protection we can offer, but we are aware of the financial capacity where farmers don’t have enough to feed themselves. We have managed to convince Phoenix Seeds to enhance the value of their product by including insurance as a value added benefit for their seed.”

The result? A single client for Hollard Mozambique to manage, but access to a large base of beneficiaries quickly and easily. Crucially, this arrangement allows for the company to effectively satisfy challenging regulatory requirements when onboarding clients, as Muchena explains.

“By partnering with Phoenix Seeds, we have been able to achieve the inclusion of basic climate risk insurance alongside their seeds, meaning we only take them through the process of KYC as they are an established company with all the necessary documentation. Phoenix Seeds becomes the policyholder and the smallholder farmers become the beneficiary of insurance.”

This innovative scheme makes for a simple delivery mechanism that brings much needed protection to those who are vulnerable. The purpose of Hollard Mozambique is all about securing prosperous futures, and this concept talks directly to that ethos.

WE WILL CONTINUE

In its infancy in Mozambique, insurance for the agricultural sector looks set to boom. A sector responsible for 32% of the country’s GDP, continuing to operate unprotected, is not sustainable. Hollard Mozambique is gaining first mover advantage and is part of change in the country through which smallholder famers will be able to secure better futures. The challenge now is to present positive market figures and reach more and more smallholder farmers through inventive models, developing the market with each interaction.

“When the percentage of claims exceed 50% of received premiums, insurers start getting stressed,” smiles Muchena. “The financial contribution in terms of group revenue is still small when looking at premium income. When you look at the expenses we incur in terms of marketing and resources that are deployed, we are spending more than we collect.

“We will continue as we believe what we have achieved so far offers a prototype that could be used to set up schemes at a larger scale. We believe that agriculture will become a major source of growth for the insurance sector and, for now, instead of counting the dollars or talking about the bottom line, we prefer to look at headcount and how much of a social impact we are having.” he concludes.

As the largest insurer in Mozambique, following the acquisition of ICE Seguros in March 2022, Hollard continues to display its pioneering nature, and its ambition for partnership, as it provides a fundamental financial structure for the principal economic activity in the country. Alongside its strong offerings across other disciplines, agriculture will continue to receive focus from Hollard as the company develops restorative insurance solutions in Africa, by Africans, for Africans.