The global landscape of agricultural risk has been changing dramatically. More frequent and intense climate and economic shocks have become the norm. Over the past 30 years, disasters have caused an estimated $3.8 trillion in crop and livestock losses, or about 5% of global GDP per year (FAO, 2023). These are unfolding alongside growing health and geopolitical risks, and all of these disruptions now propagate much more rapidly through increasingly interconnected food systems (IPCC, 2014; FAO, 2016). These shocks cascade across entire agricultural value chains, affecting input suppliers, aggregators, processors, traders, exporters, and ultimately consumers.

For decades, discussions about agricultural insurance have centered on the individual farmer—how to protect smallholders from crop losses, stabilize incomes, and encourage investment. This framing often treated risks as primarily local and idiosyncratic. Even so, agricultural insurance has remained an important finance tool to help smallholders build long-term resilience to shocks. However, despite growing need, adoption rates remain low and provision is chronically underfunded (Carter et al., 2017).

Yet in today’s more complex and interconnected risk environment, this narrow focus on farmers is no longer sufficient. The policy challenge has broadened: it is no longer enough to ask how farmers can cope with risk. The more pressing question is how entire value chains can remain functional, investable, and inclusive in an increasingly volatile world.

From this perspective, agricultural insurance is not just a tool for farmers, it is a key mechanism that can help underpin value chain resilience when combined with risk reduction, rural credit and liquidity (such as seasonal and working-capital finance), and structured market arrangements (such as offtake or contract farming agreements). Drawing on the International Fund for Agricultural Development’s (IFAD) experience across diverse insurance initiatives worldwide, this post outlines how insurance can help sustain value chains. It also calls for a shift in policy priorities – towards value chain-based insurance and risk sharing mechanisms, supported by and aligned with climate finance policies.

Source - https://www.cgiar.org