Unlike their cousins in the banking sector – which are owed some R125 billion in loans from drought-hit farmers – insurance companies look set to emerge relatively unscathed from the devastating effects of the driest season on record in South Africa. Andries Wiese, head of market intelligence at Mutual & Federal Agri – a subsidiary of the Old Mutual Group and one the largest agricultural insurers in the country – says that the insurer has not received any drought-related claims in its crop insurance business as the drought meant very few crops were actually planted in the 2015/2016 planting season. “Farmers won’t be in a position to claim for crops they did not plant,” echoes Gerhard Diedricks, head of Santam Agriculture. “Santam only insures crops against drought that have been planted within the optimum planting window [as determined by seed companies for different crop types] and where sufficient soil moisture is present to ensure a viable start.” Santam is the short-term arm of Sanlam and the largest general insurer in the country by market share. “Maize planting dates for most of the summer crop production areas were delayed in 2015. Plants are therefore still very small and it is too soon to determine the extent of damage and the impact on the insurance sector,” Diedricks adds. While Santam’s exposure to drought is small relative to its hail exposure, it will be able to determine the extent of its exposure to drought claims only at the end of the harvest period, which runs from May to August, Diedricks says. “The total impact of the drought on our summer crops will only become evident as the season progresses,” M&F’s Wiese agrees. Wiese explains that the drought is not “broken” when rain falls, with the effects of such a long period of dryness lingering for at least 12 to 18 months. “Obviously the great concern here is that the lack of planting will have a severe impact on food security and availability.” Farmers must manage risks “Extreme events are part and parcel of the South African climate. Poor management of resources and ecosystems can seriously increase the risk of weather-related disasters,” Diedricks warns. “There are ways in which farmers in drought-prone areas can mitigate their risks during the dry summer months. These include cultivation techniques that improve water infiltration, restricting evaporation losses, and controlling weeds to ensure that available water is used only by crops,” he says. Extreme weather has to a large extent already been priced into insurance premiums, according to Diedricks, due to increased claims experienced over the years. “Weather-related changes will continue to impact the pricing and terms on which cover can be provided, but the extent will be significantly determined by farmers’ responses to mitigating their risks and exposures,” he highlights. To sharpen its own ability to assess and underwrite risks, Santam runs an experimental farm near Bloemfontein, where it gauges the impact of extreme weather conditions on the different stages of various crop cultivars. Successful farming operations depend on a range of elements, according to Diedricks, including climate, crop resilience, soil quality, the level of fertilisation required, appropriate farming practices and the cost of bringing goods to market. “The onus will be on farmers and the agricultural community as a whole to reassess and develop risk management tools,” he says. “Good practice dictates that one should not be planting crops on marginal lands [land outside the traditional farming heartlands] in these circumstances and any insurer who does choose to insure such lands should be taken to task as this is highly irresponsible from both an insurance and especially from good farming practice point of view,” highlights Wiese. As the Department of Agriculture’s Crop Estimate Committee estimates that the maize crop could be 25% lower in the 2015/16 season, Wiese urges farmers to seek financial advice to ensure the sustainability of their businesses. Source - moneyweb.co.za