.
• DEDICATION
I would be honour to dedicate this Project report to my mum is a persons that gave me the
tools and values necessary to be where I am standing today, my family support me on
every step I make, and decision I take but is necessary to understand that they let me take
my decisions alone in order for me to learn from my personal mistake.
• AKNOWLEDGEMENT
I would like to express my appreciation to all those who supported me the possibility to
complete this project report. A special gratitude I give to project supervisor Mrs
pudensiana whose contribution in stimulating suggestions and encouragement helped me
to coordinate my project especially in writing this report.
Furthermore, I would also like to acknowledge with much appreciation the crucial role of
the staff of Institute of finance management who gave the permission to use all the
required equipment and the necessary materials to complete the task. Special thanks go to
my team mate, who help me to assemble the parts and gave suggestion about the project
report
• LIST OF ABRIVIATION
AI Agriculture insurance
TIRA Tanzania Insurance Regulatory Authority
NPCI Named peril crop insurance
MPCI Multiple perils crop insurance
MOA Ministry of Agriculture
TAIC Tanzania Agriculture Insurance Consortium
TAIS Tanzania Agriculture Insurance Scheme
WII Weather Index Insurance
IFM Institute of Finance Management
IBLI Index based livestock insurance
AYII Area Yield index insurance
• TABLE OF CONTENTS.
DEDICATION.............................................................................................................................................
AKNOWLEDGEMENT...............................................................................................................................
LIST OF ABRIVIATION............................................................................................................................
TABLE OF CONTENTS............................................................................................................................
EXECUTIVE SUMMARY........................................................................................................................
CHAPTER ONE............................................................................................................................................
AGRICULTURE INSURANCE .................................................................................................................
1.0: INTRODUCTION..............................................................................................................................
1.1: Introduction to agriculture and agriculture insurance ........................................................................
1.2: Importance of agriculture insurance
...................................................................................................................................................................
CHAPTER TWO...........................................................................................................................................
LITERATURE REVIEW
2.0: Introduction.
2.1: Crop insurance
2.1.2 information Asymetry
2.1.3 Risk management in Agriculture sector
2.1.4 Determinant of crop insurance up take
2.2 Global Agriculture insurance
2.3 Factors affecting demand for Agriculture insurance Globally
2.4 Factor affecting demand for Agriculture insurance in Tanzania
CHAPTER THREE
AGRICULTURE PRODUCTS
3.0: Introduction
3.1: Agriculture products produced in Tanzania
3.2: Agriculture Risks
3.3: Challenges hindering development of agriculture insurance in Tanzania
CONCLUSION AND RECOMMENDATIONS...........................................................................................
4.0: Introduction........................................................................................................................................
4.1: Conclusion
4.2 Recommendation.................................................................................................................................
REFERENCES..............................................................................................................................................
• EXECUTIVE SUMMARY
Agriculture insurance is a type of compensation insurance designed to provide protection for the
economic losses caused by insured accidents suffered by farmers .This form of insurance typically
covers losses related jto crops, livestock and other farm related assets and the aim is to safeguard
farmers against risks such as natural disasters,pests and diseases
This project consists of four chapter where chapter one explains the brief introduction to
agriculture and agriculture insurance and analyse the importance of agriculture insurance
in generally. .
Chapter two consist of literature review about agriculture insurance ,experience of
agriculture insurance outside the African continents and factors affecting the demand for
agriculture insurance globally as well as factors affecting demand for agriculture insurance
in Tanzania .
Under chapter three is concerned with agriculture products produced in Tanzania ,various
agriculture risk that are facing agriculture industry as well as challenges hindering the
development of agriculture insurance in Tanzania
Finally, chapter four consist of conclusion and recommendation where under conclusion I
summarized the whole work of agriculture insurance successful and in recommendation
summarized some pieces of advice to the government on increasing demands agriculture
insurance
CHAPTER ONE
AGRICULTURE INSURANCE
• 1.0: INTRODUCTION
Agriculture is the practice and science of cultivating soil, growing crops and raising
animals for food and other products .It include a wide range of activities such as farming,
forestry aquaculture and live stock keeping .Agriculture forms backbone of Tanzania
economy contributing significantly to employment ,food security and export earning . With
over 60% of Tanzanians relying on farming for their livelihood ,the sector remain a critical
driver of development ,however agriculture in Tanzania is heavily dependent on rainfall
and is prone to risk like drought, flood, pests,and diseases which threaten farmers
productivity and income .
Agriculture is a cornerstone of Tanzania economy .The country has over 95.5 millions
hectors of land of which 44 millions hectors are arable ,with only 23% of area under
cultivation .The sector contribute to the almost approximately 26% of the country GDP and
account for about 30% of total export .(IFAD,2022)
According to the 2016/17 annual agriculture sample survey on crop and livestock ,the total
area of farmland used in crop production was 17,120,571 of which 99% was in Tanzania
main land and 0.8% in Zanzibar (NBS,2017)
Agriculture insurance is a financial tool designed to protect farmers against the risks
associated with agriculture activities by compensating them for losses incurred due to
natural disasters or other unforeseen events .Agriculture insurance in Tanzania start to
operate in July 2021 with the launch of the Agriculture insurance consortium (TAIC) in
2023 .The consortium is a collaboration between the government and the association of
Tanzania insurers (ATI).
Agriculture insurance is currently a very small class general insurance business in
Tanzania and in 2021 agriculture insurance gross written premium amounted to 1,324
millions or 0.2% of total market premium. In 2021 six insurance companies provided
agriculture insurance in Tanzania .Most companies focus sales on their traditional
indemnity bases on multiple peril crop insurance 9MPCI) or named peril crop insurance
(NPCI).
1.2 Importance of Agriculture Insurance
Most farmers in Tanzania especially smallholders are highly exposed to risk ,which impact
their consumption ,livelihood and the wider economy . This has trapped farmers in a low
productivity cycle and they do not have access to risk mitigation measures to break out.
Agriculture insurance can be one important tools as part of an overall risk management
strategy to protect farmers .
Agriculture insurance help to reduce the vulnerability of both women and men ,house
holds and enterprises that work in agriculture by providing protection against crop losses
due to natural disaster ,such as drought ,floods,hailstorm,pest attacks disease out break and
other events that can damage crops or livestock . Agriculture insurance is a relevant
mechanism to manage risks to help farmers to avoid financial losses and keep their
business running.
Financial security for farmers. Agriculture insurance help to reduce the financial risk and
uncertainty faced by farmers and help them manage their production and income more
effectively. Agriculture insurance has become even more important as extreme weather
events and climate change have increased the risks and uncertainties of farmers and
agriculture based enterprises. By reducing the financial risks associated with
farming ,agriculture insurance can help to promote stability and growth in industry of
agriculture.
Agriculture insurance help to improve access to credit for house holds and business ,as
lenders may be more willing to lend money to farmers who have insurance
coverage ,because lenders have assurance that their money will be available even if the
farmers fails to pay them their insurance policy will pay the loan for them. This can help
farmers to expand their operations and invest in new equipment or technology and increase
production and profit as well for commercial agriculture farmers.
Expand insurance market to insurers. Increasing awareness and understanding of insurance
among agriculture households, and business can help to improve capacities of insurance
market and expand market to insurer on providing insurance service to farmers as a result
they can increase their revenue .
Protection Against Loss of Income .For most farms ,the loss of livestock and damaged
machinery is a major financial setback on the business .The loss of income day to day
operations include expenses incurred from the cost of repairing or replacing damaged
property , Agriculture insurance can cover the business for lost days of work as a result of
damage to machinery that include ,tractors, sprayers and other instrument used in
production .
Protection Against Legal Liability. Agriculture insurance provide cover for insured when
he become legally liable for instance when an accident happen to a farm that leads to
injuries to a person or damage to property of others, Agriculture insurance provides
financial protection for insured farmer . This coverage is known as general liability it
include cover like legal defence costs and legal liability from the ownership use or
occupancy of the farm ,accident damage caused by insured to other and liability for
pesticide application .
The agriculture sector today faces significant uncertainty and numerous challenge ,ranging
from unpredictable weather patterns to fluctuating market prices such unpredictability
often translate into huge financial losses for farmers ,making crop insurance an essential
tools for securing their livelihood .The benefits of agriculture insurance help mitigate the
risks associated with crop failure ensuring farmers can recover financially and continue
their operation despites unforeseen circumstances.
• CHAPTER TWO
LITERATURE REVIEW
• 2.0: Introduction.
This chapter provide a review on agricultural insurance in developing countries . This
review will mostly focus on both developed and developing countries covering the
following topics . farmers adoption of agriculture insurance the extent to which agriculture
insurance help farmers in smooth income and consumption and the conclusion is based
with suggestion for future research and practices related to agriculture insurance in
developing countries by focus on crop insurance .
2.1 Agriculture insurance review on crop insurance
According to the world Bank 46% of the world population and 70% of the world poor live
in rural areas ,with agriculture as their main source of income and employment .This
review describes the state of research on agriculture insurance in the developing nations on
crop insurance ,.
Generally crop insurance was initialised in western Europe ,specifically in Germany ,in the
1700,to cater against hailstorm.(smith & Glauber ,2012) . Later the progress was adopted
in other European nations as well as north America in the 1800s .Currently the crop
insurance is well advanced in developed countries like the united states of
america,spain,canada,japan,italy and France .
Globally developed countries account about 87% percent of crop insurance cover ,while
Asia and Latin America account for 3% and Africa 2% (Robert,2005). Crop insurance
programs in developed countries are well advanced due to government and private sector
support through public private partnership has also increased crop insurance coverage to
fast growing economies like Brazil ,India, Turkey and South Korea
Despite crop insurance penetration in Africa crop insurance premium are still small
amounting to less than $ 5 million (Glauber,2013) .Current crop insurance coverage in
Tanzania is quite dismal at 0.2%(Munich re foundation ,2016) In terms of agriculture
insurance coverage Tanzania is fairing at less than 0.01% due to poor performance of other
agriculture sub sectors such as livestock fishery and forestry
In Tanzania crop insurance has been tested by numerous pilot and full project like TIGO
insurance NIC, ACRE Africa ,(Joab & Rachel 2019),reported that since 2014 more than 12
pilots and full projects have been undertaken in more than ten regions involving various
crops yield like maize ,cassava ,beans and sun flowers .However most of this project failed
due to low uptake, attributed to high associated transaction costs, lack of understanding or
awareness ,low financial literacy and low demand (TIRA ,2016,Joab & Reche ,2019)
It is also noted by (Yang ,2010) ,that crop insurance programme for developed countries
cannot work the same for developing countries, largely due to the transaction costs
involved which small holders rural farmers cannot bear .High transaction costs are a supply
challenge that faces majority of crops insurance suppliers in Tanzania .
2.2 Global Agriculture insurance in developed countries
Modern Agriculture insurance in the United States .As documented by smith &
Glauber(2012) ,grew alongside government support in 1938,the united states department of
Agriculture established the Federal crop insurance corporation (FCIC) ,to provide multiple
perils crop insurance .(Kramer,1983).
Agriculture producers will pay full premium and the federal government would assumes
full administrative and operations costs successive reform premium with the average
subsidy rates reaching about 60% of premium in [Link] the government support in
the united states and in many European countries often come in the form of premium
subsidies but there are also cases where the government plays the leading role in rate
setting ,selling and adjusting policies .
Agriculture insurance in china .Although lower income countries are lagging behind
developed ones in AI market development ,china has recently become an outlier .World
Bank(2007).,comprehensively assesses the AI industry in pre 2007 china highlighting the
high risks environment and the industry under development and providing
recommendations on risk financing ,product ,development ,operational ,legal and
regulatory framework.
The agriculture gross premium in china is around $ 0,10 billion between 2001 and 2006
but jumped to $ o,89 billion in 2007.,when AI premium rise in 2013 making china the
second largest agriculture insurance market after the united states (Li,2014)
Agriculture insurance in India . With 25 millions farmers insured ,the national agriculture
insurance scheme in India is the largest crop insurance scheme in the world. The Indians
government moved from a social crop insurance program to a market based crop insurance
program with actuarially sound premium rates up front subsidies, and participation of
private insurers .The world Bank provided technical assistant to support modification of
NAIS based on international best practice and in country experience.
The scheme was made compulsory for loaned farmers ,insurance is available to all farmers
regardless of the size of the far m .The farm income insurance scheme has been introduced
to protect farmers income by combining the mechanism for insuring production and market
risks ,more than 9 millions farmers use rainfall insurance as part of a government
mandated program
2.3 Factors affecting Demand for Agriculture insurance Globally
Awareness and education :Many farmers globally are un aware of agriculture insurance
products or do not understand their benefits of having agriculture insurance cover ,due to
their traditional beliefs that they can produce enough products or yield without having
insurance for agriculture and even some of them may use traditional methods to forecast
the risk of weather.
Affordability of premium. The premium charged by the insurance company on the
coverage or protection fopr agriculture insurance is very high compared to the income of
the farmers and due to the presence of high premium it discourage small scale farmers
from purchasing policies ,especially in low income countries.
Government policies : In some countries subsidies on insurance premiums increase
affordability and demand ,for agriculture insurance ,while the absence of subsidies leads
to lower the demand for agriculture insurance for instance India have implement rain fall
insurance as one among the compulsory cover to all farmers which increase the demand
for the agriculture insurance .
Rapid Climatic change. The rapid changes of climatic conditions has play a vital role in
affecting the demand for agriculture insurance where by farmers face difficult to
determine the weather conditions and seasons of the year which recently they vary as time
goes on as a result the famers now they have to purchase Agriculture insurance to be
covered for the risks associated with climatic changes such as floods ,drought and shortage
of rain fall
Development of modern farming technology . The world have experienced rapid
technological advancement to agriculture sectors where by new methods and farming
equipment have been introduced and used in agriculture activities and most of this modern
equipment’s they are expensive as a result they need agriculture insurance cover incase of
any damage the farmer can be compensated and continue with production as usual
Product accessibility .The insurance products offered by insurers have complicated
accessibility for un educated farmers to understand the benefits and terms of the product to
purchase because most of the insurance products use difficult language with complex
insurance terminology which hinder the demand for the farmer to purchase because they
are not able to understand and the content of the product being sold.
2.4 Factors affecting demand for agriculture insurance in Tanzania
Income level of the farmers. T he level of the income among the farmers can be among the
factors that affect demand of the agriculture insurance where by product available require
alot op premium to purchase for instance multiple peril insurance cover ,this affect the
demand to be low hence low income earners make it difficult for them to afford insurance
premium .
Weather dependency. Most of the Tanzanian farmers depend much on weather especially
on rainfall to produce rather than invest on irrigation methods and depend much on rainfall
increase risk of loss because of changing of weather condition that could make damage to
the crops for instance occurrence of heavy rain fall ,so this affect the demand for insurance
cover because seem to rely much on weather and refuse to take insurance policy .
Culture beliefs .Some farmers rely much on traditional risk sharing mechanism like
community support to each other rather than purchasing formal insurance where they
believe that agriculture risks such as floods, drought ,hailstorm will not occur and cause
damage to their crops ,that affect the demand of agriculture insurance since farmers are
relying on beliefs towards their traditional methods.
Claim process . Insurance operations on claims payment after the occurrence of disruptive
events to the insured farmers some time require alot of process until the payment is paid
and if insurance claims are perceived as complicated or unreliable farmers may avoid
purchasing insurance as a result the demand is affected negatively in the market .
Awareness level .Most of the farmers in Tanzania they did not have a well awareness
concerning agriculture insurance interms of products offered, and the benefits of having
agriculture insurance still is the problems people continue with their traditional way and
culture in handling agriculture risks and not believing in purchasing insurance on
agriculture
