Photographer: Waldo Swiegers/Bloomberg

Crops Go Uncovered as South African Insurers Weigh Drought

  • Farmers planting vegetables in some areas excluded from cover
  • Premiums are becoming too expensive, some farmers say

Swathes of dying cornfields and the lowest rainfall since records began have prompted South African insurers to cut cover for some crops planted by farmers.

“As part of our constant negotiations with our re-insurance partners, there are some crops that will probably be excluded in certain areas as the risk is just too high,” said Andries Wiese, manager of the agricultural unit at Johannesburg-based Mutual & Federal Insurance Co., a unit of Old Mutual Plc.

Farmers who missed deadlines to plant their corn in time to avoid winter frosts as they waited for rain, or whose drought-ravaged fields are too dry, can’t get cover. Vegetable crops in northern regions, sugar in KwaZulu-Natal and wheat in the Western Cape also pose too much of a risk for some insurers while premiums for farmers who can get cover are rising.

“Insurers typically try to quantify their exposure in relation to the risk and then calculate an appropriate rate or premium,” Wiese said. “Where this calculation dictates caution, you will find insurers less willing to insure a particular event or item. Some examples would be citrus, tomatoes, dry land vegetables such as carrots, melons, pumpkins, squashes, peppers, spinach and cabbage.”

South Africa’s crop insurance industry is estimated to be worth about 1 billion rand ($60 million) in annual premiums, according to Wiese -- about 2 percent of the total property and casualty insurance market. That means its contribution to short-term insurers’ earnings is dwarfed by other businesses, said Risto Ketola, head of financials coverage at SBG Securities in Johannesburg, a unit of the country’s biggest bank by assets.

“While the crop insurance results are likely to be dire, it represents a tiny market segment in the broader insurance sector,” he said. “Around 40 percent of the premiums relate to motor insurance and on that business line it can never be too dry.”

Nonetheless, Mutual & Federal and larger rival Santam Ltd. are closely scrutinizing their farming customers before writing policies.

Santam is only insuring crops planted within the optimum dates in land with sufficient soil moisture, said Gerhard Diedericks, the company’s head of agriculture. “Santam has tightened up underwriting measures in response to these conditions and this has resulted in premium increases in some areas. It’s possible new business volumes will decline due to the poor economic status of farmers and consumers.”

Grain SA, the biggest South African grain and oilseeds farmer lobby group, last year estimated its members would plant 2.5 million hectares (6.2 million acres) in the 2015 to 2016 season. Thanks to the drought, only 50 percent of that was sown, according to Corne Louw, senior economist at the association. Those who want to plant now won’t qualify for insurance because they are too late, he said.

“We might have to look into government helping us,” Louw said. “A subsidy or some sort of governmental insurance or scheme that will help bring down the cost of insurance down for farmers.”

‘Too Expensive’

The few corn farmers who do get enough rain may make a lot of money. White-corn futures in the continent’s biggest producer of the grain climbed to the highest on record and exceeded 5,000 rand ($298) a metric ton for the first time on Jan. 18. That’s no help to Ryan Mathew, who grows yellow corn in North West province and who couldn’t get insurance for his parched fields. Even if he could, the premiums were too high.

“It’s too expensive to get insurance, we can’t afford it,” Mathew said. “They want you to pay 1,000 rand a hectare, we can’t afford that, especially now. We don’t even know if we will survive this year, to be honest. My father, who has been farming for 30 years, says he has never seen this situation, he has never seen it looking this bad.”

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