Operational Agricultural Index Insurance for Kenyan Smallholder Farmers Based on Satellite Derived Soil Moisture

Abstract:

The increasing frequency and severity of extreme weather events threaten the agricultural production of smallholder farmers in Sub-Saharan Africa. Agricultural insurance has the potential to reduce climate risks for smallholder farmers. However, existing insurance products often fail because of poor insurance design and the inability of the index to detect loss, resulting in high risks for insurers and unaffordable premiums for smallholder farmers. We developed an agricultural index insurance for maize based on satellite derived soil moisture. The soil moisture is derived from passive microwave satellite observations (e.g. SMAP, AMSR-2) and is downscaled to 100x100m resolution with a disaggregation algorithm. The result is an insurance product that is not affected by cloud cover during the growing season and that can monitor individual smallholder farmholds. The Soil Moisture index Insurance (SMI) was tailored to the agronomic model of maize growth by relating soil moisture conditions to water demand of each of the three growth stages: germination, vegetative and flowering. Additionally, by coupling the soil moisture index with crop growth models and in-situ observations, we are able to optimise the planting date of individual farmholds, which is key in reducing temporal basis risk. The new SMI was evaluated with 4400 smallholder maize farmers during the short rains in Bungoma and Machakos County in Kenya. We conducted a survey among a random selection of the participating farmers. The results from this survey show that SMI bundled with other services (e.g. certified inputs, credits, agricultural advisories) are preferred by smallholder farmers and provide a sustainable business model due to lower associated distribution costs, and a better performance to determine crop loss caused by water shortage. Ultimately, the SMI has proven to be a powerful tool to reduce the climate risks for smallholder farmholds.