Insurance for Climate Change Adaptation in the Cocoa Sector
What is the main objective of the project?
The project addresses the issue of a deforestation-free and climate-friendly cocoa supply chain as outlined in SWISSCO’s Roadmap 2030. Ghana is the second largest producer of cocoa in the world, accounting for approximately 20% of the global cocoa market share. Cocoa contributes significantly to Ghana’s Gross domestic product (GDP) and the country is estimated to have had its most productive year (over 1 million metric tonnes of cocoa beans produced) in 2020/21.
However, the Ghanaian cocoa sector suffers from the negative impacts of climate change. Increasingly volatile yields endanger the preservation of tropical rainforests, as cocoa farmers seek more land to increase their productivity and profitability. Ghana is losing rainforest faster than any country in the world, with a 5.1% loss of tree cover in the last decade that is contributing to climate disruptions (e.g. heatwaves and droughts) while reducing carbon capture. Social issues, such as child labour and gender inequality, are also prevalent in the cocoa sector. Due to a lack of data on cocoa yields, agricultural practices and the farm-level impacts of climate change, adaptation mechanisms are not well understood, and decision-makers struggle to identify interventions that could adequately address the challenges.
How will the project contribute to sustainable cocoa production?
The project will have a sustainable impact in four areas. Firstly, risk transfer. Agricultural risk will be managed and financial resilience will be improved for 10'000 smallholder cocoa farmers and their households. This is achieved through an affordable insurance mechanism that allows them to sustain their livelihoods and continue making on-farm investments to increase their productivity.
Secondly, climate adaptation. Through the protection of the provided insurance, the farmers mentioned above will be better equipped to respond to and recover from the negative effects of climate change, particularly unexpected events like drought, flooding or crop disease.
Thirdly, data analytics: farm-level data on cocoa yields, production history, agronomic practices, geolocation and climate conditions will be gathered, parsed, analysed and made available as a public good to project stakeholders and the Ghanaian agriculture authorities for insights and data-driven decision-making.
Fourthly, value chain growth: donor funding will be used to catalyse the insurance market by providing an initial subsidy with a gradual exit and transition to local market players and farmers, making smallholder cocoa production less risky and more attractive to private investors and leading to development and growth in the cocoa value chain.
The project is well aligned with SWISSCO’s Roadmap 2030 target for a deforestation-free and climate-friendly cocoa supply chain. Specifically, the project helps SWISSCO enable the adoption of climate-smart agriculture practices, wherein farmers participating in the Swiss cocoa supply chain use yield index insurance to manage and mitigate climate risk. As such, the project contributes to the UN Sustainable Development Goal 13 (Climate Action).
The project aims to scale up the deployment of the world’s first cocoa yield index insurance.
The cocoa yield index insurance will cover a wide range of risks, including drought, pests, and diseases.
The project aims to enhance insurance adoption, fostering the utilisation of insurance subsidies to amplify insurance coverage and enhance climate risk management within the cocoa sector.
What steps are taken during the project?
This project aims to scale up the deployment of the world’s first cocoa yield index insurance. The insurance will help farmers transfer risk and adapt to climate change.
The insurance covers the value of the farmer’s agricultural investment per season, with insurance premiums set at fair and commercially viable rates. Insurance is coupled with digital advisory services that help boost farmers’ financial literacy.
The cocoa yield index insurance will cover a wide range of risks, including drought, pests, and diseases such as the cocoa swollen shoot virus disease, but also heatwaves, windstorms, frost, excessive rainfall and floods. Pula is already working with insurers in Ghana, such as GLICO, and has agreements with 24 international reinsurers, including a strategic partnership with Swiss Re, and collaborates closely with government entities.
« The project will offer valuable insights on how to achieve scale with index-based cocoa insurance, as well as on its benefits to the entire value chain. It will establish a basis for nationwide insurance adoption. »
What is innovative about this project?
This project is innovative in five domains:
Firstly, technology. During the project, remote-sensing data and AI will be used to refine the insurance products and to increase the cost efficiency of the business model.
Secondly, social innovation. The project will “personalise” the abstract and mistrusted concept of insurance by working with community-based and trusted channels - such as Ghana Cocoa Board (COCOBOD) and its agents - for marketing and distribution of insurance to cocoa farmers.
Thirdly, concerning the business process. In comparison to indemnity-based insurance or even weather index insurance, embedded yield index insurance is a more comprehensive and reliable insurance mechanism, which uses ground-truth data and field-level representative yield sampling to set yield benchmarks for pricing and trigger setting, as well as for the final loss assessment.
Fourthly, customer acquisition. The area yield index insurance acts as a "pull product" bought by farmers along with inputs or credit, using existing supply connections. This approach tackles distribution and client acquisition hurdles effectively.
Fifthly, catalytic effect. By offering a sustainable model for the introduction of premium subsidies using donor and partner funding. The project aims to enhance insurance adoption, fostering the utilisation of insurance subsidies to amplify insurance coverage and enhance climate risk management within the cocoa sector.
How does the project contribute to improving the (economic) situation of girls and women?
The project will have a strong focus on the financial inclusion of women: it aims to close the gender gap in access to and adoption of insurance as an agricultural risk management solution. According to a 2018 study by the Dutch Royal Tropical Institute (KIT), only 19% of female cocoa farmers in Ghana are literate. To ensure its insurance products are gender-inclusive, Pula will use voice-based technology, translated into local languages, for improved outreach and capacity building for women beneficiaries.
The objective will be to promote access to insurance for women, as well as provide them with training and capacity building on the use of insurance as a climate adaptation and risk management/mitigation solution. Gender considerations and the special needs of women and girls will inform the development and distribution of all materials and instruments used in the project.
How do you plan to ensure the scalability of the innovations implemented?
Insurance premium subsidisation aims to make the insurance affordable and attractive to farmers while increasing public and private sector interest and capacity in insurance. The initiative will, therefore, be promoted to other value chain players, such as cocoa companies, the Ghanaian government, and farmer groups, all of whom will ‘crowd in’ their financing for premiums.
Organisations involved
