Building resilience in the eye of the storm – Agriculture in the Caribbean and Central America

Preparing for a growing number of floods and droughts is clearly a first priority. Planting the right crops and managing them with new digital tools for precision farming are further essential measures for farmers to implement.

To establish climate-resilient operations, farmers in Central America and the Caribbean need access to new tools, seeds and other input materials. And this requires support from governments, multilateral donor organisations, NGOs and the private sector.

Governments will not be able to shoulder the financial burden of adopting new resilient practices without additional support, however. Investors must be attracted, and this is where the insurance industry can play a key role. Insurers pay out in the event of a lost harvest, for example, and thus assure lenders that their clients will remain solvent even if disaster strikes. This makes it easier for investors to finance the sector.

A resilient farming sector will help to diversify economies and make them more resilient against external shocks. It will also provide employment for many. This is especially important in countries with growing populations.

Insurers, governments, NGOs, international organisations and other players in the sector have the risk management expertise to educate farmers on how to manage their operations in the future. We can all grow in this together – agriculture, insurance, finance and suppliers – making society as a whole more resilient not only with regard to food security but also in economic terms.

Call us to discuss how we can collaborate to make the key economic pillar of farming in the Caribbean and Central America resilient for generations to come.

… to Honduras, Guatemala or El Salvador in 2014, nor was there any rain until March 2016.1 It was the worst drought in decades, stretching out over two consecutive years and leaving parched fields and empty reservoirs. Day labourers, subsistence farmers and the poorer population in general were hit particularly hard as food prices soared. Almost one in ten people were dependent on aid.

The drought was hardly over in 2016 when Hurricane Otto travelled straight across Central America from the Atlantic to the Pacific.2 This was remarkable as no hurricane had managed to cross Central America from one ocean to the next since Hurricane Cesar-Douglas3 in 1996. Hurricane Otto left a trail of destruction as it made its way along the border of Nicaragua and Costa Rica, claiming many lives, triggering mudslides and floods and causing havoc to the infrastructure in both countries. In Panama, the hurricane brought devastation to the agricultural and livestock industry.

Unfortunately, these two extreme weather events may well be a harbinger of things to come. The Intergovernmental Panel on Climate Change (IPCC) expects that a warming atmosphere will bring more extreme weather to Central America and the Caribbean in the coming decades.4 What does this imply for agriculture in the region, particularly considering that growing this industry will be key to food security, employment and diversification of the economies in the region?

Unfortunately, these two extreme weather events may well be a harbinger of things to come. The Intergovernmental Panel on Climate Change (IPCC) expects that a warming atmosphere will bring more extreme weather to Central America and the Caribbean in the coming decades.4 What does this imply for agriculture in the region, particularly considering that growing this industry will be key to food security, employment and diversification of the economies in the region?

Various weather model scenarios for the year 2100 predict hotter days and dryer conditions. In Central America and the Caribbean, precipitation is projected to decrease by up to 12 mm/day, depending on the global warming scenario. While a few isolated areas show an increase, the general trend is downwards.

How weather patterns develop depends on the way El Niño and La Niña, the two big weather driving phenomena of the region, play out going forward. A study published in the journal Nature Climate Changein 2014 predicts a higher frequency of extreme events.6 However, the scientific community is still debating whether the events will actually manifest themselves as predicted in the paper.7 One thing is certain, though: we can expect to see more variability.

The El Niño weather phenomenon creates challenges for agriculture on a global scale. It is associated with warm and dry conditions affecting farming operations with drought and decreasing yields in southern and eastern inland areas of Australia as well as in Indonesia, the Philippines, Malaysia and central Pacific islands, such as Fiji, Tonga and Papua New Guinea.

During the summer season in the northern hemisphere, the Indian monsoon rainfall tends to be less than normal in an El Niño phase, especially in the north-west of India, prompting a huge challenge to food security in this most populous country of the world.

The changes in atmospheric circulation associated with El Niño are of such magnitude and scale that the effects on the regional climate extend beyond the tropical Pacific basin. In a northern hemisphere winter, conditions are typically dryer than normal over south- eastern Africa and northern Brazil in an El Niño phase. In Africa, the phenomenon affects the local population directly, as many are subsistence farmers. Extensive droughts have a severe direct impact on food security on this continent. Meanwhile, in Brazil, agriculture is one of the main pillars of the economy, and declining exports caused by poor harvests have a direct impact. Brazil is also highly dependent on hydropower, meaning that industrial output can also suffer alongside that of agriculture.

To prepare for a future climate, decision makers are faced with the following questions:

• What is the potential climate-related damage to our economies and societies over the coming decades?
• How much of that damage can be averted, with what measures and where?
• What investment will be required to fund those measures?

The Economics of Climate Adaptation14 (ECA) methodology helps to answer these questions. The methodology ensures that decision makers engage the right stakeholders, understand the impact of climate change on their economies and identify actions to minimise the effects at the lowest cost to society.

Once active risk mitigation is exhausted, insurance is there to help when disaster strikes. Many farmers around the world receive payouts if flood, hail, drought, storms or pests destroy their harvest. This enables them to plant for the next season, thereby keeping the economy going and ensuring food security in general.

As the figure below shows, the protection gap for natural catastrophe losses is large in Latin America, reaching USD 15 billion or more than 60% of the overall losses in 2016. While agriculture makes up only part of this figure, natural catastrophes invariably hit farmers, so it stands to reason that the protection gap in farming is at least as large as it is for the general economy. Protecting farmers in all areas of agricultural activity is therefore key.

Overall insurance penetration is very low, as the chart below shows.

Agriculture is a huge growth opportunity for farmers, farm suppliers, banks and insurance companies across Central America and the Caribbean. Tapping into this potential will have a stabilising effect on the economies in the region and thus help combat poverty. According to the World Bank, growth in agriculture is twice as effective in reducing poverty as any non-agricultural activity. By focusing on this area, societies follow a sustainable development path which will also make them more resilient to external shocks.

Given that the natural perils in the region are set to increase as climate change progresses, corresponding measures must be taken to provide better protection for farmers. Insurance reduces volatility in farmers’ incomes and in this way helps to make agriculture more attractive both for the farmers themselves and for banks and investors operating in the sector. Their income is ensured even if disaster strikes.