Article
Introducing two birds to one stone
Adding insurance to the carbon credit offering could be the missing piece for smallholder farmers.
When it comes down to it, climate change is a less pressing concern than dinner. In Africa, where agriculture is the backbone of the economy, smallholder farmers are consistently driven into this false dichotomy when asked to change farming practices for a chance to make up to 2% of their annual income on the sale of carbon credits. That’s not enough to break free from poverty or incentivize behavior change – especially when you factor in the social tax around shifting from long established patterns.
It might, however, be enough to combine carbon removal and avoidance with weather risk transfer through insurance. This mixed portfolio approach will compound the impact on livelihood security and food production, making a stronger value proposition for the smallholder farmer.
Carbon credits are measurable and verifiable emission reductions from certified climate action projects that are traded in carbon markets. For a carbon credit to be traded it must meet a variety of factors to ensure it is up to the required standard. These standards are often quite rigid and, for a farmer to be eligible to participate, they often find themselves asked to make sweeping changes for minimal financial incentives.
Focusing on benefits to the environment and livelihoods rather than the financial incentive can significantly amplify the overall positive effects of carbon credits. Additionally, complementing these benefits with risk mitigation through weather insurance can encourage the necessary behavior change needed for viability of sustainable farming practices in the long term.
Even if we could get this in place immediately there would still be challenges to overcome before it can be an effective solution. Let’s break down a few of the major ones.
Focusing on benefits to the environment and livelihoods rather than the financial incentive can significantly amplify the overall positive effects of carbon credits.
#Challenge 1: Whose credit is it anyway?
Even if we could get this in place immediately there would still be barriers in our way. To register carbon credits, one has to provide a title deed to show proof of ownership of the project. Smallholder farmers may not be the owners of the land they farm on, so they may not have access to title deeds.
In some cases, it may not be necessary to have proof of land ownership as much as identifying the right beneficiary who is practicing regenerative practices. Women, for instance, are more likely than men to supply farm labor and be committed to practicing regenerative practices in the long term, yet they are less likely to hold title deeds. In such cases, I argue that ownership of an insurance policy would be a useful tool in overcoming the identification hurdle.
Furthermore, the availability of titles in Africa is often limited, and farmers may be hesitant to disclose their land ownership status to strangers. This can be a significant obstacle to the uptake of carbon credits and insurance schemes that require proof of land ownership.
#Challenge 2: A hesitance to try new things
Smallholder farmers also often adopt risk-averse strategies that prioritize short-term gains over long term investments. They do this in response to the challenges presented in their environment such as limited access to resources, unpredictable weather patterns and the threat of pests and diseases. In this context, the decision to try something new, such as implementing regenerative practices that require changes in their farming methods, could be seen as a risky move.
The social cost of trying something new cannot be overstated as they are often deeply embedded in social networks and cultural practices that shape their decision-making processes. The adoption of new practices that deviate from traditional practices could result in social exclusion or disapproval from the community, which could have significant consequences for the farmer’s social status and relationships.
By providing information and education on the benefits of climate-smart agriculture practices and promoting community participation and ownership of the initiatives, we can reduce the social cost of trying something new and increase the adoption of sustainable practices.
Creating the right environment
For the carbon market to thrive and have the environmental impact we expect of it, it is impossible to make it sustainable for all parties involved. This means making sure that farmers are properly incentivized to adopt sustainable practices that reduce carbon emissions while also improving their livelihoods. A first step in this direction would be to evaluate the demand for carbon credits and insurance co-benefits as well as advocating for a premium on quality carbon.
Further, using insurance contracts as proof of farming can help overcome the barrier of requiring title deeds, effectively easing onboarding for smallholder farmers.
Designing, developing and scaling climate-smart agriculture practices while incorporating sustainable and inclusive insurance schemes is a collaborative effort that all stakeholders will need to make. It will need input from loss and damage negotiators, insurance companies, market developers, and investors such as the Green Climate Fund. In the long run, however, we will finally be designing schemes to meet the needs of those they seek to support, ultimately strengthening livelihood security and food production in Africa while also contributing to the global efforts to address climate change.
If you want to know more about how this works, have ideas around how this can be done, or would like to work with us on this send an email to rahab.kariuki@busaracenter.org
Interested? Shoot us a message if your organization would like to come on board and think through opportunities as well as practical implications of such novel work arrangements together.
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