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Satellite data for agricultural index insurance

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How can we ensure that drought is no longer an outright disaster to smallholder farmers in Africa, but instead a manageable risk? With low-cost satellite-based index insurance products that monitor climatic conditions in near real-time and automatically trigger a pay-out when conditions are below normal. This helps farmers secure necessary credit for inputs, recover faster from bad seasons and sustainably improve their livelihoods.

Thousands of satellites are orbiting our planet and constantly measuring the earth’s surface and atmosphere with a wide range of sensors. Satellites have been around for a good while, but in recent years new applications are being developed and combined with other technologies at an unprecedented rate. For example, it is now possible for African farmers to receive satellite data-based farming advice and early warning messages in combination with insurance, via SMS and paid for with mobile money on legacy phones.

Capturing drought-induced yield loss from space

Capitalising on this technological revolution, EARS, a satellite remote sensing company based in Delft, The Netherlands, uses satellite data to provide micro insurance for smallholder farmers. EARS is specialised in using meteorological satellites for continuous monitoring of climatic conditions of the African continent and around the globe. With hourly observations available since 1982, EARS has built a large database of daily climatic parameters including cloudiness, global and net radiation, rainfall, and actual and potential evapotranspiration.

These parameters are very relevant to agricultural production and can be used, amongst other applications, to develop agricultural index insurance products. Index insurance is a low-cost alternative to ‘traditional’ indemnity-based insurance. Index insurance is particularly suited to developing countries that lack mature agricultural insurance markets. With index insurance, the crop is not directly insured, as it is with indemnity-based insurance, but instead a proxy is used that is closely related to yield loss. This eliminates the need for local insurance experts and expensive loss assessment exercises, required for indemnity-based insurance.

In Uganda, this proxy is evapotranspiration. Evapotranspiration, the loss of water from soil and plants through evaporation and transpiration, is an indicator for crop growth. Drought affects the ability of plants to capture CO2 and release H20. As such, by measuring evapotranspiration levels in insured areas, drought-related crop yield loss can be estimated. If in a given area the seasonal evapotranspiration falls below a certain threshold insured farmers in this area are automatically and rapidly compensated, without the need to put forward a claim to the insurance companies.

To develop index insurance products, EARS’ long historical data series is used to create risk profiles of every location in Uganda at a 3 km resolution. These are then used to price the insurance products. This is done at a sub-county level to help farmers obtain insurance without the need for detailed location data about their farms, but based on the sub-county they live in. Near real-time satellite reception ensures continuous monitoring of conditions and rapid loss assessment after the end of the growing season. When the drought index indicates the insured area falls below the index threshold, crops loss is imminent and insurance is paid out.

Qualitative representation of drought vs insurance pay-out

Qualitative representation of drought vs insurance pay-out

From aggregated data to bundled services

However, insurance is only part of the solution. It is necessary to support smallholder farmers in stabilising their financial situation to increase their investment and production capacity and professionalize their business. For this reason EARS has joined the MUIIS initiative in 2015.

The MUIIS project design is based on the need for timely, accurate and actionable information regarding crop management and climate risks to inform smallholders’ management decisions. The MUIIS platform offers subscribers a bundle of services: actionable agronomic advice via SMS to help farmers maximise production in a good year, and a safety net in the form of insurance that comes into effect in case of a bad year. MUIIS uses mobile money transact with its clients, to collect the subscription fees that include the insurance premium prior to the season, and to disburse pay-outs at the end of the season to subscribers that experience drought-related losses.

The project is executed by an international consortium of organisations. Local partners with farmer networks, outreach capacity and essential agronomic expertise are supported by a local state of the art fintech-firm. Several complementary satellite and weather data providers from Europa and the United States, including EARS, provide satellite data derived weather and agronomic information as input to the MUIIS platform to be distributed to subscribers via SMS during the growing seasons.

The MUIIS project is one of the 23 projects of Geodata for Agriculture and Water (G4AW), a program run by the Netherlands Space Office (NSO) – the Dutch national space agency. With programs such as MUIIS, G4AW focuses on making food security more sustainable in developing countries by using satellite data. Its goal is to reach thousands of people with that data, and the new technological applications that are possible with it. It's really about scaling up," says Ruud Grim, coordinator of G4AW. The program was recently referred to by Minister Kaag of Foreign Trade and Development Cooperation as a successful example of collaboration between the Dutch government, Dutch companies and local partners to create lasting impact.

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