The role of Malawi Meteorological Service in Crop Weather Insurance

1. The role of Malawi Meteorological Service in Crop Weather Insurance Adams Chavula Agriculture Meteorologist Malawi Meteorological Services PO Box 1808 BLANTYRE, MALAWI Email:adamschavula@metmalawi.com Expert Meeting on Requirements of the Catastrophe Insurance and Weather Risk Management Markets for National Meteorological and Hydrological Services 5-7 December 2007, WMO Headquarters, Geneva, Switzerland

2. PRESENTATION OUTLINE • Background Information about Malawi • The Malawi Meteorological Service • Opportunities and Challenges • Malawi Crop Insurance Pilot Project • Lessons Learned • Way Forward

3. Background Information about Malawi • 85% of the people in Malawi live in rural areas, most of whom depend on agriculture for a living; • The majority of farmers are smallholders, cultivating areas of 1 ha or less. • Over 90% of crop production is rain-fed, taking place during a single rainy season lasting from November to April. • Rainfall during this period tends to be highly erratic • Drought is a recurrent problem, often causing widespread crop failure • The main food crop is maize, while tobacco and groundnut are the two principal cash crops

4. The Malawi Met. Service: MISSION STATEMENT • To provide reliable, responsive and high quality weather and climate services to meet national, regional and international obligations through timely dissemination of accurate and up to date data and information for socio-economic development • Motto: Be wise, be weather-wise

5. The Malawi Met. Service • Has 23 full weather stations including Tembwe and Balaka AWS • Supported by over 700 rainfall and subsidiary stations operated by various organizations including MoAFS • However, there is still need to upgrade and expand to all districts • Data collection thru phones, email, radios, teleprinters • Dissemination thru Newspapers, Radio, TV, Website, email, Fax, phone, personal contact, meetings

6. The Malawi Met. Service: • Got involved in the crop weather insurance pilot project two years ago • as a provider of weather and climate data that is an input into the crop weather insurance index. • The crop weather insurance pilot project is a practical example of the use of weather information to benefit the rural poor, and • is a step in realizing the Millennium Goals.

7. Opportunities and Challenges • Enormous volumes of weather and climate data exist in Malawi • Data collection started many years ago • Rainfall records date back to 1891 for some stations. • Data of other parameters such as temperature, humidity and wind cover more than 50 years. • This data is of excellent quality, satisfying a key prerequisite for risk transfer. This is useful data, but it can be even more useful if data can be transformed into applicable derivatives.

8. Opportunities and Challenges • Traditional insurance products are largely underdeveloped – Crop Insurance can be very expensive to administer –Individual Crop yields and field inspections needed – Small size of the farms • Malawi Meteorological Service has an operational national maize production forecasting model which can be adapted for reinsurance

9. Difference Outputs from Malawi Meteorological Office’s national maize production forecasting model Average 2005 index

10. Opportunities and Challenges • Bad news: • Thin network of operational weather stations • Lack of weather data in Crop growing areas • Good news: • With data availability, investment in infrastructure can compliment the key requirements to operate a macro Insurance project • A simple automated station with satellite communication capabilities is worth $12,000)

11. What is weather insurance? • Financial protection based on the performance of a specified index in relation to a specified trigger • Offers protection against uncertain costs or revenues that result from volume volatility • Farmers are compensated against unfavorable weather fluctuations that impact physical volumes produced

12. Malawi Crop Weather Insurance Pilot Project • Weather based index insurance - recognised as one of the methodologies that can be used sustain livelihoods and reduce poverty as part of the MDGs. • Malawi is one of the countries piloting the methodology • Due to high levels of poverty, the farmers were not credit worth and hence they could not access loans to purchase inputs. • The insurance helps farmers obtain financing necessary to obtain certified seeds, which produce increased yields and revenues as well as greater resistance to disease

13. PILOT DETAILS • Farmers 􀂉 NASFAM smallholder farmers organized in clubs Typically 10-20 members with joint liability for loan repayment 􀂉 Received Groundnut and Maize seed 􀂉 Live within 20 km of a Class A Weather Station • Five stations in central Malawi are used for the pilot • Chitedze • Kamuzu International Airport • Kasungu • Tembwe • Nkhotakota

14. Other stakeholders • Insurers: Insurance Association of Malawi • Financiers: Opportunity International Bank of Malawi Malawi Rural Finance Corporation • Seed provider: NASFAM from supplier Seed Co. • Supplier of Climate and Weather data Malawi Meteorological Services • Project manager and technical advisor Commodity Risk Management Group of the World Bank

15. Product packaging • Index linked loans • Insurance covers cost of production as financed by a Opportunity International Bank of Malawi (OIBM) or MRFC. • OIBM and MRFC pay premiums and recover them through interest rate. • In case of drought, payment made to financial institution –farmer relieved of the burden and is able to borrow for the next season.

16. Payout ($)  Payout ($)  Payout ($)  Deficit Rainfall (mm)  Deficit Rainfall (mm)  Deficit Rainfall (mm)  PHASE 1 Sowing & Establishment PHASE 2 Growth & Flowering PHASE 3 Yield Formation to Harvest Cropping Calendar  Final Insurance Payout = min (Max Payout, Phase 1 + 2 + 3 Payouts) Sowing Window & Dynamic Start Date EXAMPLE: LILONGWE CONTRACT, MAIZE Phase 3: 40 days Trigger Level: 25mm Payout per mm: 1160 MKW/mm Maximum Payout: 5800 MKW Phase 1: 50 days Trigger Level: 40mm Payout per mm: 580 MKW/mm Maximum Payout: 5800 MKW Phase 2: 30 days Trigger Level: 130mm Payout per mm: 58 MKW/mm Maximum Payout: 5800 MKW 10th November – 10 January: 25 mm in 10 days

17. Lesson Learned: Weather Insurance • Need to devote significant time and resources for proper communication and explanation with farmers: insurance is new to most Malawians • Need greater ownership amongst participating organizations, not over reliance on World Bank champion • Need for Malawi Met. Service to understudy CRMG/IRI in contract design activities • No major drought so full impact of weather insurance not been tested • 20 km radius is too wide, the areas were not homogeneous enough, there is need to review this

18. Lesson Learned: Weather Insurance • Importance of collaborative efforts between producers and users • weather insurance for farmers in developing countries is feasible • Sustainability and scalability will not be achieved unless product development is owned locally and data limitations can be overcome • Successful weather risk markets can be created by: • Vigorous product delivery channels to farmers, linkages to finance or supply chain • Local ownership through capacity building and technology transfer

19. WAY FORWARD • Need for reliable, verifiable and accessible meteorological data • Upgrade primary weather stations to fully automated GSM-enabled stations • Chileka, KIA, Tembwe and Balaka already automated • Invest in automatic rain gauges with GSM communication technology • Set-up communications Hub in Blantyre to ensure real-time reporting to GTS and transaction to stakeholders

20. WAY FORWARD • In conclusion, there is need for Governments to put in place appropriate policies and allocate sufficient resources (financial and human) for meteorological services to carry out their mandate effectively

21. Thank you for your attention