Agricultural insurance can have unwanted side-effects

London: While agricultural insurance intends to protect farmers in developing countries from the effects of climate change, it can also have undesirable ecological and social side-effects, say researchers.

Agricultural insurance can change a farmer’s land use strategies which can lead to unintended ecological consequences, according to the study published in the journal Global Environmental Change.

The researchers collected empirical and model studies from around the world to provide a comprehensive overview of the potential impact of agricultural insurance.

“Previous studies have concentrated primarily on economic aspects. Little attention has been devoted to the socio-ecological system as a whole,” said Birgit Muller from Helmholtz-Centre for Environmental Research in Germany.

“But one thing is becoming clear: agricultural insurance can have a range of unwanted side effects, for example changes to farmers’ land use strategies,” Muller added.

The effects of climate change are felt particularly acutely in developing countries. A range of international initiatives develop and promote risk insurance. One example is the G7 climate risk insurance initiative InsuResilience, which aims to insure 400 million people in developing countries against climate-related risks by 2020.

The initiative includes “agricultural insurance”, which is designed to insure farmers against major losses, for example as a result of extreme drought.

Small-scale farmers in developing countries traditionally grow a wide range of crops in their fields to ensure that at least one crop can survive a potential drought.

However, farmers are frequently reverting to monocultures because the agricultural insurance is often linked to specific crops and does not take effect if farmers cultivate a different crop.

And this has far-reaching ecological consequences: a decline in agricultural biodiversity, deterioration in soil quality, increased use of fertilisers and pesticides, which in turn increases the risk of water pollution.

However, even if agricultural insurance is not linked to specific crops, farmers with insurance cover may be inclined to grow riskier crops which promise high yields but also bring greater losses in an emergency.

Because the farmers have insurance, it is not absolutely necessary to adopt a sensible cultivation strategy.

Apart from ecological effects, the scientists also revealed some potential social side effects of agricultural insurance, such as the weakening of networks of small farmers in developing countries.

As a general rule, farmers help each other in the wake of major crop failures. Agricultural insurance can lead to an insured farmer no longer helping another farmer who could have taken out insurance.

“Agricultural insurance and the resulting changes in land use strategies can cause this kind of unintended ecological and social feedback, which can in turn lead to further problems and costs,” Leigh Johnson from University of Oregon in the US said.

“In the long term, this could have a far-reaching impact on individual farms,” Johnson said.

In their review, the researchers also put forward proposals on how to improve the design of agricultural insurance in future.

For example, the insurance policies should take effect only in emergencies such as extreme droughts.

Farmers should be allowed to deal with medium droughts using their own risk management measures, according to the study.