Working Paper

Nuer, ATK1, Bullen, T

2, and Dijk van, G

3

Students contribution by Cliff Hogendoorn ( InterCollege Business School, Utrecht, The

Netherlands) and Vincent Sakala ( Mulungushi Business University, Zambia)

Paper Title : The role of (Micro)insurance in Agri-business Supply chains: A Case of Small

Holder Dairy Farming in Zambia

Abstract

The insurance industry in Zambia is very old and active in the formal sector. However, this is

very limited in relation to agricultural insurance products and services. Microinsurance has

become a tool in the development paradigm of many institutions working on pro-poor

innovation policies and strategies in many developing countries.

We found in this study, that the main insurance products for small holder dairy farmers

culminated from stakeholder collaborations in strengthening the base of the pyramid farmers

in Zambia. This is in relation to encouraging financial institutions to reduce risk in giving out

loans and credit to such small holder clients and to enhance their livelihoods.

The implications of our study is to propose for policy decision making on possible ways of

involving Microinsurance in the Zambia small holder Dairy Industry.

We followed a qualitative study approach to arrive at our findings. Our aim was to explore

possible opportunities that existed within the chain and what missing links there were at the

study period.

Key words: Microinsurance, Dairy Supply Chains, Sustainability, Zambia

1 Wageningen University, Marketing and Consumer Behaviour Group, The Netherlands 2 Nyenrode Business University, The Netherlands 3 Nyendrode Business University and Wageningen University, The Netherlands

1.0. Introduction

1.1. Overview of Insurance in Zambia

Insurance has been used as a risk management product and service in many a business

informally or formally. Risk Management deals with ‘the identification, assessment and

prioritization of risks and transfer to an external agency (insurer)’ ( Madison Insurance,

July,2011)

Insurance policies are undertaken to manage risks in many ventures, this primarily, is used to

hedge against the risk of uncertain loss. Pooling is mainly used to realize a wider risk

coverage. We define pooling as when Insurance companies come together to secure better

insurance rates and coverage.

We, in our subject matter of this paper, identify key insurance market players as the

following; the Insured, Broker/ Agent, Insurer, Reinsurer Broker and the Reinsurer

1.2. Types of Agriculture Related Insurance

We briefly define agricultural related insurance as we envisaged and from interview sessions

we had with practitioners and providers below;

Crop insurance : This coverage covers loss or damage due to fire, lightning, storm, malicious

damage, transit and theft of harvested crops whilst stored in silos or buildings.

The covers available in Zambia at the study period were: Fire and lightning only, crop

comprehensive package that covered hail, fire and lightning, earthquake, explosion, riot and

strike and malicious damage.

Livestock Insurance : This covers all risks of mortality and suitable for various animals and

poultry. The cover available at the period were: Accidental death, Illness and disease,

Epidemics and Theft

Game Ranching : The package is a cover in respect of capture and transit risks of animals and

crops.

Agric Pack: A full package which provides insurance cover for the following:-

a) Livestock - Covers accident, illness and disease, epidemics and theft.

b) Buildings - commercial and private dwellings are covered for fire, lightning, explosion

and perils.

c) Plant and farm equipment- covers all risks.

d) Household goods - Covers fire and perils, all risks.

e) Motor - comprehensive, full third party fire and theft and full third party only.

f) Cold rooms - Covers machinery breakdown and deterioration of stock.

g) Liabilities - Covers Employers and public liabilities.

h) Money - covers loss of cash in transit or on the premises.

i) Goods in transit- Covers loss or damage to goods in transit.

( Source : round table interview with Madison General, July,2011)

The importance of the above products for the agribusiness sector, in Zambia, we were

informed, were for Risk management and Profit Maximization. Key challenges presented

during our field visit, by insurance providers, were mainly based on lack of Statistics (Data) to

project, coordinate and develop viable products for agriculture related businesses in the

country. Inadequate expertise from local (human) resources and training institutions were the

other main challenge faced by insurance providers. We again noted that, farmers were

inadequately informed and educated on the need and importance of Insurance in the

management and sustainability of such businesses.

We noted the following opportunities that could be of enormous advantage for providers.

Agriculture production has grown with a rising interventions by government, donors, NGOs,

private individuals and corporate bodies in the country’s vision 2015, which entails an

increase in Agriculture production and therefore (micro)insurance could play a key role.

Again, banks interviewed, have also made it mandatory to insure money loaned out to clients

of larger and smaller cohorts.

In view of the above, we expect insurance providers, both local and international corporates,

to bundle up agriculture related (micro) insurance products that would fall within other risks

farmers face. This could be offered as a form of insurance linked to micro finance,

agribusiness input supplies, market linkages, processing, among others. We see the small

holder dairy industry benefitting from such a move by insurance providers. With former

knowledge and experiences chucked in pilots in Zambia ( See Manje, L, 2005; in CGAP

working group on Microinsurance, Case study number 10 ) , we see refined insurance

packages tailor-made to reach particular group of clients. This is so because, there is a rise in

small and medium scale farmers taking up insurance either because of conditionality from

bankers or education on the importance of mitigating risks by formal practice.

1.3. Market Share of Insurance in Zambia

Insurance companies in Zambia fall under oligopoly market structure. The sector is

characterized with few institutions offering same or differentiated insurance products. There

seem to be intensive competition due to few institutions with perfect substitutes. The degree

of competition makes these institutions interdependent in respect to decision making. We

found that agriculture insurance is very low in terms of available products and services. This

is presented in the table below;

General Insurance Return, 2009

Insurance Class Insurer GWP

K'OOO

Reinsurance Net Premiums Retention

(%)

Accidents ZSIC 12,985,000 2,874,000 10,111,000 78

NICO 19,348,287 10,062,823 9,285,464 48

PICZ 12,236,061 3,550,855 8,685,206 71

MADISON 14,722,795 0 14,722,795 100

CAVMONT

GEN

2,610,120 1,691,723 918,397 35

61,902,263 18,179,401 43,722,862 71

Aviation

ZSIC 7,581,000 7,497,000 84,000 1

Burglary-H B

MADISON 15,165,008 0 15,165,008 100

Engineering

GOLDMAN 3,286,000 794,000 2,492,000 76

ZSIC 19,802,000 0 19,802,000 100

CAVMONT

GEN

4,637,395 1.,666,301 2,971,094 64

PICZ 22,332,801 17,811,716 4,521,085 20

50,058,196 20,272,017 29,786,179 60

Agriculture

MADISON 4,807,600 0 4,807,600 100

ZSIC 12,850,000 0 12,850,000 100

Table 1: Zambia General Insurance Return, 2009, courtesy of Madison General Insurance, 2011, extracted from

original table presented to research team

When it comes to small-scale dairy farmers, the market for insurance was not favourable at

the time of this study. Only Madison General and ZSIC had agriculture related insurance data

presented in the record score presented in the 2009 Zambia General Insurance Return. A

similar trend was reported for 2008. We noted that not many farmers take insurance cover;

two reasons made known to us were; Lack of knowledge about insurance and few insurance

companies offering products within the agriculture sector, and in our case, for small-scale

dairy farmers.

1.4. The Dairy Farming in Zambia

There are many factors that affect dairy farming as a business. These factors, to a very large

extent, determine the viability and sustainability of any business. In this paper. We will

present a few of such factors. This pertains to the dairy industry. Their semblance is however

embedded in many related businesses. We have narrowed our take to the small holder dairy

industry in Zambia. We will further develop our take on the need to consider Microinsurance

as key component to be rolled into the dairy supply chain. Our aim is to help enhance the

sustainability of small holder dairy farming as a business and livelihood enhancement

enterprise at the grassroots level not only in Zambia, but in related developing economies in

Sub-Sahara Africa.

Milk production by cows depends on the quality and quantity of feed given. During the rainy

season, production is high due to plenty of grass used for feeding milking cows; and in dry

season this is low because of little grass to feed the cows. Therefore, small-scale dairy farmers

have a high milk production rate during the rainy season and a lower milk production during

dry season.

The Total milk production in Zambia is estimated to be over 215 million litres per year.

Consumption of milk , per year per person in Zambia stood at 24 litres, far less than a 200

litres recommended by FAO, at the time of this study ( Interview with Madison Insurance,

GART, ZNFU and ZANACO, July,2011).

The cost of production of milk is variable and based on the location, transportation, veterinary

services, availability of feed and additives. Management system within the dairy farming

system, from the farm to the final consumer, we noted, plays a key role in meeting safety and

consumption expectation. We identified extensive, semi-intensive and intensive management

systems in practice among small holder and cooperative dairy farmers. Labour acquisition and

management played a key role in the choice of a production and management practice per

identified farmer and or cooperative.

Insuring dairy animals reduces high risks attached to dairy production in the area of cost on

production, replacement of old breed for new and high producing animals which are

considered exotic. We noted that due to such risks, dairy farmers visited and interviewed were

not making high return on their businesses. This is with the exception of larger and emerging

farmers who have access to both financial and insurance products. The latter qualify and

access available products from financial and insurance institutions due to their credit

worthiness.

1.5. Knowledge, Culture and animal management of Zambia’s Small Holder

Dairy Farmers

Knowing what is needed by a farmer, in terms of feed composition and animal management,

plays a very important role in the quantity of milk produced by cows. If a farmer has more

knowledge about dairy farming and management, they are likely to have an effective

production of milk than farmers who have little knowledge about dairy farming.

Traditionally in Zambia, it is believed that, though current business culture are changing

things, people in a specific area in Zambia are specialized in a specific activity. For instance,

the Tonga’s from the southern province of Zambia are known to be keeping more cattle,

hence milk production is high in the southern province. The Bemba’s from the Northern

Province are known to be more in the fishing industry. Milk production also differs depending

on the part of the country dairy farmers belong to.

Small-scale dairy farmers earn money through the selling of milk. A ready market for milk

motivates more dairy farmers, but an absence of one hinders many to venture into such a

business activity. Parmalat, a dairy processing company, at the time of this study, was a major

buyer of milk from small scale farmers within the milk production provinces of the country.

In places where there are branches of such a company, many dairy farmers are seen to be

clustered than where there were less milk collection points.

1.6. Milk substitutes versus Natural Milk and the Role of Governments in

Sustaining Milk Production

Bigger milk processing companies would be interested in, where they exist, milk substitutes

such as milk powder to fresh natural milk, to manufacture their end products. This is because

they may have lower costs and better quality than fresh and natural milk from cows; If this

development goes on there will be a time when processors will have less demand for milk

from farmers. The latter will affect dairy farming and the small-scale farmers. We have noted

such an occurrence in the case of the dairy industry in Zambia.

Processors require good quality milk from farmers. They set the standard and quality

regulation of milk needed to process into finished products for their target market. In Zambia

as an example, Parmalat only accepts milk with 3% or more fat content for them to buy milk

from its small holder dairy farmers.

Governments have great influence on dairy farming with the policies and rules they set for

such industries. Governments can give exclusive rights to specific companies to be the only

one producing a certain product ‘’monopoly’’ which prevents new companies to come in.

Taxes: The government can lower the taxes on specific markets to attract new investors when

the market is falling. For instance, in the Copperbelt when the market of copper was going

down, the government lowered the taxes to attract investor in the mining sector. This

approach could be explored for the insurance provider serving the dairy sector, especially

among the smaller dairy farmer.

2.0. Methodology, Materials and Data Collection

We had based our research questions on insurance and risk taking. We were interested to

know whether the small holder dairy farmer has insurance cover for the dairy products, and if

so, what were the insurance costs (premium) for the different items the farmer owns.

Secondly, we explored the conditions and under what circumstances are the insurance

companies in Zambia, willing to provide insurance to cover small holder dairy farmers in

particular.

We conducted interviews using semi-structured questionnaires, we again had plenary sessions

with four financial institutions and two insurance companies to answer our research question,

we participated in agriculture shows in the townships of Kabwe and Indola, visited and

interviewed selected small holder dairy farmers by purposive sampling, two dairy

cooperatives and three experts working within the agri-business field. Reports, brochures,

interactions with some staff and clients provided us with informative and insightful

knowledge.

We finally took secondary data from reports, presentations, web portals and sites of the

institutions concerned. This enabled us to compare theory and practice of the role played by

(micro) insurance within the Zambian small holder dairy value chain at the time of this study.

We further identified and narrowed our focus to concentrate on the role of insurance in the

dairy value chain, especially, on small scale farmers, and their knowledge about insurance

products for the dairy sector and the Zambian economy in general.

We will briefly present the small holder value chain, as we then saw it, and then locate the

infusion of insurance, our main topic in the next session . We will then discuss what we

observed as the strength and missing links within the chain during this study.

3.0. Results

We present our results by first locating the primary supply chain and the role of insurance

within the chain. we will narrow this paper in the arena of Insurance. The other chain

components are dealt with in different papers as work in progress.

3.1. The Small Holder Dairy supply chain in Zambia

We present the Small Holder Dairy Supply chain as Follows; we have based our findings on

field data collected, observations, discussions and interviews conducted on-site and from

expert with knowledge of the dairy, finance and insurance sectors in Zambia.

* : Insurance companies and financial institutions have influence on every sector in the chain

FARMERS

CO-OPERATIVES

PROCESSORS

TRADERS/RETAILERS

CONSUMERS

Finance institutions

/

Insurance companies

/

Supplying industries

We observed that the small holder dairy value chain falls within the take of what we had

termed as ‘from farm to fork’. That is, the individual dairy farmers own the cattle, either as an

inheritance, trade, or had been a beneficiary of a government or external donor, mostly NGO

stimulated, projects. Most of the farmers either cooperate under a cooperative principle of

group society to sell milk at a collection point.

Together, the milk is sold to the processors. In this study, we noted Parmalat as the major

processing company. Some of the milk end in the street market and a few are side sold to

meet emergency and or household needs. The processed milk is sold at the supermarkets. We

found the bulk of them at shoprite and other smaller supermarkets.

The dairy market in Zambia doesn’t have a lot of competitors; there were only two main

competitors at the time of writing this paper. Parmalat had 70% of the market share of milk

processing. The second company identified was Zammilk which had 20 % of the market.

Zammilk had just started investing in dairy production and was growing at high speed at the

time of this study. Smaller competitors like Finta and Dairy King were found, but they only

had long life milk. We again had inadequate information to present data on the latter two

companies. A competitive market is needed to lower consumer prices and to increase farm

prices as well to benefit all sector of dairy farming.

3.2. Insurance Companies in Zambia engagements with Dairy Farming and

Agribusinesses

We identified in Zambia , two (2) locally embedded insurance companies, out of the lot, that

had insurance products and or could offer insurance packages related to our study domain,

these were:

- Zambia State Insurance Company (ZSIC)

- Madison General Insurance Company

Amongst over forty insurance companies identified under the Pensions and Insurance

Authority portal, only ZSIC and Madison General Insurance were offering services to small

scale dairy farmers directly. We will present the two companies and what product and

services they provide within our study line.

Madison Insurance Company : Madison Insurance Company provides insurance for small

scale farmers. The main challenge, we noted, was that, the cost of operation per insured client

was high for the company. This is so because, the small holder individual farmer has minimal

premium to cover the risk and be in business, the company risks reaching out to more

potential clients because clients are scattered and logistics and human resource base is

inadequate to reach to such clients. The insurance company advised and proposed to start

pooling to reduce its risk of doing business with such clients ( interview with Madison

Insurance Zambia, July,2011). Madison insurance company, we noted, would readily

calculate the risk being taking to reach more farmers. However, volumes of coverage by

farmers limit such a gesture and therefore would propose group insurance for small holder

farmers at a discounted rate.

Notwithstanding, Madison Insurance Company, had the following agri-business related

insurance packages in place in Zambia.

- Livestock

- Machinery breakdown

- Goods in transit

- All risks

- Products/ public liabilities

- Group personal accident

- Liabilities incurred to employees in the course of the work

Zambia State Insurance Cooperation (ZSIC): ZSIC offer insurance services to small scale

farmers through cooperatives. The farmers form groups (cooperatives) in which they

contribute a certain amount of money towards insurance. This depended on the value of

property they have, and the cooperative society, collectively takes the money either directly to

ZSCIC or to a participating financial institution. The latter act as intermediary for the payment

of premium by small scale farmers in circa.

ZSIC deals with cooperatives because this model is less costly for the farmers unlike if they

were insured as individuals ( Interview with ZSIC, ZNFU, ZANACO, July,2011). At the time

of this study, ZSIC had not set a fixed percentage of premium to be paid by small scale

farmers. The premium depended on the number of farmers in a cooperative, value of assets

and risks presented to the company by the cooperative and or partner(s), which serve as

intermediary institution. For instance, a cooperative with many members will pay less

premium than individuals; dairy farmers who reside in a tsetse fly prone area will pay more

because of high risk of disease infection ( Interview with ZSIC and ZANACO,July,2011). The

strength of this package and model was that, ZSIC works with financial institutions that have

a policy to only give loans to small scale farmers who have insured their property. For small

scale dairy farmers to get loans from such institutions, they must first insure their property to

qualify for such a service. The positive of this take promotes insurance in the arena of small

scale farmers.

4.0. Discussion

4.1. The Role of Insurance as a Chain Supporter in the Small Holder Dairy

Value Chain

Our subject matter is about insurance and how this influences the value chain on dairy

production. We found the following as key in this our field study;

We observed that insurance plays important role in the chain. However, the sector had not

been fully developed on a demand driven tone. This we noted, was as a result of high risks in

not only launching into a not so fully developed small holder dairy value chain, but also

transactions costs due to the largely scattered farmer population within the dairy sector. Local

insurance companies had limited access to these areas due to limitation of resources ( human

and machinery) and logistics. The share of western companies actively participating in the

dairy sector was almost non-existent at the small holder level. We further noted that small

holder dairy farmers who had insurance cover, was as a result of participating in a project

induced scheme that was either on-going or had neared its project cycle. A few individual

farmers who had insurance on their own, we noted, had been previous partakers of such

earlier schemes.

Of the two cooperative societies interviewed, both had been beneficiaries of a government-

donor led initiatives in acquiring financial sustainability and therefore insurance packages had

been embedded within the scheme to mitigate shocks and risk by participating financial

institutions and the farmer cooperative as a whole.

Most farmers see insurance as extra cost. This we noted, was as a result of the limited

business orientation and inadequate knowledge existed within the farm setting on the benefits

of insurance. Interview with the ZNFU in Kabwe showed that statistical data taken from

chibombo east part of the country had 44 registered farmer cooperatives but only 30%take

insurance cover. The latter reason had been given as a key factor for not taking insurance

cover by dairy farmers and cooperatives.

Though insurance companies offer such services to help small scale farmers manage their

risks, farmers hardly know the importance of insuring their property against any losses. For

instance, in the Copper belt area of the country, an official of the ZSIC branch office

mentioned that less than 10% of more than 350 cooperatives within the province take

insurance cover. It is also noted from pensions and insurance authority that only 4% of the

Zambian population know and take part in insurance.

4.2. The Role and Rise of Insurance among Small Holder Dairy Farmers

In this paper, we have presented key role and rise of insurance companies in reducing risk

among small scale farmers. The inadequacy of knowledge among such farmers have seen

such companies and related partners embark on the promotion and sensitization of insurance

towards small scale farmers. Madison General and ZSIC collaborate with ZNFU to help

educate the small scale farmers on the importance of insurance. They do this by calling for

meetings with members of the cooperative . The cooperative contribute a minimum amount of

K2500 for each meeting. Another way is by working with traditional rulers who gather people

of their kingdom and invite insurance companies to promote insurance services.

In addition, insurance companies educate members of the public through radio and Television

advertisement on the benefits, challenges and general knowledge on insurance.

These meetings and programs are not done in all places in Zambia and they are only done

once in a while. Because of this, the outcome of these programs is not favourable. ZSIC

Branch Manager in Ndola said the turn up of farmers is less; 10% of the total number of

cooperatives go for insurance. According to Madison Insurance, few small scale farmers have

insurance cover. ZNFU coordinator in Chibombo East also said the response of farmers is

very poor. More effort is therefore needed.

Since insurance plays an important role in managing risks involved in all the sectors of the

small holder value chain, i.e., dairy Farming, Processing and Wholesalers/Retailers, it beholds

on policy providers and designers to begin to further exploit such opportunities that may exist

within the chain.

All the sub-sectors mentioned are prone to tragedy and uncertainties such as accidental death

of livestock, theft, production losses in the processing industry and machinery breakdown,

among others.

Should insurance companies compensate for such losses, there is the possibility to brings

about sustainability of small holder agribusinesses in the dairy value chain.

4.3. Opportunities for Microinsurance among Zambia’s Small Holder Dairy

Farmers

Zambia is now moving from the mining sector to the agriculture, there are a lot of

opportunities for insurance companies to reach out to the small scale farmers.

The agriculture sector is growing because the government is encouraging farmers to take

farming as a business and not as a traditional culture. Though many opportunities will be

found in commercial and emergent farmers, there are also some for the small scale farmers.

Therefore insurance companies can take advantage of this and promote their product.

Financial Institution also have a policy to only give loans to farmers who have insurance

cover. This gives a greater chance for insurance companies to promote their product to small

scale farmers.

The insurance packages in Zambian, we opined, are mostly done by Zambian insurance

companies. However in the interview of Madison General Insurance Company, it was

revealed that the re-insurance components of the packages were handled by western and

international partners . This means that the risks of an insurance package are bought by

another company. The biggest reinsurers in Zambia, at the time of this study, were Swiss RE

and Munich RE. we are of the opinion that Microinsurance products and packages, could be

developed to cater for the needs of small holder dairy farmers in Zambia.

We anticipate the major challenges to be getting information on activities of these category of

farmer businesses to lower the risk of venturing into such an area. Farmers in general in most

developing economies, do not organize their farm administration and management well. This

makes it hard for insurance companies to analyse the value of property and the risk involved

within such sector.

Again, we noted that language and the use of terminologies, by policy providers and their

representatives, are very difficult to explain in Zambian language, thus it is hard for people in

the rural areas to fully understand the meaning and privileges in taking an insurance cover.

We realised that, local insurance brokers do not have the know-how to speak all the 72

languages in Zambia. This hinders them to explain to people who speak a language they are

not familiar with.

Amongst those who take insurance cover, there are some policyholders who so craftily

involve themselves with fraud. This means they claim for losses which have not occurred.

This is a big cost for insurance companies. It was noted that insurance companies are working

together to prevent such things from happening.

We are quick to state that the mind-set of the farmers interviewed in Zambia, towards

insurance, is negatively low. Most of them see it as a cost and loss. The problem is that the

premium of insurance cover is not readily settled by insurance companies we interviewed .

Most of the time insurance companies base their premium of the amount of insurances a client

takes. This means that they will charge more premium if your farm is settled in an area where

there are a lot of bushfires and or prone to other forms of high risks. It is only when farmers

see insurance companies compensate and or honour insured farmers who suffer loss due to

agree upon cover, that, we can say that such a mind-set can change in favour of higher

outreach and coverage of insurance packages .

4.4. The Small Holder Dairy Farming and The Risk Involved

Dairy farming is accompanied with large risks, this is so because farmers can lose their cattle,

property and a lot of uncertainties can be presented like any agri-business. These could act as

setback for farmers, processors and the investor entrepreneur. In this paper therefore, we look

at how farmers can manage the risks through insurance and which companies offer such

products in Zambia.

External business environment has a strong effect on the small holder dairy farmer. We will

mention a few of such factors that could lead to unfair disadvantage to the farmer’s milk

production, should action is not taken. We present such environmental factors as we observed

during this study as.

Climate, Knowledge and animal management, Culture, Demand, Milk substitutes, governance

and Governmental roles in policy decision making. We will comment of these in this paper.

We are quick to state that other factors not mentioned are important. However, we have

chosen the above topics since they were the most prevailing ones due to our methodological

approach.

Climate: Milk producing by cows depends on the quality and quantity of feed given. During

the rainy season milk production is high due to plenty of grass for feed and in dry season it is

low because of little grass for feed. Therefore, small scale dairy farmers have a high milk

production rate during the rainy season and a lower milk production during dry season

(Interviews with Piet Stevens, Mary Masinge and Mpima Dairy Cooperative Society, July

2011).

Knowledge and animal management: Knowing what is needed by a farmer in terms of feed

composition and animal management plays a very important role in the quantity of milk

produced by cows. If a farmer has more knowledge about dairy farming and management, he

or she is likely to have an effective production of milk unlike farmers who have little

knowledge about dairy farming.

Culture: culture plays significant role in shaping livelihoods of a person. It is believed that a

certain group of people in a specific area in Zambia are specialised in a specific agricultural

sector. For instance the Tonga’s from the southern province have been known to be keeping

more cattle hence milk production is more in the southern province and the Bemba’s from

Northern Province have been known to be more in the fishing industry. Because of such

culture, milk production also differs, depending on the part of the country dairy farmers

belong to.

Demand: It all depends on the demand of big processors. If they change their mind set about

only buying from big dairy farmers the effect on the small scale dairy farmers would be

negative. This means they will be less interested in dairy production for new recruiters on the

dairy farmer industry.

Milk substitutes: When they exist, milk substitutes, for instance milk powder which may have

lower costs and better quality than milk from cows the big processors would be interested in

it. If this development goes on there will be a point that processors would not have any

demand for milk from the small scale farmers.

Government policy: The government can have a great influence on dairy production with the

policy’s and rules that they set. The government can give exclusive rights to specific

companies to be the only one producing a certain product ‘’monopoly’’ which prevents new

companies to come in.

For instance that there can only be one processor in the dairy production.

Taxes :The government can lower the taxes on specific markets to attract new investors when

the market is falling. For instance in the Copper belt region, when the market of copper was

going down, the government lowered the taxes to attract mining companies from China.

Regulations ( Standards and ISI and Quality Regulation): Processors like to have good quality

milk. This means that they rely on the quality of farmers. The government can set out laws

which say that there has to be a minimum of quality. This protects the quality of the milk in

Zambia. For instance Parmalat already got such a rule that if the milk is less than 3% fat

content they will not use the milk for their production.

5.0. Conclusion

In Zambia only a few percentage of the population know about insurance. Specifically on

small-scale farmers, the percentage is really low. However, insurance companies are already

involved with commercial and emergent farmers, and extending to small-scale farmers. They

are educating and promoting insurance, though they can do more of it.

Since the population of small-scale farmers is growing at the moment and most of them are

taking it as business, there is a bright future for insurance companies to provide their services

easily.

We saw the following missing links in the chain studied

The limited connection from insurance companies through dairy processing companies to get

to their target group. The challenge for the insurance companies is that, it is expensive to

reach their target group. Processing companies such as Parmalat focus a lot on small scale

dairy farmers, therefore insurance companies could collaborate with farmer unions such as

ZNFU and Parmalat, to develop and sell a demand driven insurance package to small holder

farmers who fall within this category.

A few insurance companies offering products for small scale farmers. Most insurance

companies are only offering insurances for emergent and commercial farmers. However, they

do not have any package (s) for agriculture related business. This is almost so with small scale

dairy farmers. Only big insurance companies are dealing with insurances for small scale

farmers. There is no micro insurance related company specifically offering insurance cover

for small scale famers

Lack of proper and consistent promotion and sensitization. Promotions are not carried out

everywhere and not on consistent basis. Most of the insurance companies are concentrated

within the formal sector. The agriculture sector is limited to s few companies such as ZSIC

and Madison General. These companies, we have noted, engage small holder farmers due to

the partnerships brokered by government, ZNFU, ZANACO ( Rabo Foundation) and related

donors. Figures show that European insurance companies, such as Swiss RE and Munich RE,

do almost all the reinsurance for the companies interviewed and or engaged in this study.

6.0. Recommendation

We recommend the following areas as key for insurance providers to consider. These sectors

culminated from final debriefings from our study on-sight and with practitioners within and

outside Zambia.

6.1. More promotion and education about insurance

Many small-scale dairy farmers do not take insurance cover because they do not understand

and some do not even know about insurance. There is need for insurance companies to

educate people about insurance by organizing meetings in public places such as; markets,

schools, trade fairs, agriculture shows, radio and television advertisement and distribution of

books to the public. These programs should be done in all places in Zambia and should be

consistent. When more small-scale farmers know about insurance, they will take insurance

cover and this will bring about sustainability in the dairy value chain. This in turn will

improve the economy of the country.

6.2. Encouragement of micro-insurance company

There is need to encourage establishment of micro-insurance companies which will focus on

small sectors of which small scale dairy farming is one of them. Most of the current insurance

companies deal with big sectors hence pays less attention on the small sectors. Micro-

insurance companies will have a limited focus. They will only offer products to small sectors

and this will promote productivity and positive results.

6.3. Better cooperation with processors and insurance companies

Because insurance companies have quite some challenge to get their target group, it may be

smart for them to cooperate with companies who already have their target group. When we

look in the value chain we see that the processors have them. This means that when insurance

companies and processors can work together. Than it is off to for instance Parmalat to make a

policy, which says: We will not get any milk from farmers who are not insured. This means

that Parmalat, who is a big player in the dairy chain, forces the farmers to get a insurance.

However you have to be careful with this policy. Later on in our recommendation we will talk

about which insurances are really needed for a small-scale farmer. In this policy from for

instance Parmalat there only has to be the ones who are needed. Otherwise there would no one

be interested in farming anymore, this because of the high costs.

6.4. Effective partnership between ZNFU and insurance companies

The ZNFU is a institution which is important for the farmers in Zambia. To join this

organization you have to pay membership fee every year. In this organization there are quite a

number of small-scale farmers. This is a good indication for insurance companies. Not only

for them to make profit, but also to help to get more farmers to help the sustainability of their

business. Also here we recommend that there has

to be a better communication between those organizations. It is a win-win situation as we call

it in Dutch. The ZNFU reach their goal to let the small-scale farmers do their business all

alone without help from outside, and the insurance companies reach their goal of getting more

clients.

6.5. Necessary things to be insured by small scale dairy farmers

We recommend the following as key for micro (insurance) investors and connoisseurs

consider injecting resources not only to make profit but aid in the enhancement and

sustainability of the entire dairy supply chain.

Areas that A Small Holder Dairy Farmer can be Covered

Insurance Type Product/Service Risk To Be Insured

LIVESTOCK INSURANCE

Friesian, Jersey, etc

Against death, replacement,

etc

MACHINERY

BREAKDOWN

Chillers, cold rooms etc Breakdown, depreciation,

GOODS IN TRANSIT

Milk , feed animals in transit Contamination, Safety,

Transport, Death

ALL RISKS

Chillers, cold rooms, milking

machines etc.

Death, Breakdown,

Replacement, etc

PRODUCTS /PUBLIC

LIABILIITES

Milk and milk products

supplied to consumers

Safety, Loss, Traceability, etc

GROUP PERSONAL

ACCIDENT

Labour/Personnel,

Comprehensive/ Third Party

Liabilities incurred to

employees in the course of

work

- Livestock against accidental death: we observed that most of the livestock owned by small

holder farmers were not insured. Whilst inputs supplied by banks and projects had insurance

packages, these were only limited to the timeline of the credit/loans giving out to the farmers

as clients.

We are of the opinion that, insurance, and in this case, Microinsurance, could play key role in

ensuring that not only the livestock are covered, but also enhance the confidence of the

farmers.

- Equipment used in milk production against damage: we observed during our study that,

whilst large processing companies had their equipment’s insured against various hazards, this

was not the case with small holder farmers.

We propose the inclusion of these technologies in use by the farmers, to be part of insurance

packages giving to them. This, in our opinion, could lead to a long term sustainability of dairy

farming as a business, and therefore enhance the technological base of the dairy industry in

Zambia as a whole.

Land were animals graze against fire : We observed that, the ‘Rail’ of Zambia had large

stretch of arable land and therefore the dry season ( winter) brings in traces of wild and bush

fires in the grazing lands.

Insurance cover designed to cater for grazing land could go a long way to enhance the

sustainability of the small holder dairy farming in the country.

References

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Bulletin No. 1. University of Nottingham, Nottingham, UK.

Daka D E. 1992. Dairy cattle breeding policy for Zambia. Paper presented at the National

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Kamanga A. 1992. Smallholder dairy development project. Paper presented at the National

Dairy workshop. Siavonga, Zambia

Lolojih, P. K (2009). Bearing the brunt of a liberalized economy: A performance review of

the cooperative movement in Zambia. CoopAFRICA Cooperative Facility for Africa

Cooperative Programme (EMP/COOP). Job Creation and Enterprise Development

Department (EMP/ENT) Employment Sector. CoopAFRICA Working Paper No. 16. Series

on the status of cooperative development in Africa

Mwenya J. 1992. Milk production patterns in southern province. Paper presented at the

National Dairy Workshop. Siavonga, Zambia.

Planning Division. 1988. Agricultural Statistics Bulletin. Ministry of Agriculture and

Cooperatives, Zambia.

Phiri G B M. 1992. The broad overview of the current dairy production patterns, and the

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Planning. January,2011.

Acknowledgements

We acknowledge the following companies and institutions, all small scale dairy farmers

interviewed along the ‘Rail’, Kabwe, and Livingstone in Zambia, Zambeef Farm

Management, Impima and Moshi cooperatives, Zambia National Farmers Union (ZNFU)

financial institutions such as Zanaco Bank, Finance Bank, Indo Zambia Bank, Micro Bankers

Trust, Blue Finance; processing companies like Finta, Parmalat, and insurance companies like

Zambia State Insurance Corporation (ZSIC), Madison Insurance, Blue Finance and

Professional Life Insurance.