R4, a safety net program in Ethiopia: Helping small-scale farmers to reduce the impact of disasters and increase production

Droughts can have devastating consequences on poor and vulnerable people and their environment. Agriculture, weather and climate are deeply interconnected. Climate risk can have a significant impact on food production. Insufficient rainfall causes the harvests to dry on site. Water scarcity becomes a major issue for farmers, affecting crops and cattle alike. Soils cannot regenerate and their erosion reduces agricultural productivity, as well as soil quality. As a vicious circle, soil degradation amplifies drought and aridity. Climate change has accentuated the phenomenon in recent decades.

East Africa is particularly affected by increasingly frequent droughts. In Ethiopia, small-scale farmers, who have no other income than the output of their harvest, can lose everything in case of a crop failure. Within a few weeks, food scarcity and income insecurity become a real issue for vulnerable rural families. Most have no other option than to sell their productive assets and withdraw their children from school because farmers can no longer afford the school fee. A drought can be a vicious circle and turn into a tragedy. As such, recovery can be a prolonged process often disrupted by the next drought.

The Rural Resilience Initiative (R4) is part of the G20 InsuResilience Global Partnership. R4 aims to bolster the Ethiopian agricultural sector with protective measures against climate risk. When droughts occur and farmers receive compensation for weather-related losses, they have more chances to overcome hunger, achieve food security and invest in their productivity and income diversification.

R4 – One of its kind: a holistic approach bundling protective measures against climate risks

R4 constitutes a comprehensive risk management approach which combines a climate insurance solution with risk reduction and diversification measures. The name of the project, R4, refers to the four risk management strategies integrated in the project to strengthen farmers' food and income security:

• Small-scale farmers are offered a weather index insurance (WII) product (risk transfer). Insurance payments are based on an index of rainfall and/or vegetation determining the extent of the loss incurred by participating farmers. Compensation is paid if the index falls below a pre-determined threshold.
• Protection measures are being introduced to prevent erosion and retain water during heavy rains, all of which works together to reduce the target group's vulnerability to weather risks (risk reduction). If farmers do not have sufficient cash to pay for the insurance cover, they can offer their labor to implement such risk reduction measures. This insurance for work scheme allows them to get the insurance cover while reducing their risk to be affected by climate and natural disasters. They construct flood diversion canals and trench bunds, tree planting, micro-garden and compost preparation, construction of percolation channels or rooftop rain water harvesting systems.
• To support them in the diversification of their income, small farmers get advice and access to microloans to buy agricultural inputs like seeds or fertilizer to increase their productivity or to invest in the diversification of income sources, e.g. in a bee hive to produce and sell honey as a second income pillar (prudent risk taking).
• They are supported in establishing village savings groups and receive special trainings to institutionalize regular savings (risk reserves). Thus, the farmers build a humble financial bolster for times of social and financial distress.

An active risk management is key to build and strengthen the resilience of vulnerable populations to climate related shocks.

R4 upscale: Germany bolsters Ethiopian agricultural sector against climate risks

R4 has been designed by the World Food Programme (WFP) and Oxfam America on the understanding that most years vulnerable farmers are living right at, or below the survival threshold, and that in order to keep them from spiraling down after a shock event, they require a set of risk management tools that can protect and promote their lives and livelihoods. The reinsurer Swiss Re originally supported the two organizations to find solutions to the challenges faced by food insecure communities. The role of reinsuring the risk is currently performed by Axa. WFP and Oxfam America started R4 implementation in Ethiopia in 2009 and have since then rolled out the programme in Senegal, Malawi, Zambia, Kenya and Zimbabwe. The R4 programme currently provides a climate safety net for over 93,000 farming households of which 55% are women-led. All in all, around 1.5 M. USD of insurance payouts have been distributed after the 2017/2018 season through the initiative in Ethiopia, Kenya, Malawi, Senegal and Zambia to compensate for weather-related losses.

On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), KfW Development Bank is providing EUR 20 million to upscale the Rural Resilience Initiative (R4) in Ethiopia with WFP leading the implementation. This commitment constitutes an important extension of R4 and supports, via the special initiative 'ONE WORLD – No Hunger,' the Ethiopian agricultural sector in those regions that are especially exposed to extreme weather conditions but with a potential for agricultural production.

More than 85% of the Ethiopian population depends directly or indirectly on agriculture. In rural areas, agriculture is generally the only sector that provides a source of employment and income.

Currently around 30,000 households in northern Ethiopia are benefiting from the resilience program. The target group will be increased to a total of 130,000 households through the extension made possible by this Financial Cooperation project. Through the five-year funding provided by Germany, the innovative insurance product will spread further across the country and will help introducing such insurance products into the Ethiopian insurance market.

Evaluations showed that insured Ethiopian farmers save more than twice as much as those without any insurance and invest more in productive assets like seeds, fertilizers and cattle. Structurally deprived women-headed households thereby account for the highest gains.