Innovative insurance solutions to help manage climate risk in Vietnam

Coffee is one of the most important agricultural crops in Vietnam. The estimated value of coffee exports is approximately USD 2.8 billion per annum. However, high temperatures or unseasonably low or high rainfall due to climate change may reduce coffee production and quality. Reduced production and loss of quality reduce the price growers can get, placing financial stress on farmers, who are largely dependent on the income they generate from coffee. The coffee industry in Vietnam is dominated by smallholder farmers with 85% of all farms under 1 ha and only 1% larger than 5 ha.

Insurance could be a valuable tool to help farmers (and coffee export companies) manage the negative financial consequences of adverse climatic conditions on coffee production in Vietnam. When unfavourable climatic conditions hit (e.g. too much rainfall during harvest, which can cause mouldy coffee beans) then insurance payouts could provide important financial compensation to farmers.

The IKI is supporting a regional project to develop insurance options to help manage the negative financial consequences of adverse climatic conditions on coffee producers in Vietnam, titled “DeRISK SE Asia – Applying seasonal climate forecasting and innovative insurance solutions to climate risk management in the agriculture sector in SE Asia”. The team draws together expertise from researchers from the University of Southern Queensland and insurance industry specialists from Willis Towers and Watson as part of a major consortium that includes the World Meteorological Organisation and the International Centre for Tropical Agriculture (CIAT).

The team recently developed prototype index insurance options to help manage high temperatures and unseasonably low or high rainfall impacts on coffee. Over the next year, the team will be testing the effectiveness of these options with farmers and agribusiness in Vietnam. The prototypes of the index insurance options are currently being road-tested with the coffee industry, including large trading companies (such as ECOM Agroindustrial Corporation Ltd), to ensure the products are affordable and meet the needs of smallholder farmers.

For additional information please visit the project’s website at: https://deriskseasia.org/