If it doesn’t rain, the sky will rain money

Ethiopia/Switzerland- No rain means serious trouble for the Ethiopian farmer Ararso Wolsene: His crops fail and his family goes hungry. He has lost his main source of income and is forced to slaughter his animals. Other farmers have to take their children out of school because they can no longer pay the fees. In some cases, migration is the only way out.

To prevent such calamities, the Swiss company CelsiusPro started offering farmers insurance against drought in 2013. The principle is simple: CelsiusPro divides the land into a grid and measures the precipitation with American weather satellites. The farmer pays the company the equivalent of $5 for an annual policy, which amounts to about half a month’s earnings.

In exchange, CelsiusPro promises to pay damages caused by a shortage of rain. If less than 43 millimetres of rain fall in farmer Wolsene’s region “Sato Luku”, his policy guarantees a payout and for every additional millimetre less, further payouts up to a maximum of $25.

“It was not easy to encourage farmers to participate,” says Teresa Schorstein of CelsiusPro: “We had to explain what insurance is before we could tell them how it works.” Insurance, whether for health, life or property, let alone for rain, is basically uncharted territory in many African countries. Farmers may never have heard of a satellite and so the introductory programmes describe them as “cameras way up in the sky”.

The programmes are often conducted under trees out in the fields. The farmers were sceptical at first: What happens if the measurements are wrong? How long do I have to wait for the money? How does the payout work? “There was usually a leader in the community who had to be persuaded,” Schorstein says.

Since many farmers in Ethiopia are illiterate, the company had to rely on role-playing instead of distributing brochures or flyers. “We divided the farmers into two groups – with and without insurance – and then made believe there was a drought,” Schorstein says. The farmers with insurance received money; the others had to slaughter their cattle and ultimately relocate to refugee camps.

“Currently the sale of policies and the payouts are a costly procedure,” according to Mark Rüegg, founder and CEO of CelsiusPro. “We have to go to the villages to sell the policies and go back again for the payouts.” The goal is to automate this process and CelsiusPro is currently working with local telephone companies to implement it. In future, sales and payments would be handled through mobile phones.
Rüegg was previously an investment banker responsible for FX trading for UBS in London.

He asked himself, “If you can insure yourself against foreign exchange risk, why not against the weather?” With that thought in mind, he founded CelsiusPro in 2008, initially targeting small and medium-sized enterprises in Switzerland.

For example, if the ski resort Arosa offers a money-back-guarantee for less than 60 days of skiing, then CelsiusPro is part of the equation. When an open-air event wants to minimize the risk of fewer spectators as the consequence of bad weather, then CelsiusPro steps in to help. If a power company is worried about a cold winter, they call on CelsiusPro.

In 2012, the Ethiopian Ministry of Agriculture and a Japanese NGO worked together to find a solution for farmers affected by the absence of rain. Regular periods of drought were threatening their existence – some 60 million people, amounting to 80 percent of the Ethiopian population, rely on agriculture for their livelihood.

The Ministry of Agriculture contacted CelsiusPro, the world’s leader in calculating the risks of weather. In cooperation with local insurers and the reinsurance company Swiss Re, CelsiusPro created a product that makes people in Ethiopia less vulnerable to drought.

“In addition to humanitarian benefits, the product should also realize a profit,” Rüegg candidly explains, “only then can the project be sustainable.” CelsiusPro charges an overall consultation fee and a commission for every policy sold.

Farmers in Ethiopia are warming up to the project. In the meantime 6000 farmers from 45 villages – so-called kebeles – have purchased insurance. The project started with 1,300 farmers from 15 kebeles. Rüegg aims to attract the interest of more farmers. Negotiations to initiate similar projects are underway in countries like Nigeria and Bangladesh.

Farmer Wolsene renewed his insurance for another year although there was enough rain the previous year and he did not receive a payout. “It has increased the quality of my life,” Wolsene says, “because I know that, even if it doesn’t rain, I am insured and will be able to support my family in any case.”

DROUGHT IN ETHIOPIA

The 2014 Humanitarian Requirement Document released in January by the Government of Ethiopia and the humanitarian community, estimates that 2.7 million Ethiopians will need food assistance in 2014 due to droughts and other short-term shocks.

Ethiopia faces new challenges, with the arrival of tens of thousands of South Sudanese refugees who fled the fighting that erupted in their country in mid-December. By the end of this year, humanitarian agencies forecast Ethiopia could be hosting roughly 150,000 or more South Sudanese refugees. World Food Programme is responding by offering food assistance in camps and at border points.

Despite the reduction of poverty levels and other positive advances, Ethiopia remains one of the world’s most food-insecure countries, where approximately one in three people live below the poverty line.

With hundreds of thousands of drought refugees from the Horn of Africa, Ethiopia’s rural communities struggle to provide stable crops during erratic rainfall.

(Translated from German by Catherine Schelbert)

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