Strengthening Resilience Through Weather Index-Based Crop Insurance: Lessons from Zambia’s Contract Farming Model

Authors: Douglas P. Daura & Nihar Jangle, GIZ.

On March 12th, e-MFP was pleased to launch the European Microfinance Award (EMA) 2025 on ‘Building Resilience through Inclusive Insurance’. This is the 16th edition of the Award, which was launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade, and which is jointly organised by the Ministry, e-MFP, and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank. This year, e-MFP is also delighted to welcome as a strategic partner our friends at Microinsurance Network (MiN).

In this 6th piece in the series, Nihar Jangle and Douglas Daura discuss the risks faced by Zambian smallholder farmers, and how their resilience to shocks can be mitigated by weather index-based crop insurance embedded into contract farming models.

For Zambia’s smallholder farmers, the risks of farming have always been high. But in recent years, the stakes have risen dramatically. Climate change has brought erratic rainfall, extended dry spells, and sudden floods – threatening not just harvests but livelihoods. For many rural households, a single bad season can mean selling assets, pulling children out of school, or going hungry.

Since 2017, GIZ – on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) – has been supporting innovative models to address this challenge, most notably by embedding weather index-based crop insurance into Zambia’s agricultural value chains. The most promising of these models relies on contract farming as a delivery mechanism – an approach that strengthens both financial protection and production systems.

What Is Contract Farming?

Contract farming is a formalised partnership between smallholder farmers and agribusinesses, typically structured around forward agreements. These contracts specify the type and quantity of crops the farmer will produce and deliver, while the buyer – usually an off-taker – commits to purchasing the harvest, often at a predetermined or market-linked price.

In many cases, buyers also provide so-called embedded services to farmers at the start of the season – such as seeds, fertilizer, crop protection products, technical advice, and credit. These inputs are typically repaid at harvest through deductions from the farmer’s sales proceeds. The arrangement helps smallholders access essential inputs and reliable markets, while buyers benefit from a more consistent, higher-quality supply.

In Zambia’s cotton sector in particular, contract farming has become a key model for structuring smallholder production. It also provides a natural entry point for bundling financial services such as insurance.

Embedding Insurance into Contract Farming

A leading example is Louis Dreyfus Company (LDC) Zambia, a contract farming operator working with thousands of smallholder cotton producers. In a partnership with GIZ and local insurers, LDC integrated weather index-based crop insurance into its input support package.

The insurance covered drought and excessive rainfall – especially during the critical germination and flowering phases. Rather than relying on costly, case-by-case loss assessments, payouts were triggered automatically when rainfall data (based on remote sensing) crossed pre-agreed thresholds. This made the model efficient, scalable, and transparent.

To remove financial barriers, LDC Zambia pre-financed the insurance premiums, recovering the cost after harvest. When a payout was triggered, LDC deducted any outstanding input loans and passed the remainder to the farmer. This ensured that farmers weren’t left with debt after a failed season – and could re-invest in the next one.

Over time, the bundled product has grown to include life insurance, providing a modest funeral benefit in the event of a farmer’s/beneficiary’s death. Initially met with scepticism, this addition has proven valuable and welcomed by farming families. It reinforced trust between farmers and LDC and strengthened the appeal of the overall package.

Field feedback showed clear benefits. Farmers who were insured were more likely to take up inputs, expand their cotton acreage, and deliver their harvests to LDC, rather than side-selling. For LDC, this meant reduced default risk, improved supply chain stability, and stronger farmer loyalty – a win-win for both sides.

Beyond Contract Farming: Engaging Other Aggregators

While contract farming offers an effective distribution model, it is not the only one. GIZ also supported insurance delivery through a range of aggregators:

• Microfinance Institutions (MFIs): VisionFund Zambia bundled weather index and livestock insurance with loans. The premium was integrated into the loan, and payouts could help clients repay in bad seasons – protecting both borrower and lender.

• Seed Companies: Firms like Pioneer and Monsanto have offered weather insurance bundled with maize seed packs. This approach protected against early-season risks such as drought during germination and served as a marketing incentive.

• Cooperatives and SACCOs: Community-based savings and credit organizations were also being explored as channels for distributing insurance and climate information, particularly in areas where contract farming was less prevalent.

Across all these models, a common insight has emerged: aggregation is essential. Whether through off-takers, lenders, or farmer groups, trusted intermediaries reduce transaction costs, improve communication, and drive uptake.

Lessons Learned and Looking Ahead

After nearly a decade of experimentation and implementation, a number of key takeaways stand out:

• Pre-financing premiums – by aggregators – solves a major access barrier for low-income farmers.

• Bundling insurance with existing services (inputs, credit, training) improves value for money and makes insurance more relevant to farmers’ real needs.

• Farmer education and trust-building are essential. Sensitisation through printed materials, local language campaigns, mobile messaging, and face-to-face interaction all matter.

• Insurer capacity remains a bottleneck. Long-term technical assistance and skills transfer are needed to build local expertise in product design, pricing, and claims management.

• Data and digital tools offer untapped potential for improving product design, reducing basis risk, and reaching scale.

So far, GIZ-supported schemes have reached thousands of farmers across Zambia through multiple partners. Training materials and awareness campaigns in English, Tonga, Bemba, and Nyanja have broadened understanding and demand. But the real opportunity lies ahead: scaling what works, refining what doesn’t, and embedding these tools more deeply into Zambia’s financial and agricultural systems.

As climate shocks become more frequent and severe, weather index-based insurance – when distributed through trusted, farmer-centric models like contract farming – offers a proven path to strengthening resilience, reducing vulnerability, and building a more secure future for rural households.

This blog reflects the experiences of projects implemented by GIZ and commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ). For more information, contact nihar.jangle@giz.de or douglas.daura@giz.de

Photos: GIZ

About the Authors:

Dr. Nihar Jangle has 15 years of experience in Climate and Disaster Risk Finance and Insurance (CDRFI), with a proven track record of successful implementations across multiple countries.

Nihar Jangle has been with GIZ Germany since 2017. He is currently heading the Risk Finance & Insurance Team at GIZ, implementing CDRFI solutions on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) in partner countries, in addition to advising the ministry.

From 2010 to 2017, Nihar Jangle was Director of the Climate Change Program at the Micro Insurance Academy in India, heading a multi-year initiative on inclusive insurance solutions for climate-related risks, including health, crop, livestock and natural catastrophes. This work experience led to several publications in peer-reviewed journals. Nihar’s work was recognized with the 2016 Shin Research Excellence Award bestowed by the Geneva Association and the International Insurance Society (IIS).

Nihar Jangle holds a doctorate degree in mathematics from Free University Berlin and served as Visiting Scientist at Brown University, USA, for two years. After finishing his degree, he worked with a consulting firm in Germany’s financial sector, focusing on risk management for major German banks.

Douglas P. Daura  is a seasoned agricultural finance and climate risk insurance expert with over a decade of experience driving inclusive solutions for smallholder farmers in Zambia. As Senior Advisor for Agricultural Finance & Insurance under GIZ’s AgFIN project, where he supported financial institutions, agribusinesses, and government partners in designing and scaling innovative financial products tailored to the needs of rural communities.

Douglas played a pivotal role in the implementation of the Climate Risk Insurance and Information in Zambia (CRIIZ) project, which expanded weather index-based crop insurance across Zambia’s agricultural value chains. His leadership contributed to the delivery of over 30,000 climate risk insurance policies—30% of them for women—and the integration of climate risk insurance into contract farming arrangements with companies like Louis Dreyfus Company Zambia (develoPPP.de project). His work helped ensure farmers had access not just to insurance, but also to climate information, financial training, and input services, strengthening both resilience and productivity.

Douglas is currently working under Climate Resilient Agri-Food systems (CREATE) under the private sector development - project co-financed by the European Union (EU) and the German Federal Ministry for Economic Cooperation and Development (BMZ). Implementing the ENTERPRISE Zambia 2.0

Douglas holds a BSc in Agricultural Sciences from the University of Zambia and brings a strong background in agronomy, insurance underwriting, and stakeholder engagement. He is passionate about developing scalable, farmer-centric insurance models and continues to drive efforts that embed climate risk tools into Zambia’s broader development and finance systems.