Financial Inclusion and Sustainability in Indonesia through introducing Cocoa Soil Moisture Index (SMI) Insurance product

Following receipt of OJK’s approval of the listing of the Cocoa Soil Moisture Index insurance product, a first of its kind flagship product of IFC’s Indo Agri Insurance project, FIG AS Indonesia team was invited to attend the Cocoa Sustainability Partnership (‘CSP’) General Assembly meeting to observe a soft launch of the SMI. The SMI will contribute to increased investments in agriculture and rural communities by introducing insurance solutions to reduce the risks faced by farmers and agri-lenders/businesses due to adverse weather events i.e droughts, flood and hurricane – the effects of which are compounded by climate change. IFC provide advisory services to help PT Mars Symbioscience Indonesia, a wholly owned subsidiary of Mars Inc., a company incorporated in Indonesia who engages in research and development in connection with improving cocoa quality and productivity, and which partners with supply chain players to improve the sustainability of cocoa smallholders, 1) design pilot weather index insurance product designed to mitigate the risks faced by cocoa farmers in Indonesia and 2) capacity building for administration of the product.

IFC’s Ag. Country Manager, Mr Eric Siew also gave brief remarks in the event. Key takeaways from the event are:

-Despite the importance of the agriculture activities to the Indonesian economy (13% of GDP, livelihoods 34% of labor force), food security and poverty reduction, the multiple risks associated with agricultural production – coupled with the general lack of knowledge and outreach to farmers/agriculture sector by financial institutions – have the limited the needed levels of investment flows into the sector.

-Agriculture insurance penetration is less than 1% in Indonesia. Most insurance companies face additional deterrents, such as the technical difficulty of designing weather insurance products; the high level of investment needed to enter the market; and the levels of reserves, and/or reinsurance required to adequately cover weather/disaster risks.

-Cocoa is one of the leading plantation commodities as a source of foreign exchange from exports volume for Indonesia. Today, Indonesia’s cocoa production volume is ranked 6th, dropped from 3rd since 2018. Of this production, c.95% is cocoa produce by smallholder plantations on an area of 1.68 million hectares with 60% of Indonesia’s cocoa area located in the Sulawesi area. To prevent a continued decline in cocoa production, it needs to be ensured the creation of an ecosystem that support the development of the cocoa industry in Indonesia.

-The Minister of Agriculture noted that, Government is committed to supporting farmers in the renewal of over Cocoa Plantation covering over 250,000 hectares of land.

-The CSP also launched its E-cocoa Digital Training Platform.

-More than 100 participants attended the CSP General Assembly; Minister of Agriculture, Minister of Foreign Affairs, Commissioner of Otoritas Jasa Keuangan (‘OJK’ - Indonesia Financial Services Authority), Asosiasi Asuransi Umum Indonesia (‘AAUI’ – General Insurance Industry Association of Indonesia) and Cocoa Sustainability Partnership and Mars Inc.

Key takeaways: Access to Finance is key for economic development and creation of job opportunities in any economy and its role is equally important in the context of Indonesia. Introduction of Cocoa Soil Moisture Index insurance product is expected to contribute to increased investments in agriculture and rural communities to reduce the risks faced by farmers and agri-lenders/businesses due to adverse weather events i.e droughts, flood and hurricane – the effects of which are compounded by climate change. The Minister of Agriculture noted that, Government of Indonesia is committed to supporting farmers in the renewal of over Cocoa Plantation covering over 250,000 hectares of land.

Presenters: Dr Syahrul Yasin Limpo, S.H., M.Si., M.H, Ministry of Agriculture, Retno Marsudi, S.Ip., LL.M, Minister of Foreign Affairs, Suharman Sumpala, Riswinandi, Board of Commissioners of the OJK (Financial Services Authority of Indonesia), Chairman of Cocoa Sustainability Partnership, Dr. Ir. Musdhalifah Machmud, M.T, Chairman of CSP Advisory Board & Deputy for Food Agribusiness Coordination, Ministry of Economic Affairs, Ir. R. Anag Noegroho S. M, MEM. Director of Food Agriculture Ministry of National Development Planning, HSM. Widodo, S,Kom, MEngSc., Chairman of Asosiasi Asuransi Umum Indonesia (General Insurance Industry Association), Eric Siew, Chief Investment Officer of IFC Indonesia, Wahyu Widowo, Executive Director of CSP.

Attendees: Over 100 active participants representing Ministries, Financial Services Authority, Insurance companies, Association i.e General Insurance Industry Association, Multifinance Association, Cocoa Sustainability Partnership (‘CSP’) and Food & Agri-business company i.e Mars Inc., Olam International etc.