Smart insurance helps cut pesticide use

An annual initiative of organisations including the Dutch Ministry of Foreign Affairs and the Rotterdam School of Management, the Partnership Verkiezing challenges young talent to develop business cases with a positive social impact. Made up of young professionals from multiple departments, ABN AMRO’s ABetterNature team took part in this year’s competition and swept the board, winning all three prizes on offer with a business case for strengthening biodiversity. The team’s outstanding performance aside, the project could ensure better health for farmers, improved soil quality and greater biodiversity. The smart insurance scheme offers farmers a way to hedge the financial risks of switching to more sustainable farming techniques and cutting their use of pesticides that harm the soil and living organisms.

Strengthening biodiversity

Puck Rozendaal and Bodil Koppejan say there’s an important reason their business case focuses on biodiversity. “All over the world, plant and animal species are dying out because of human activity,” says Bodil. “A main driver of biodiversity loss is the use of pesticides in agriculture.” When these chemicals break down, they end up in the soil and surface water, harming insects and other life forms. The good news is that cutting the use of pesticides has clearly been shown to have a positive impact on biodiversity. Puck adds, “We looked at how ABN AMRO could help bring about a reduction in pesticides in agriculture, an aim that’s in line with the bank’s strategy to help our clients make the transition to sustainability.”

Growing broccoli

Many of the farmers Bodil and Puck’s team spoke with during the exploratory phase of the project said they were interested in ways to use fewer pesticides. Puck says, “Obviously, they understand the benefits to the environment. A number of scientists have even found evidence that exposure to certain pesticides may increase the risk of Parkinson’s disease, so eliminating pesticides is in their own best interests, too.”

Although farmers may be open to change, making the transition isn’t easy, the team discovered. “First, they need to gain experience using nature-based agricultural techniques,” says Bodil. “Not only does that take time and money, but it also poses significant financial risks during the transition phase.” Puck cites the example of growing broccoli, a crop prone to fungal infection: “If a farmer decides to make the transition but eliminates fungicides during a period of heavy rainfall, the whole crop could fail.”

Smart crop insurance

The team’s solution to this problem is crop insurance, which happens to be very common in the United States. Farmers there insure themselves against economic loss owing to crop failure as the result of multiple factors, including crop disease. Farmers in Europe now only have the option to insure their crops against extreme weather conditions, yet they rarely do so.

The Bodil and Puck team set out to create a “parametric” insurance policy whereby the insurer pays out a predetermined amount should a specific event occur. The biggest advantage of the policy is that since it’s linked with predefined parameters, payment is quick and transparent. And that means less bureaucracy and rapid financial relief if a crop fails.

Bodil continues, “Our solution ensures that farmers can make the transition to pesticide-free farming while incurring less risk, the main benefit being that the financial risk of crop failure is no longer the farmer’s alone to bear.” And by using fewer pesticides now, farmers will be better prepared for European regulations in the pipeline. As part of these EU agreements, the Dutch government aims to cut the use of chemical pesticides by 50% by 2030.

Gaining experience

Testing and development are set to continue over the coming months. Lessons learned will be shared both in and outside the bank and integrated into existing biodiversity projects at ABN AMRO. Puck and Bodil believe that the low-threshold nature of the new crop insurance scheme will appeal to farmers. “This solution reduces risk for farmers switching from their current business model to more sustainable agriculture,” Puck says. “They can even opt to use a small piece of their land to experiment with new techniques and thus gain experience.”

The positive impact is projected to be tremendous. According to calculations published by the consulting firm Deloitte: transitioning to more sustainable agriculture and eliminating pesticides could lead to an 80% reduction in groundwater pollution, as well as many other benefits. Together with other ABN AMRO colleagues, the team will continue to work towards this goal, even after having bagged their prizes. Bodil concludes, “The more farmers in and outside the Netherlands who make the switch, the greater the positive impact on biodiversity and the ecosystem for us all.”