The research, the first-of-its-kind analysis of agriculture-insurance schemes across the EU and published jointly by the European Investment Bank (EIB) and the European Commission, says that worsening climate change threatens to increase EU agricultural average annual losses as much as 66% by 2050, and urges a stronger EU risk-management system for the sector.
“Climate-related risks are an increasing source of uncertainty for food production. Mitigating these risks through insurance and de-risking mechanisms is essential to support the investments of European farmers,” said the EIB’s vice president, Gelsomina Vigliotti. “The findings of this analysis will guide our future action as we step up support to bolster the resilience of the EU’s agricultural system.”
Significant gaps in financial coverage for climate risks in agriculture
New lending and credit options are being developed to help farmers in the broader European region reduce the risks posed by extreme weather.
UK banks Oxbury and HSBC for example are offering farmers new blended finance and specialist loans to support sustainable practices.
Parametric insurance – a type of insurance that pays out a pre-agreed amount when a specific event occurs, based on a measurable parameter or index, rather than compensating for the actual loss incurred – is also growing and aiming to reshape how businesses and governments manage risk in an increasingly volatile world.
But significant gaps still remain in insurance and financial coverage for climate risks in agriculture, prompting a push at the EU level to develop and expand lending, credit, and insurance options to help farmers manage and reduce the risks from extreme weather.
Greater volatility in EU agricultural yields
Across the 27-nation EU, climate-induced losses for the agricultural sector average €28.3 billion a year, according to the study. That’s around 6% of annual EU crop and livestock production.
Global warming threatens to cause greater volatility in EU agricultural yields and more instability in European farm incomes, the report added, with projected losses rising between 42% and 66% by mid-century.
Only 20% to 30% of climate-induced farm losses in the EU, however, are insured through public, private or mutual systems including those supported by Europe’s Common Agricultural Policy (CAP). Insurance coverage backed by public funding is often more effective than government compensation programmes, according to the study.
Expansion of insurance options needed
To limit economic shocks for farmers, the report recommends, the EU should pursue risk-transfer measures including catastrophe bonds and public-private reinsurance arrangements. The EU also should provide rapid-response funding when disasters occur and the sector as a whole should take more adaptation steps because, even with improved insurance coverage, they are critical for countering future climate risks.
Key measures highlighted in the report
- Expansion of Insurance Options: The EIB and European Commission are urging EU member states to expand insurance coverage for farmers, including through public, private, and mutual systems. Currently, only 20-30% of climate-related farm losses are insured, and expanding this coverage is seen as essential for resilience
- Development of New Financial Instruments: They recommend that EU countries assess and launch new financial instruments under their Common Agricultural Policy (CAP) Strategic Plans. These could include catastrophe bonds, public-private reinsurance arrangements, and rapid-response funding to provide liquidity after disasters
- Loans, Guarantees, and Equity: The EIB already supports the agricultural sector with loans, guarantees, and equity investments, as well as financing rural infrastructure. These financial products can help farmers invest in adaptation and risk-mitigation measures
- De-risking Mechanisms: The use of guarantees and blended finance approaches is encouraged to de-risk private investments, making it easier for banks and other financial institutions to provide credit to farmers. Loans backed by EU guarantees can facilitate capital expenditures for climate adaptation
- Policy Support and Mobilization of Capital: EU officials are calling for the mobilization of both public and private capital to ensure long-term resilience in the agri-food sector. The EIB is already advising on how EU farm grants can attract additional funding and limit climate-related risks
“Climate change and its consequences could restrict farmers’ access to finance, as banks could become even more reluctant to take risks than they are today,” warned commissioner for agriculture and food, Christophe Hansen.
“The study we are publishing with the EIB shows that only 20% to 30% of climate-related losses are insured by public, private or mutual systems. We need to do something to cover the remaining losses. I encourage all Member States to assess and launch new financial instruments under their CAP Strategic Plans, to better prevent climate risks in the agricultural sector.”
