EU Agriculture Faces €28B Annual Climate Losses, Study Urges Insurance Reform

The European Union’s agricultural sector is grappling with staggering losses exceeding €28 billion annually due to adverse weather events such as droughts, and without swift intervention, these losses could surge dramatically. A landmark study released jointly today by the European Investment Bank (EIB) and the European Commission sheds new light on the escalating financial risks posed by climate change and proposes robust measures to mitigate them—most notably, a significant expansion in agricultural insurance coverage across the EU.

Mounting Climate Risks to EU Agriculture

According to the comprehensive study—the first of its kind to examine agriculture-insurance schemes across all EU Member States—climate-induced agricultural losses currently account for about 6% of the EU's total annual crop and livestock output. With climate change intensifying, the situation is expected to worsen substantially. The report projects that, without significant action, average annual losses could rise between 42% and 66% by 2050, potentially crippling the economic stability of Europe's farming communities.

The study, which was commissioned by the European Commission’s Directorate-General for Agriculture and conducted by EIB Advisory under the fi-compass initiative with support from global insurance intermediary Howden, calls for urgent reforms to protect the sector’s financial viability and food production resilience.

A Glaring Protection Gap in Farm Insurance

One of the most critical findings of the study is that only 20% to 30% of EU farm losses due to climate factors are currently covered by insurance—whether public, private, or mutual. This massive protection gap leaves a vast portion of the agricultural economy vulnerable to unpredictable weather patterns.

“Climate-related risks are an increasing source of uncertainty for food production,” said EIB Vice-President Gelsomina Vigliotti. “Mitigating these risks through insurance and de-risking mechanisms is essential to support the investments of European farmers.”

She emphasized that the study’s insights would serve as a roadmap for future EIB interventions aimed at boosting resilience within the EU's agri-food ecosystem.

Threefold EIB Support Strategy

To date, the EIB has contributed to the agricultural sector through a three-pronged strategy:

1. Direct Financing: Loans and guarantees for agricultural businesses and equity investments.

2. Infrastructure Development: Funding of rural infrastructure projects, such as irrigation systems and roads, to strengthen supply chains and reduce vulnerability.

3. Policy Advisory: Guidance to public agencies and financial institutions on leveraging EU farm grants to attract additional investment and manage risks, particularly those associated with climate change.

Policy Action and Strategic Financing Tools Needed

EU Commissioner for Agriculture and Food, Christophe Hansen, warned that climate impacts could further limit farmers’ access to credit, as financial institutions grow increasingly risk-averse. “The study we are publishing today with the EIB shows that only 20% to 30% of climate-related losses are insured,” Hansen said. “We need to do something to cover the remaining losses.”

He urged all Member States to explore and implement new financial instruments under their CAP (Common Agricultural Policy) Strategic Plans to better manage climate risks. Hansen also highlighted the EIB Group’s crucial role in mobilizing capital to enhance the long-term resilience of Europe’s agricultural sector.

Strategic Recommendations

The study recommends a holistic and proactive approach to addressing climate risks in agriculture. Key proposals include:

• Risk-Transfer Mechanisms: The development of catastrophe bonds and public-private reinsurance schemes to diversify risk.

• Rapid Response Financing: Establishment of funding mechanisms that can be deployed quickly in the wake of natural disasters.

• Climate Adaptation Incentives: Encouraging the farming sector to invest in adaptation strategies such as climate-resilient crops, improved irrigation, and sustainable land use practices.

It stresses that while insurance can play a major role in mitigating risk, adaptation strategies are indispensable for long-term resilience.

Looking Forward

The publication of this pivotal report coincides with a major EIB-Commission conference held today in Brussels, focused on “Insurance and Access to Finance for Farm Resilience and Adaptation in the EU.” The gathering brings together policymakers, financial institutions, and agricultural stakeholders to chart a new course for climate-smart farming across Europe.

The findings of this study mark a critical turning point for EU agriculture. If acted upon decisively, they could usher in a new era of financial protection, investment, and climate adaptation—ensuring that Europe’s farms can continue to thrive even in the face of a warming planet.