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Quest for insurance subsidy as game-changer for food production

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Femi Ibirogba writes on important roles that insurance coverage can play in food security, sustainable agriculture, poverty eradication and wealth creation
Insurance experts have urged farmers and the government to embrace agricultural insurance in the ongoing efforts to ensure food security and industrialise the sector, calling on the government for insurance premium subsidy for farmers.

Agriculture is a risky business and farmers have to face a number of risks ranging from natural disasters, market-related and technical risks, systematical and financial risks. Agricultural insurance provides the possibility of shifting natural risks, increasing output, and improving rural household’s welfare and stabilize food production.One of the theories of agricultural insurance says that farmers will be more likely to follow the principle of maximum benefit and adopt high technologies which might be uncertain if they know for sure that insurance will cover the possible loss of income.

Exploiting this to the fullest, China is said to be about 90% food-secure. The country produces almost all it requires despite a huge population. Agricultural insurance in China plays more and more important roles on increasing the capacity of disaster recovery, ensuring social stability in rural areas, servicing to a new socialist countryside construction, and building a harmonious society.

In the United States, where farmland covers about 250 million acres, federal crop insurance is available through a private insurance under the authority of the US Department of Agriculture. The first federal crop insurance programme was established in the United States after Congress passed the Federal Crop Insurance Act in 1938.Continued and increased participation has been ensured over the years through a series of other legislative reforms. In 2015, approximately $3.26 billion was paid in total compensation by crop insurance companies in the U.S.; their overall retained premiums for that year amounted to about $7.38 billion. The state of Texas recorded the highest total loss paid by American-based crop insurers in 2016.

In Nigeria, to address agricultural production risks, the Federal Government established the Nigerian Agricultural Insurance Scheme on 15th December, 1987 to provide protection to farmers on the effect of natural hazards.Here, the Nigerian Agricultural Insurance Corporation (NAIC) was established and incorporated by Act No. 37 of 1993 to operationalise the Nigerian Agricultural Insurance Scheme.

The objectives include provision of financial support to farmers where losses to crops and livestock arise from natural hazards; induction of the provision of credit by financial institutions, as the insurance serves as an added collateral; to promote and enhance agricultural production by giving farmers confidence to accept new and modern innovations and inputs; and to eliminate or minimize the need for government to provide ad-hoc assistance to farmers during agricultural disasters.

Factors against agric insurance in Nigeria 
According to Bankole Orimisan, the major hiccup responsible for the growing apathy for insurance is the low level of disposable income, and that the only problem we see in the Nigerian market is that per capita income of the people is very low and people tend not to take insurance a priority.Another factor is the issue of low awareness of insurance. The sector does not do enough to win the heart of the people to have knowledge of benefits they stand to gain in taking insurance policy across the country.The issue of claim payment is also another challenge why people do not embrace insurance covers. Some who have insurance policies and paid their premiums to operators are denied their claims when incidences happened.

National President of All Farmers’ Association of Nigeria (AFAN), Mr Ibrahim Kabiru, affirmed what Orimisan said, saying farmers did complain of delayed payment of claims from insurance companies. He urged the insurers to be more proactive to encourage farmers to embrace insurance policies.However, he admitted that some insurance firms were bracing up and revamping their operations for efficiency, advising that payment of timely and appropriate compensations would motivate farmers to embrace insurance policies and would ensure food production.

Ayoola Fatona, Head, Agric. & Micro Insurance/ National Coordinator, Leadway Agricultural Insurance, in a material made available to The Guardian, said to take worry out of farming, Leadway Insurance has a range of insurance cover for farm produce, crops, poultry, fish farm, livestock, machinery and equipment against losses from fire, burglary/housebreaking, lightening, flood, explosion, windstorm and other perils by mitigating the impact of losses.

Poultry Insurance Policy
The Leadway poultry policy offers a comprehensive cover against death of broilers, layers and parent stock (hatchery birds) and all commercial birds occasioned by diseases, accident, fire, windstorm, flood and lightening.The sum insured is calculated based on the projected market value of the broiler at table size, layers and parent stock at point of lay. The premium rates and other terms are negotiable depending on the level of size of the farm, bio-security and standard of management.Underwriting requirements, according to Fatona, are location of the farm, number and age of birds to be insured; method of rearing; value per bird; completion of proposal form; loss experience in the last 3-5 years and vaccination evidence.

Fish farm insurance policy
Fatona said this offers a total cover for fish, fish ponds and hatchery. The cover provides compensation in case of death of fish stock and collapse (Dyke) of the fish pond occasioned by diseases, accident, fire, flood, lightening and windstorm.The sum insured is determined based on the projected market value of the fish stock at table size and cost of construction of the fish pond or the hatchery. The premium rates and other terms are negotiable depending on the size of the farm and risk improvement facilities available.
Requirements include location of the farm; type of pond; number of fish per pond; completion of proposal form (questionnaire) and loss experience in the last 3-5 years.

Farm property and produce insurance policy
This policy protects against loss and damages as a result of burglary, fire, flood, accident, windstorm, lightning, explosion, farm produce and aerial impact.
Underwriting requirements schedule of produce or property are loss experience (3-5years) and proposal form &KYC.

Multi-perils crop insurance policy
This provides insurance cover for all arable and perennial crops against the riskof fire, flood, lightening, windstorm, explosion and pest and diseases.The sum insured is the estimated cost of production or the value of the crop as declared in the proposal form. The premium rates and other terms are negotiable based on the size of the farm, risk improvement facilities available and standard of practice. Underwriting requirements are location of the farm; completion of the proposal form; size of the farm (acreage); sum insured (cost of production) and loss experience in the last 3-5years

Livestock Insurance Policy
This offers comprehensive livestock insurance for your farm animals including cattle, horses, sheep, goat, dogs, rabbits and any other animal kept on the farm for the purpose of profit, food, ornamental and recreations against death as a result of diseases, fire, flood, lightening and windstorm.The sum insured is the market value of the animal that is declared in the proposal. Premium rate and other terms are also negotiable depending on the size of the farm, level of bio-security and standard of management.Underwriting requirements include location of the farms, sum insured; completion of proposal form; loss experience in the last 3-5 years and system of production.

Premium subsidies for farmers
Subsidising premium payment of farmers by the state and Federal Government will incentivise farmers to take risks, cultivate more hectares of land, embrace new and improved seed varieties, and adopt new technologies and innovations relevant to food production.Advanced economies do assist their farmers to subsidise not only the agricultural inputs and mechanisation, but insurance premiums, accounting for why less than 10 per cent farming population feeding the United States of America and China.

Fatona argued that in other climes where there has been successful implementation of agricultural insurance programmes, the major area of government support is in the provision of premium subsidies. Premium subsidies directly increase the farmers’ uptake of agricultural insurance and positively affect their expected profits, which, in the long run, encourage more acreage of the insured crop and other agricultural projects. It assists farmers to pay for the insurance cover.“However, the application of smart premium subsidies should continue to be implemented, sustained and expanded in order to leverage on the positive impact of enabling farmers purchase agricultural insurance,” Fatona said.

Efficient targeting mechanisms are critical and crucial to the success of premium subsidy programmes, otherwise benefits will go to individuals that do not actually need them or that are not the priority at the moment.Commercial and large scale farmers should enjoy less premium subsidies than the small scale farmers who normally have thin profit margins on their agricultural projects.

Leadway Insurance also suggested that the payment of the premium subsidies by the government should be applicable to all farmers insuring their risks with private sector insurance companies, and payment should not be limited to the farmers insuring with Federal Government-owned Nigerian Agricultural Insurance Corporation (NAIC), as this would enable more farmers have access to agricultural insurance products and services in the country.

Prompt payment of claims of farm losses and damages, stakeholders have said, would motivate farmers, processors and agro-allied dealers to insure their farms, processing equipment and produce.National President of the Catfish and Allied Fish Farmers of Nigeria, Mr Rotimi Oloye, said insurance coverage for agriculture is the only saving grace of farmers, urging all farmers to embrace such.He said the government should subsidise premium to include all farmers in the insurance coverage.

Based on the foregoing, risks associated with all forms of agriculture could be mitigated with appropriate insurance coverage. This is achievable in two ways. One, farmer education through their different associations would break certain attitudinal barriers to embracing insurance. Two, the government should be ready to do the talk by investing in the sector, and the investment includes education and premium subsidy regimes for farmers transparently managed with the private insurance companies and the NAIC. Insurance firms and NAIC should be made to work out a clear modality and modus operandi in this regard.


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