Why farmers, agribusinesses should get insurance covers

In the age of agriculture as business, and with the need to feed the fast-growing population while making agribusinesses sustainable for job creation, food security and social security, there should be zero tolerance for capital loss. Hence, insurance becomes imperative, as experts have said.

Despite perceptions of the insurance operators’ capability and reputation in the country, agricultural scientists, insurance, entrepreneurs and other professionals have given valid reasons for insurance protection against unforeseen insurable disasters in farm and agro-related businesses.

Capital protection
Some experts believe that of the factors of production in basic economics, capital is the next most important after entrepreneur. Resources or assets are always scarce, and it takes discipline, commitment and perseverance to save up capital for investment. Therefore, business professionals believe that such should be protected, preserved and multiplied as much as possible. Agricultural investments, either on in crop production, livestock, equipment hiring, seed/input supply or processing, no matter on small, should be protected against disasters through insurance coverage.

Protection against loss of borrowed capital
Start-up businesses often borrow capital from friends, family members, micro credit associations and from other sources. Apart from protection of their saved up capital, agribusiness owners with insurance coverage also protect borrowed capital.

Business sustainability
Research has validated that most start-up businesses die in their first three years of establishment in Nigeria. And, data has indicated that most of the failures are associated with insurable risks that are often overlooked. Although expected returns on investment would not be recovered, insured agro-allied business are often restored back to production after insurable risk-related failures.

Executive Director of Leadway Assurance, Mrs Adetola Adegbayi, reiterated the point by saying, “It offers financial protection to the farmers’ investments in agriculture whenever there are catastrophic losses which may be attributable to natural calamities like flood, drought, windstorm, lightening, frost, fire, pests and diseases.’’

She added that insurance payouts act as a shield against these losses as it would assist farmers to go back to farming after such disasters.

Financing for business expansion
One of the conditions the traditional and modern agro-allied financiers place on the lap of farmers is insurance of the business. It is a condition for loans. Loans are either used for running cost, fixed assets and expansion of business or start-ups capital augmentation. Hence, farmers with foresight for business expansion should insure their businesses.

“It has been established that a demand driven agricultural production is more sustainable than the one based on impulses. To achieve this, agricultural market must be well established and well financed.  One sure way to do this is through agricultural insurance,” Dr Mufutau Adeleke, a maize Value Chain Coordinator at the Federal Ministry of Agriculture, said.

Adegbayi also supported Adeleke on this, saying, “It encourages institutional lenders to give more credit facility to the farmers to expand their production and also assist them to pay back their loans during the period of catastrophic losses which may have led to failure of their agricultural projects.

“The financial institutions will also be more comfortable in lending to the farmers because of the insurance projection on the farmer’s project.”

Free follow-up advisory services
Most insurance companies would, from time to time, visit the farmers’ farms, factory or processing centre and give advice on risk mitigation, good management practices and other professional services. The farmer too can visit, call and seek technical advice from such insurance firms.

“The farmers will also have access to free risk management and farm advisory services from the insurance service providers during the course of their farm assessment and monitoring visits.,” Ayoola Fatona, an agricultural insurance specialist, also said.

Less dependence on government during post-disaster periods
Insurance coverage of agricultural businesses can help in the reduction of the farmer’s dependency on government assistance, which in most cases, is always inadequate during the periods and time of natural calamities catastrophic losses.

Because the world has become a global village, international disasters, pests and other greenhouse effects do affect global regions. The problem of transboundary pests such as Fall Armyworm and Tuta Absoluta comes to mind. These pests ravaged and still ravaging many farms in Africa within, causing huge losses to farmers.

Farmers and agro-allied investors are, therefore, advised by professionals to get their investments covered by reputable insurance firms. The government too should restructure the insurance sector for effectively delivery through the National Insurance Commission. This would boost agribusiness investors’ interest in insurance.