Agricultural insurance needs a firm foundation to succeed

Vietnamese farmers make production in a spontaneous way, while they do not follow any common production process, and very few farmers take insurance policies. All of those factors have raised worries about the feasibility of the pilot agricultural insurance project to be kicked off on July 1.

In fact, 20 years ago, agricultural insurance service was once provided by Bao Viet in a trial basis in Nam Dinh. After that, in 1998, the insurance service was provided in 26 cities and provinces. However, the insurer later has decided to “give up the games” because of the big loss.

In 2001, French insurer Groupama decided to jump on the bandwagon, but it also suffered defeat. The company only got 30 million dong in insurance premiums for the shrimp crop at the wrong time in 2003. Meanwhile, the money it has to pay to compensate six households reached 400 million dong.

Where the difficulties come from?

Dr Le Van Banh, Head of the Mekong Delta Rice Research Institute, thinks that it is very difficult to provide agricultural insurance services in Mekong Delta. Since agriculture is a risky production, very few insurers want to provide services.

“The small production scale of farmers will cause big difficulties to insurers. Every farmer household just has several hundreds of land, which makes it unable to sign contracts with millions of farmers,” Banh said.

In the past, pilot agricultural insurance projects showed that when growing profitable plants and farming profitable livestock, farmers did not intend to take insurance policies, though insurers want to jump into the fields. Meanwhile, those farmers, who want to take insurance policies for their risky production sectors, were refused by insurers.

Tran Van Bien, a shrimp hatchery farmer in Bac Lieu province, feels worried about if farmers can meet the requirements in cultivation standards in order to well implement the insurance policies. Ten years ago, many farmers could not claim for compensation from insurers, who said that they could not examine the actual toll of farmers. As a result, though taking insurance policies, farmers still had to bear the consequences themselves.

Le Luan, another farmer in Bac Lieu said that once farmers are required to follow standards, they will have to make heavy investment to do that.

“How many farmers have enough capital to make investment?” he questioned.

Under the Decision No 315, the State will prop up 100 percent of the insurance premiums to poor farmers and individuals in the pilot project. Also, other preferences have been offered to the farmers who are close to the poverty line. This will help encourage farmers to take insurance polices. Meanwhile, there is nothing that encourages insurers to provide agricultural insurance services.

If insurers raise the insurance premiums to the levels high enough to cover risks, farmers will refuse to take insurance policies because of the overly high costs. Meanwhile, the input costs for the agricultural production in the summer-autumn crop have increased dramatically.

Restructuring production?

A senior executive of an insurance company’s Soc Trang branch, said that Vietnamese farmers make production in a spontaneous way, while they do not follow any common production process and very few farmers take insurance policies. This means overly high risks for insurance companies.

Besides this, he said, in order to make the agricultural insurance project feasible, farmers need to join forces in cooperatives or joint stock companies to create stable products with high quality. In order words, farmers need to organize their production under the mode of farms. In this case, insurers just have to sign contracts with representatives rather with millions of farmer households. This allow insurance companies to easily manage the policies and examine tolls when necessary.

Most recently, in 2010, big rains and tides in Soc Trang plunged thousands of hectares of rice, plants and aquaculture ponds, worth hundreds of billions of dong into water. In Hai Phong City, the spell of cold earlier this year caused the loss of 20 billion dong to the local agriculture. In recent months, farmers in Mekong Delta suffered from epidemics. Therefore, farmers hope agricultural insurance will help them recover from natural calamities and resume production. However, experts believe that agricultural insurance still needs a firm foundation to develop.- TBKTSG

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Posted by VBN on May 27 2011. Filed under Agriculture, Insurance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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