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Boosting agriculture through insurance

Boosting agriculture through insurance


By Ogunnubi Tola

Agriculture plays a vital role in the Nigerian economy and is a critical source of growth in many developing countries. It is also a means of livelihood for rural populace and a source of investment opportunities for the private sector.

However, Agriculture is exposed to adverse natural events, such as drought, flood, windstorm, pest, diseases etc. The impact and economic costs of such disasters may increase further in the near future because of climatic factors occasioned by climate change.

These events, in most cases can lead to impoverishment of farmers if not checked or controlled. Agricultural Insurance is a veritable tool that agricultural producers can use to mitigate and manage the risks associated with adverse natural events and disasters.

Agricultural Insurance is important to Nigerian farmers in view of its role in agricultural development as it complements and enhances risk management activities.

In recognition of the specialized nature of Agricultural Insurance, the Federal Government established the Nigerian Agricultural Insurance Scheme (NAIS) which is implemented and managed by the Nigerian Agricultural Insurance Corporation (NAIC).

The Corporation is to implement, manage and administer the scheme, offer protection to the farmers from the effects of natural hazards, ensure payment of appropriate compensation sufficient to keep the farmers in business after suffering a loss, promote agricultural production and encourage the flow of agricultural credit facilities from banks and other lending institutions to the farmers.

The need for agriculture insurance is necessary because of government policies and increased agricultural activities. The USA currently subsidies farmers (not the agro allied industry) with an average of $20 billion each year.

This amount is expected to increase because of a reduction in the net income of farmers due to falling crop prices. The EU (EEC) commenced farm subsidies in 1962. By 2020 the budget for direct farm payments (subsidies) and rural development under the Common Agriculture Policy (CAP) was 57.5bn euros (£49bn), out of a total EU administrative budget of 132.8bn euros. (that is 43% of the total). 75% of the CAP budget is direct payments to farmers. They even commenced the subsidising of exports since the 1970s. On average, farm subsidies provide nearly half of farmers’ net income in the EU.

Even in Nigeria, banks are exempted from paying tax on interest earned from agricultural loans. The primary reason why nations, with knowledgeable governments, spend so much money on agriculture subsidies is to ensure that food is always available for their citizens at very cheap prices. Even with the current overproduction in Europe, practices which try to curb production, because of low market prices, are discouraged. Food security is one of the social safety nets in a modern society.

There is no serious government in the world today that sees agriculture first as an opportunity for it to make money. In nation building, agriculture is a social service and not a business. Agriculture investment is expensive since it involves putting a lot of resources in one place. Agriculture is a risky business; however, it is among the most profitable.

Farmers who buy the insurance premiums for their agriculture businesses have a big advantage because they are in place to recoup all their losses. Such losses could be in crops, animals and farm inputs. By paying the insurance premium that is affordable, farmers recover their losses.

An important benefit of buying agriculture insurance premiums is that farmers get peace of mind. Natural disasters are unpredictable since they can happen any time. For those who have bought insurance premiums, they get peace of mind in that if anything happens to their investment, they are sure of compensation from the company providing insurance packages.

A good agriculture practice involves investment in new technology, machines and tools. Agriculture insurance taken against the crops and livestock allow farm managers to open up for new technologies in the market.

Each year, there are new technologies invented to help farmers get more produce from their investments. Since the new investments are risky, insurance packages help the farmer to try new technologies.

The insurance companies allow farmers to get insurance covers for the new technologies such that if they fail, farmers will not get losses as the insurance company compensates them. In many countries, the government of the day tries to help farmers produce more such that they are self-reliant in food production. To make many farmers go into more risky agriculture production methods, the government lowers the price for insurance by subsidizing.

This is beneficial to the farmers because they pay less for huge risky ventures. The subsidies in the cost of insurance given by the government make it more affordable. Agriculture is among the most profitable investments since it has huge returns gained after a very short time. With million of dollars as investment for animal and crops, farmers find themselves risking to get profits.

To be on the safe side, farmers take agriculture insurance to safeguard their investments. There are many companies offering such services to farmers. Insurance for agriculture involves paying out premiums to the insurance company. The insurance company offering such services visits your farm, inspects the crop and animals as well as the structures. When evaluation is complete, the farmer gets the quote on which to pay the premium. Taking agriculture insurance is an important part of investment and gives farmers protection against any misfortune in future.

Why is it important for farmers to take agriculture insurance? Farmers who take insurance policies protect their crops, livestock, farming and harvesting practices from setbacks. The first major benefit of taking this form of insurance is because it aids in fighting poverty.

A natural disaster is unpredictable. When they happen, farmers who have invested heavily in agriculture get their investment destroyed. This in turn makes them poor. If the farmer had bought the insurance, the companies compensate them. With money paid out, farmers are in place to reinvest in farming and other agricultural activities making them rich again.

NAIC offers wide range of products and services in the following areas: subsidized crops, subsidized livestock, commercial crop, commercial livestock, multi-peril cover (MPC), farm assets and investments. Agriculture in Nigeria is highly susceptible to risk like drought, flood, pest diseases etc. Thus it becomes necessary to protect the farms from natural and non-natural calamities, secure farmers’ investment, ensure food security and inflow of credit from lending Institution.

Agriculture plays a significant role in the Nigerian economy. Farmers play pivotal role in the success or failure of the agricultural industry, but are the ones suffering from loads of debts, poverty and natural calamities that ravage their agricultural enterprises. Benefits accruing to Nigerian farmers are innumerable under the Nigerian Agricultural Insurance Scheme (NAIS) which has evolved to provide benefits to farmers. The corporation therefore has over the years achieved its main objective of addressing agricultural production risks by way of providing protection to farmers and ensuring payment of indemnity from natural hazards.

Ogunnubi is an Abuja-based public and social critic.


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