Swiss Re Outlines Brazilian Farm Insurance Market Challenges

NU Online News Service, Sept. 29, 12:59 p.m. EDT

Few Brazilian farmers buy agricultural insurance, in part, because product offerings don't meet their needs, they lack insurance awareness and the budget is low for premium subsidies, a study found.

That analysis came in a Swiss Re focus report titled "Betting the farm? Agricultural risks in Brazil."

Swiss Re said while they are aware of the risks posed by weather and commodity prices, few Brazilian farmers have the insurance coverage that could protect them.

According to the survey, farmers who did not buy crop insurance said they either diversified their crops or did nothing at all.

It found that insurance purchasing by farmers varies broadly by operating model, farm size and region, and while the majority of the farmers organized in cooperatives had insurance, only 21 percent of the large farms and 15 percent of the corporate farms were covered by insurance.

The report said there is a lack of insurance agents in some regions. Also farms can differ with respect to their productivity and growing seasons, leading to a "lack of granularity of farm specific production data that in many cases would be necessary to develop more adequate insurance products."

In addition to outlining reasons for low insurance penetration, the report proposes measures at both the farm level and the national level "to help to develop a more robust agricultural insurance framework," said Swiss Re.

For its study, Swiss Re said it surveyed 240 larger-sized farms and 30 cooperatives representing more than 130,000 members to evaluate farmers' risk perception and risk management strategies.

Risks facing Brazilian agricultural producers were found to include weather, high input costs and volatile commodity market prices for the inputs they need and for the crops they produce, Swiss Re said.

Farmers polled said in the future they expect climate change and extreme weather as major risks. The study shows that while farmers are well aware of the risks they face, many do not take advantage of the insurance options available to them. The low insurance penetration was found to be a result of different factors, including:

o A dearth of insurance options designed to address the farmers' specific needs which depend upon their operating model, the crops they grow and the climate conditions they face.

o Lack of knowledge about the benefits of insurance.

o A relatively low budget for government premium subsidies when compared with other agricultural powerhouses.

According to the report, the lack of agricultural insurance reduces the amount of operational credits available to farmers and expanding insurance penetration is the key to unlock the full potential of the agricultural sector.

The proposed solutions highlighted in the report include:

o Expanding the variety of agricultural insurance solutions, which might include new revenue coverages and index-based solutions, for example.

o Encouraging the government to enhance and restructure its support by, for instance, increasing the total amount of premium subsidies and increasing the maximum subsidy limit per farmer.

o Redefining the government's catastrophe insurance fund to stimulate insurance companies' participation.

Swiss Re said increasing Brazil's agricultural production, realizing greater financial gains and coping with the risks its farmers face can only be attained "if all stakeholders work together to invest in the development of a robust agricultural insurance market."

"Brazil is one of the world's most dynamic agricultural markets, accounting for one fifth of global food production. For the agricultural sector to reach its full potential, it is crucial that the farmers can cover their production and price risks," said J?rg Tr?b, head of Environmental and Commodity Markets, Swiss Re.

The report can be found online at www.swissre.com.