Insuring farmers against risks

There is no doubt that the Agricultural Transformation Agenda of the current administration has attracted commendation from stakeholders locally and overseas. Yet, the news that the teeming farmers in the country are exposed to the full risks that accompany farming is definitely not cheering.

It is disturbing that out of the estimated 20 million commercial farmers in Nigeria, only about 3.5 percent (700,000) have accessed agricultural insurance in the last five years, as revealed by the Nigerian Agric Insurance Company. This leaves 19.3 million who have never accessed any form of agric insurance.

There are concerns that even with the huge investments currently been made to boost farming activities in the country, and make farming a genuine commercial activity, that over 96.5 percent of commercial farmers in the country have no insurance to fall back on in times of disasters.

With flooding, increasingly becoming a yearly phenomenon in the country, with the most devastating one in recent years being the 2012 floods which affected almost half of the states in the country resulting in losses of billions of naira such glaring absence of insurance cover for the farmers would surely make recovery difficult for them in the event of any loss due to natural disasters or any negative occurrence.

According to a recent report by Enhancing Financial Financial Innovation and Access (EFInA) on ‘Access to Financial Services in Nigeria 2012 Survey, out of the 5.98 million rural adults that experienced agricultural risk that year, only 70,600 used insurance. As a result, federal and state governments concerned spent hundreds of millions of naira to mitigate the effect, while businesses of uninsured farmers that did not get compensations crashed and they had to sell assets or borrow money from family and friends to start all over again.

The agricultural insurance scheme which has been run in Nigeria since 1987 when the National Agricultural Insurance Corporation (NAIC) was established is to provide financial support to all categories of farmers who take up insurance policies, in the event of losses arising from natural disasters. However, surveys carried out by researchers indicate that there is very low awareness of the scheme by farmers and that many enlightened farmers are very wary of taking agricultural insurance policies.

Some Industry sources believe there should be more companies apart from the National Agricultural Insurance Commission (NAIC) which started in 1987 and Industrial and General Insurance Company (IGI) that was just given the go-ahead last year by the National Insurance Commission (NAICOM) to service the agricultural industry..

But some stakeholders insist that the agricultural insurance market is still not competitive to insurance companies because the 50 percent subsidy provided by the federal government, in addition to the 25 percent subsidy provided by the state, are still given only through NAIC.

With this subsidy regime, farmers pay only 25 percent of their insurance premiums if they take up agric insurance with NAIC. But with IGI and any other entrant into the agric insurance industry, the farmers or agribusiness operators are expected to pay 100 percent.

While there is a call for the removal of subsidies to liberalise the market, this subsidy removal is however not a welcome development to many farmers.

Analysts believe that a sharp transition towards a liberalised agric insurance market may not augur well now as the Country is focussing on building commercial farmers by creating an incentivised framework. The thinking is that the subsidy arrangement is still relevant, but it has to be done properly with a regulator properly overseeing issues like categorising the risks that farmers are open to, appraising the impact of such risks, educating farmers on the need for insurance, fixing of subsidised premiums according to the kind of risks and ensuring that the subsidy framework is not abused.

We urge all stakeholders to brainstorm properly on the realistic way forward on providing more farmers with insurance, as this risk-hedging is invaluable if indeed we need food on our tables.