Insuring the Agricultural Sector: Can it work?

Agricultural insurance is a major tool for farmers and other stakeholders to use in managing risk. Generally, insurance protects against production-related risks (pests, diseases, farming practices) and market & policy related risks (drought, flood, prices). Globally, the major value chains that benefit from insurance are crop and livestock, others include fishery and forestry. Access to agri-cultural insurance in Nigeria is limited and costly, particularly for rural farmers. In addition, farm-ers have poor access to other services like financing and inputs so insurance policies adds costs that most farmers are unwilling to incur. International best practices show that agricultural insur-ance is most effective when combined with other services such credit and technology.

Crop & Livestock Insurance

Crops are mostly affected by adverse weather conditions which include drought, flood, pest infes-tation and bush fires. Annually, farmers lose significant amounts of money as a result of the effects of these adverse conditions on crops.

Crop insurance products can be classified into two major groups. Indemnity-based insurance or peril crop insurance is calculated by measuring the percentage damage soon after the incidence occurs while yield-based or multiple peril crop insurance is coverage in which an insured yield is established as a percentage of the farmer’s historical average yield. Livestock are mostly affected by various types of diseases such as bird flu and swine flu. In Nigeria, livestock insurance is more popular than crop insurance particularly in the poultry industry, due to the increase in organized poultry production in the country.

Initiatives promoting Agricultural Insurance in Nigeria

Public sector initiatives: Nigerian Agricultural Insurance Corporation (NAIC)

In an effort to provide agricultural risk insurance for farmers, the government established the Na-tional Agricultural Insurance Scheme (NAIS) in November, 1987. This scheme evolved into a cor-poration, fully owned by the Federal Government of Nigeria called the Nigerian Agricultural Insur-ance Corporation (NAIC) in June, 1988. The main objectives of NAIC are to promote agricultural production, provide financial support, increase the flow of agricultural credit and minimize the need for emergency assistance to farmers. The scheme was established for all category of farmers: small, medium and large scale at the individual or group level. The crop insurance package covers 17 crops like maize, rice, cassava, yam and sorghum. The livestock insurance package covers 14 types of livestock such as cattle, poultry, pigs, rabbit and sheep. The perils covered under crop in-surance are fire, lightning, windstorm, flood, drought, pests and diseases while the perils covered under livestock include accident, disease, fire, storm and flood. In May 2013, NAIC paid over ₦500 million in claims to insured farmers who suffered losses from the floods in 2012. More recently, NAIC paid ₦80 million in compensation to a sugar farm in Adamawa State, following natural disas-ters.

November 1, 2014

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