Agricultural Insurance Impacts On Food Production And Supply Chains In Nigeria

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Agricultural Insurance is a valuable business risk management tool that provides farmers with financial protection against production losses caused by natural perils, such as drought, excessive moisture, hail, frost, wind and wildlife.

Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop’s value.

Yield-based Insurance Coverage

Multiple Peril Crop Insurance (MPCI): MPCI insures against losses from natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. You choose the amount of your average yield you want to insure, from 50% to 75% (in some areas up to 85%). You also choose a percent of the predicted price for a crop, between 55% and 100%. RMA sets this price annually. At press time it hadn’t been set due to farm bill uncertainty.

Group Risk Plan (GRP): These policies use a county yield index to determine a loss, instead of a grower’s actual production history (APH). When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Yield levels are available for up to 90% of the expected county yield. It’s fairly simple to buy, but you’ll wait longer to be paid an indemnity on corn or soybean losses — up to six months after harvest — due to delays in calculating county yields.

Revenue Insurance Plans

Crop Revenue Coverage (CRC): CRC provides revenue protection based on expected prices and yields by paying for losses below a guarantee purchased by the grower. Losses are calculated using the higher of two prices, an early-season price or a harvest price. The early-season price in the Midwest is the February average of December corn and November soybean futures. CRC is used by growers who aggressively sell those crops on spring rallies. The harvest price for both crops is now determined by new crop futures in October.

Revenue Assurance (RA): RA provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue from a range defined by 65% to 75% of expected revenue. If you buy the harvest price option (HPO) it becomes much like CRC. RA with HPO has no upside limit on harvest price protection. CRC does. If yields are average or above and prices don’t rise, standard RA is your best value. CRC or RA-HPO is a better value if yields are low and prices rise.

Group Revenue Insurance Policy (GRIP): GRIP makes indemnity payments only when the average county revenue of the insured crop falls below the revenue chosen by the farmer.

Income Protection (IP): IP protects against low gross income, from low yield, price or a combination.

It is no doubt that agricultural production in Nigeria is faced with inherent and myriad of risks and prominent among them are input supply, price of inputs, agricultural yield, project prices and production risks due to effects of climate change or natural disasters.

 

It is important to note that the agricultural production risks always affect farmers and agribusiness in different ways, which thereby affecting agricultural production and threatening food security in the country.

 

Agricultural insurance which is the protection of farmers against the risks of natural disasters, pests and diseases in addition exchange for regular premium payments proportion to the likelihood and cost of risk involved.

 

Not many may know that the Federal Government of Nigeria established the Nigerian Agricultural Insurance Scheme, managed by Nigerian Agricultural Insurance Corporation (NAIC), to provide protection to farmers on the effect of natural hazards.

 

The scheme was launched on December 15, 1987, as part of its efforts to enhance and sustain food production in Nigeria in realization of the fact that most efforts to promote food production have not yielded much results, due largely to incidence of incremental weather conditions and the effects of natural hazards like floods, drought, pests, diseases, fire etc.

 

NAIC was established and incorporated by Act No. 37 of 1993 to operationalize the Nigerian Agricultural Insurance Scheme with the following key objectives:

 

* Provide financial support to farmers where losses to crops and livestock arise from natural hazards;

 

* Induce the provision of credit by financial institutions, as the insurance serves as added collateral;

 

* Promote and enhance agricultural production by giving farmers confidence to accept new and modern innovations and inputs;

 

* Eliminate or minimize the need for Government to provide ad-hoc assistance to farmers during agricultural disasters.

“Agricultural Insurance is a policy which involves the insured (farmer) paying a little sum (premium), usually in percentage to an insurance company (insurer) to guarantee against loss due to any of the perils (death, flood, drought etc) covered for a particular period of time (usually not more than one year) with a promise to indemnify (pay back the value of loss) should such occur.”

 

In order to enhance food production level in Nigeria, the National Insurance Commission (NAICOM) licensed Industrial and General Insurance Plc is the foremost private insurance company in the country to underwrite agricultural investments. The idea is that should loss occur, regardless of the source of finance, the farmer will be reimbursed as soon as possible to the value of the loss to enable him/her return to business.

 

In the strategic disposition to meet the challenges in the agricultural industry and contribute their quota to national development, IGI has crafted five (5) innovative products to ensure sustainable growth. They are;

 

  1. Poultry Insurance Policy
  2. Fish Farming Insurance Policy
  3. Livestock/Bloodstock Insurance Policy

Each of these animal insurance policies indemnifies against death due to diseases and accident of any sort

 

  1. Multicrop Peril Insurance Policy
  2. Plantation fire Insurance Policy

 

These plant insurance policies indemnify against loss due to fire, flood, drought, pests, diseases and theft.

 

Buying a policy begins with obtaining and completing the proposal form by the farmer. This is followed by an inspection of the farm by a team of experts from IGI or consultants appointed by IGI and after satisfactory risk assessment report, cover commences with the payment of premium by the farmer.

 

Some facts and figures that may interest you about IGI are follows:

Why is IGI in Agricultural Insurance?

There is a vast potential for agricultural insurance market in Nigeria and to make it private sector driven

 

 

What are the objectives of IGI Agricultural Insurance?

The main objective of IGI Agricultural insurance is to mitigate the financial loss of farmers in the event of crop/livestock failure due to natural disasters such as flood, drought, windstorm, pests and diseases. Also there is the need to provide sound technical advisory services for farmers in order to minimise the risk of loss.

 

 

What are the benefits of IGI Agricultural Insurance?

  • Financial compensation in the event of loss
  • Stabilization of farmer’s income
  • Technical advisory services
  • Collateral security for loans

 

 

What Agricultural Insurance products does IGI offer?

  • Multi-peril Crop Insurance Policy
  • Poultry Insurance Policy
  • Livestock Insurance Policy
  • Fish Farm/Fishery Insurance Policy
  • Plantation Fire Insurance Policy
  • Farm All Risk Insurance Policy

 

 

What are the risks covered?

  • Loss of and damage to the crops due to fire, flood, drought, windstorm, lightening, pests and diseases.
  • Death of Livestock/Birds/Fish due to accident or diseases

 

 

 

How can I get my farm investment covered by IGI Agricultural Insurance policies?

  • Obtain the relevant proposal form by visiting any of the IGI offices nearest to you.
  • Complete the proposal form and return same to us
  • Inspection of the farm by our team of experts
  • Premium computed and paid by the farmer
  • Policy cover issued to the farmer promptly
  • Visit our website at www.iginigeria.com for online transaction

 

How much would I pay for the insurance cover?

Poultry/Livestock/Fishery: 2.5% of the sum insured

Crops: 2.0% of the sum insured

Plantation: 1.5% of the sum insured

 

How will I calculate the sum insured?

Poultry: cost of day old, feeding, medications e.t.c.

Fishery: cost of fingerlings, feeding, and other inputs

Livestock: cost of purchase, feeding and other inputs

Crop: cost of seeds, land clearing, chemicals and other inputs

 

 

Does IGI grant loans to farmers?

No. IGI does not grant loans but provides insurance cover for loans from lending institutions.

We also link you up with agriculture friendly financial institutions.

 

Can my policy facilitate an easy access to agricultural loan?

Yes, the policy can serve as a collateral security for loans

 

What are the measures put in place in the event of catastrophic losses?

We have reinsurance arrangements in the form of treaties, coinsurance and facultative types that will ensure that claims are paid as at when due

 

 

What is the difference between IGI products and that of other agricultural insurance service providers?

IGI Agricultural insurance products can be customized to meet your specific needs for optimum protection of your investment

 

 

Who shall I contact for further information?

Adeyemo- 08034365489, Ganiyu- 08033254041, Jude-08030645826

 

Agricultural Items Covered by NAIC

 

The Scheme provide cover to all crops, livestock and tangible fixed assets like farm buildings, machinery, equipment, agricultural produce activities, warehousing and other Agro-processing activities.

 

Summary of items covered by NAIC include:

 

(a) Subsidized Crop – maize, rice, millet, yam, mixed crop, cassava, sorghum, vegetables, irish potato, sweet potato, soya beans, cowpea, pumpkin, melon, groundnut, sesame, wheat, peanut, coco yam, pepper, garlic etc.

 

(b) Subsidized Livestock – cattle, sheep, goat, poultry, fishery, pig, apiary, snailery, grass cutter, rabbitry etc.

 

(c) Commercial crop – cocoa, rubber, oil palm, horticulture, plantain, sugarcane, jatropha, ginger, cotton, tea, coffee, gum Arabic, pineapple, kolanut, tree crops etc.

 

(d) Commercial Livestock – dogs, horses, camel, donkeys, pets, zoo animals etc.

 

(e) Multi-Peril Cover (MPC) – combined trading, agroc-processing, storage risks, ware-house activities etc.

 

(f) Tangible Fixed Assets – farm buildings, machinery, equipment, motor vehicles, fishing nets, outboard engines, fishing boats etc.

 

(g) Farmers, Farm Labour/Employees and their dependents.

 

(h) General Business – Motor vehicle, Fire and Special Perils, Burglary, Group Personal Accident, Money Insurance, Plant-All-Risks, Machinery Breakdown etc.

 

Perils Under Cover

 

The perils covered under the agricultural sub-sector are as follows:

 

(a) Subsidized Crops – The perils covered are comprehensive in nature and include fire, lightning, windstorm, flood, drought, pests and diseases.

(b) Commercial Crops = The perils covered include fire, lightning, windstorm, flood, drought.

 

(c)  Subsidized Livestock – The perils covered are death or injury due to accident, disease, fire, lightning, storm and flood.

 

(d) Commercial Livestock – The perils covered are the same as in subsidized livestock.

 

(e) Multi-Peril Cover – The policy covers risks of loss or damage to agricultural produce or goods while in storage or in transit from one destination to the other or due to and fire, allied risks, burglary, house breaking and transit goods.

 

(f) Tangible Fixed Assets – The perils covered include loss or damage to insured items by fire, lightning, collision, explosion, storm, violent theft and other allied perils.

 

(g)  Farmers’ Farm Labour, Employees and Dependants – The policy covers death or bodily injury which may result in temporary or permanent disability during the course of duty or work.

 

(h) General Business – Perils covered in General Insurance include theft, accident, burglary, loss or damage to plants, machinery etc, transit risks and other allied risks.

 

How to Insure Agricultural Projects with NAIC

 

NAIC was established to cater for all farmers in the country, either small, medium or large scale farmers either in groups or as individuals.

 

The scheme operates a mandatory cover which applies to all Agricultural and Agro-related projects or programmes assisted supported or fully funded from public funds, all direct and on-lending loans taken by Federal, State or Local Government for disbursement to farmers and all form of agricultural loan disbursed by all banks and non-bank lending agencies.

 

Insuring Agricultural Projects Through banks and other Lending Institutions

 

Insurance cover can be obtained through Banks and other lending agencies/institutions by following procedure outlined below:

 

* The farmer or client approaches the Bank or lending agency and applies for an agricultural loan;

 

* The bank or agency processes the loan and approval given;

 

* The Bank or agency decides on the applicable insurance needs of the loan applicant;

* NAIC and the bank/lending institution enlighten the client/loan applicant on all the insurable risks involved in the class of agric business or projects the farmer is proposing to embark upon and also the importance and benefits of taking the insurance cover;

 

* Proposal form is then issued to the client for completion from which NAIC obtains complete, accurate and adequate information about the applicant and the proposed project.  For large scale project Bank offer letter and feasibility report of the projects are required;

 

* On proper completion of the proposal form, premium is computed based on the prevailing and approved rate on the loan volume, sum insured or estimated production cost of the proposed project(s);

 

* The client is advised on the premium payable to provide insurance cover to the project;

 

* Premium deducted by the Bank or intermediary is sent to NAIC by cheque, or electronic transfer together with the Bank remittance list and cover commences immediately;

 

* The Certificate of Provisional Insurance Cover (CPIC) and other documents are issued to the client/bank.  This will confirm temporary cover;

 

* A comprehensive inspection is conducted on the farm to ascertain the suitability of the farm;

 

* Once the project has been found to be genuine and insurable based on the inspection report, cover will be fully granted on the project;

* Original policy is issued to the client through the lending bank.

 

Insurance of Agricultural Project by Individual/Self-Financed Farmers

 

Insurance cover can be obtained by self-financed or individual farmer through the following procedure:

 

* The Farmer collects proposal form from NAIC based on the interested project(s) to be insured;

 

* He is then enlightened/educated on how to complete the form and also the terms and conditions of the policies;

 

* NAIC examines the duly completed proposal form and compute the appropriate premium based on the estimated cost of production or sum insured of the project;

 

* On payment of appropriate premium a Certificate of Provisional Insurance Cover (CPIC) is issued as a temporary cover;

 

* A policy document is then issued to the insured as evidence of the contract;

 

* NAIC may undertake a monitoring visit to any of the insured projects as a way of verifying and assessing the projects.

 

The above provide a detailed procedure for insuring Agricultural projects with NAIC.  All prospective clients are encouraged to contact the nearest NAIC office nationwide for enquiry and their agricultural insurance needs.

 

All clients are advised to study the conditions of their policies noting all exceptions and exclusions.

 

The approved premium rates for subsidized crop are 4 percent of the sum insured and 5 percent for livestock.

 

It is important to mention that under the Nigerian Agricultural Insurance Scheme some crops and livestock items are subsidized to the tune of 50 percent by the Federal and State Government in the proportion of 37.5 percent and 12.5 percent of the premium payable.

 

In NAIC, claims are treated and paid with dispatch and insured are encouraged to report claim incidence promptly to enable verification and commencement of processing for payment.  The indemnity for crops is based on the approved input costs, less the value of crops harvested or salvaged if any.  For the livestock indemnity is the value of the animal at the commencement of the policy plus the approved input costs

MAJOR TYPES OF CROP INSURANCE POLICIES

Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop’s value.

Yield-based Insurance Coverage

Multiple Peril Crop Insurance (MPCI): MPCI insures against losses from natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. You choose the amount of your average yield you want to insure, from 50% to 75% (in some areas up to 85%). You also choose a percent of the predicted price for a crop, between 55% and 100%. RMA sets this price annually. At press time it hadn’t been set due to farm bill uncertainty.

Group Risk Plan (GRP): These policies use a county yield index to determine a loss, instead of a grower’s actual production history (APH). When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Yield levels are available for up to 90% of the expected county yield. It’s fairly simple to buy, but you’ll wait longer to be paid an indemnity on corn or soybean losses — up to six months after harvest — due to delays in calculating county yields.

Revenue Insurance Plans

Crop Revenue Coverage (CRC): CRC provides revenue protection based on expected prices and yields by paying for losses below a guarantee purchased by the grower. Losses are calculated using the higher of two prices, an early-season price or a harvest price. The early-season price in the Midwest is the February average of December corn and November soybean futures. CRC is used by growers who aggressively sell those crops on spring rallies. The harvest price for both crops is now determined by new crop futures in October.

Revenue Assurance (RA): RA provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue from a range defined by 65% to 75% of expected revenue. If you buy the harvest price option (HPO) it becomes much like CRC. RA with HPO has no upside limit on harvest price protection. CRC does. If yields are average or above and prices don’t rise, standard RA is your best value. CRC or RA-HPO is a better value if yields are low and prices rise.

Group Revenue Insurance Policy (GRIP): GRIP makes indemnity payments only when the average county revenue of the insured crop falls below the revenue chosen by the farmer.

Income Protection (IP): IP protects against low gross income, from low yield, price or a combination.

Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop’s value.

 


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