Transcript The Importance of Crop Insurance and how MIS will help to develop their future packages in particular to the small scale farmers.

The Importance of Crop Insurance and how MIS will
help to develop their future packages in particular
to the small scale farmers of Uganda.
By: Newton Jazire
Outline
• Definition of Crop Insurance
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How Crop Insurance works
The importance of Crop Insurance
Types of Crop Insurance
MIS & Crop Insurance
Definition of Crop Insurance
• A contract of indemnity by which, for a
specified premium, one party(insurer)
promises to reimburse another(farmer) for the
financial loss acquired by the destruction of
agricultural products from the forces of
nature, such as rain, hail, frost, drought or
insect infestation.
Crop Insurance
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All these vagaries of the weather may cost the farmer a season’s crop(harvest),
hence the reason why farming is a business that is very risky.
Other than the weather , there are multitude of other things that can destroy a
farming season e.g. falling crop prices, rising costs of both equipment and supplies
and transport expenses.
The purpose of crop insurance is to mitigate the financial risk of farming so that
farmers focus on harvesting their crops rather than worrying about every possible
situation that could spell financial ruin.
As with all insurance premiums the cost of the premium should be weighed
against potential financial damage that would occur without having the insurance
policy.
For example if a cotton farmer receives constant rainfall during harvest time
he/she may lose 43% of the expected harvest and there is no insurance cover in
place, he will have to absorb this loss in his working capital.
Therefore crop insurance protect billions of agriculture production and with the
financial uncertainties and economic volalities facing today’s farmers crop
insurance is more important now than ever before.
The Importance of Crop Insurance
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Producers receive individualized risk management solutions- it allows farmers to
customize and their plans and coverage to suit their unique yields or risk tobaccohail and cotton- rain.
Farmer can use Crop Insurance as collateral for loans. It is essential for preserving
production capacity and provides producers with the financial freedom to build
capacity and innovation.
Producers are forced to improve on farming standards or practices for them to be
eligible for payments on incurring losses
Producers receive insurance indemnities in the timeliest way ; before harvest in
case of prevented planting or replanting payments or shortly after harvest in case
of yield or revenue shortfall.
Farmer can afford sleep as crop insurance is the only true source of bottom line
protection
Serves a spearhead for development in the rural areas and reduce emigration to
urban centers to seek better life.
Mitigates the burden on the national budget with respect to natural hazards
Insurance Policies
Perils covered by Insurance
1. Crops: Loss in Yield Due To
- Hail
- Windstorm
- Excessive Rainfall
- Drought
- Excessive Heat
- Uncontrollable Pests and Diseases
- Fire, Lightning
Information Requirements
1. Crops:
- Farm Management Practices
- Geographical Location
- Historical Yield and Loss Data
- Climatic (Weather) Conditions
- Types of Crops
- Markets
- Value of Crops
Classic Crop Insurance Products
• 1.Damage based or Named Peril Insurance policy
 This covers a particular peril like hail, frost or fire and damages are
normally localized, sum insured agreed when purchasing policy, loss
adjustment based on actual damage after the incidence of loss event and
this type is not suitable for perils that cover wide areas like drought, pest
and disease.
2. Yield based- Multi-peril Crop Insurance (MPCI)
Insurance geared to a level of expected yield, rather than the damage that is
measured after a defined loss event. Suitable to perils whose contribution
to a crop loss are difficult to measure and more suitable to perils that
impact over a period of time.
Establishing a farmer’s yield history provides the basis for determining the %
of shortfall after a loss event.
The yield is measured at harvest at may be in the range of 50 to 70% of
historic average yield. Yield shortfall may be determined on an area or
individual farmer basis.
Basis of Sum Insured
1. Crops
Long Term Average Yield x Total Area Planted x
Crop Value (or Input Cost per Hectare)
2. Basis of Indemnity
Expected Yield – Achieved Yield (less Excess)
Indemnity - Wheat example
30 X 70% = 21 bushel guarantee
30 bu. APH
70% level
$5.20/bu.
100% share.
I harvested only 10 &$@*#
bushels off of this place!
21 - 10 = 11 bushel
11 x $5.20 = $57.20 acre
Indemnity Payment
New Crop Insurance Product
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3.The Index-Based Insurance Policy
In 1 & 2 evidence of the damage to the actual crop on the farm or in the area of
the farm, is needed before an indemnity is paid, and process of verification is very
expensive and accurate measurement of the losses is costly.
• An Index Policy operates with a meteorological measurement that triggers the
indemnity payments. These could be : a certain minimum temperature for a
minimum period of time, a certain amount of rainfall in a certain time period- this
can be used for excess rain or also lack of rain(drought) cover and attainment of
certain wind speed for hurricane insurance .
• A coupon is issued with the index policy that merely states the monetary sum to
be paid once certification that the named weather event , of specified severity, has
occurred for the area or it can be graduated so that a proportional amount of the
severity is paid.
This type of policy operates over an area and encompasses many farms. Hail is
localized and this policy is not suitable.
Basis risk and pay outs not related to farming operation.
Causes of Loss
Causes of Loss
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Fire (act of God)
Insects (if control measures have been carried out)
Plant diseases
Wildlife
Earthquake
Volcanic eruption
Failure of Irrigation (if do to an insurable cause of loss)
Revenue loss due to price
Prevented Planting (from insurable cause of loss)
How Marketing Information Service
can help develop Crop Insurance
packages
• Develop close links with the representatives of farmers and promote
speedy response to new needs for insurance.
• Also similar linkages with banks, farm product buyers and others with
business connections with insured growers
• MIS can ensure attention to appropriate publicity
• Assist farmers with loss assessment and claims handling for speedy
payment of claims through dissemination of information of disasters
experienced around the country.
• MIS can also assist by lobbying the government to come up with pro small
scale farmer policies.
• Assist with educated decisions by farmers through provision of timely
market commodity prices information and crop insurance information,
which will assist farmers take less risks and also preserve their equity.
• Advocate for technical back up in terms of research, extension and
technology transfer.
Questions ?