Agricultural Insurance in Latin America: Developing the Market

insured with catastrophic agricultural insurance purchased by the governments. Agricultural insurance direct premiums written in geographic areas where agricultural insurance is not consolidated amount to US$100 million, from which US$39 million is paid for catastrophic agricultural insurance cover purchased by governments. In summary, considering only the voluntary uptake of private agricultural insurance in these areas, total agricultural insurance premiums are US$61 million, and the total insured area of 1.3 million hectares is equivalent to only 2 percent of the cropped area. There are several possible reasons why agricultural insurance has not been consolidated in these areas. The main factor is the existence of a huge population of sparsely distributed traditional subsistence and semi-commercial farmers who have no access to rural services and no financial capacity to afford premiums.

The second is the high cost of providing agricultural insurance. These geographic areas are important areas for forestry production; however, the penetration of forestry insurance is minimal. Although more than 2 million hectares of forestry plantations are located in these areas, less than 30,000 hectares are insured. Aquaculture production is an important agricultural activity in the northern areas of Peru, Ecuador, Colombia, and all Central American countries; nevertheless, the provision of aquaculture insurance in these countries is, currently, nonexistent. Livestock insurance has reached some level of development in Colombia and Panama, where 200,000 and 70,000 head of cattle, respectively, are insured, but penetration of this insurance product is still very low.

There are many agricultural production areas in LAC where agricultural insurance is still not available. The total cultivated area in the geographic zone in which crop insurance is not yet available is approximately 50 million hectares (27 percent of total cropped area in the LAC region). While in some of these geographic areas crop insurance can be developed in the relatively short term, in others it will be very difficult to develop crop insurance without government intervention.

The geographic areas where agricultural insurance is not yet available but has the potential for development are characterized by the coexistence of well-developed market-oriented agriculture firms with traditional subsistence or semi-commercial farming. These geographic areas include (a) the high-altitude valleys of the Andean region of Colombia, República Bolivariana de Venezuela, and Ecuador, (b) the coastal areas of northeastern South America, and (c) most of the countries of the Caribbean region. In the intermountain valleys and lower slopes of the northern Andean mountains—the heartland of Andean coffee and horticultural production—farmers are mostly commercial and market oriented; thus there is potential to introduce suitable crop insurance products. However, in the highlands and upper valleys where temperate crops, maize, and pigs predominate, traditional indigenous subsistence farming systems are strongly established, and insurance products would be very difficult to develop. In the coastal areas of northeastern South America and most of the countries of the Caribbean region, large-scale plantations of