Agricultural Insurance in Latin America: Developing the Market

coexistence of well-developed market-oriented agriculture firms with traditional subsistence or semi-commercial farms. While the risk transfer needs of market-oriented commercial agriculture firms can be met by the private insurance industry, the risk transfer needs of semi-commercial and traditional subsistence farmers should be met by market-based risk transfer mechanisms promoted by the public sector through public-private partnerships. In that regard, government catastrophic coverage is one option for providing crop insurance to these segments of farmers. Additionally, in the case of semi-commercial farmers and certain types of idiosyncratic risks, governments could promote the establishment of insurance mutuals in order to pool risks among a group of farmers.  Geographic areas where agricultural insurance is not available yet and has low potential for development In other geographic areas where crop insurance is not yet available and rural poverty is high, the potential for crop insurance is likely to be very limited.

These geographic areas comprise the high-altitude mixed-farming systems of central Andes (step valleys of the Andean mountains in Peru and the altiplano in Peru, Bolivia, Chile, and Argentina), the dry-land mixed-farming systems in northeastern Brazil and YucatĂĄn peninsula in Mexico, and the maize-beans farming system in Central America. These areas share common features that pose serious difficulties for the development of crop insurance.

First, the environment for the provision of crop insurance is too complex. Second, these areas are characterized by a large population of traditional subsistence and semi-commercial farmers whose farms are distributed on a scattered basis. Third, there is a lack of information, including crop production statistics, historical weather records, and records of events that have affected production in the past. Under these circumstances, developing a reliable crop insurance program becomes very challenging, and the private insurance industry may not be willing to do so on its own. The government provision of catastrophic insurance products, either index based or traditional, has been shown to provide suitable cover for small farmers in LAC. Catastrophic crop insurance provides macro-level coverage to governments at the state or federal level. Under catastrophic crop coverage, the government is the policyholder.

The government pays the insurance premium and receives the payouts from the insurance company in case of a claim. The government sets out the payment rules for farmers who are benefiting from the catastrophic fund. Crop insurance funds have been successfully running for almost a decade in Mexico. In 2008, the government of Peru implemented crop catastrophic insurance in five departments of the country. As of 2010, more than 8.5 million hectares of crops are insured under crop catastrophic insurance in Mexico and Peru.