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February 2014

Munich Re Agro Insurance Info

The long-stalled US farm bill has been passed. What further developments have we seen globally?

Dear Reader,
This time, we are of course touching on the new US farm bill. However, in other regions commitments have also been made regarding enhanced agriculture risk management.

USA: Government emphasises the public-private agriculture insurance system

February 2014: After two years of delay, the new US farm bill was passed by the two entities of the US Congress (House of Representatives and Senate). The US farm bill is the legislation governing all spending on farm subsidies. Historically, numerous budget items were included in the bill, a five-year budget plan. Due to the tight financial situation in the USA, many items were cut over time, and this happened again in 2014. Farm subsidies, in total roughly a tenth of the total farm bill budget, were reduced by 5% in total, although crop insurance support was increased by 8%. Finally, the legislator emphasised the function of crop insurance for agriculture production, and direct payments were eliminated.

What conclusions can be drawn? The US crop insurance system will enlarge further by providing new products, e.g. for cotton or peanut growers. In addition, as an alternative to a minimum price protection (non-insurance), farmers now have access to an additional revenue protection cover (insurance) starting in 2015. Cross compliance with certain environmental conservation practices is also included, as well as various research fields for crop insurance programmes such as for organic producers. With crop insurance now being the central pillar of agricultural policy, US farmers are better protected against weather and market risks than farmers in any other part of the world.

More details have to be worked out in the coming months. The 2014 farm bill gives a broad basis for new developments, not only because it was passed by a remarkable rare bipartisan vote of the US Congress.
More information

India: Crop insurance on the rise

November 2013: According to the Indian Ministry of Agriculture, in 2012/13 almost 32 million Indian farmers insured more than 51 million hectares of cropland. The sum insured reached US$ 11bn and total premium income was slightly above US$ 700 million.

Starting with the coming Kharif season (plants sown in the rainy monsoon season), India will take the next step towards further expanding its existing crop insurance program. Based on the recent administrative instructions by the Indian government, the National Agricultural Insurance Scheme (NAIS) will be phased out and replaced by the National Crop Insurance Programme (NCIP). The implementation of NCIP marks the end of the system of claim subsidies and a complete shift to premium subsidies in Indian agricultural insurance. This will result in a substantial increase in premium rates and hence premium volume, which the Indian government is prepared to support. Current estimates of a market premium for the 2014/2015 crop season sum up to US$ 1.1bn.

Basically, the new NCIP consists of three components:

  1. Modified National Agricultural Scheme (MNAIS), based on area-yield index products
  2. Weather-based Crop Insurance Scheme (WBCIS), based on weather-index products
  3. Coconut Palm Insurance Scheme (CPIS), based on individual assessment

More information

Germany: At the GFFA conference, there were signals that globally, disaster preparedness is gaining momentum over disaster aid in order to overcome food security issues

January 2014: Once a year at the GFFA (Global Forum for Food and Agriculture) in Berlin, international agriculture ministers and their delegations meet with producers and agribusiness’ representatives to discuss future chances and challenges. At the beginning of this year, they sought to get to grips with the issue of Empowering Agriculture: Fostering Resilience – Securing Food and Nutrition.

This convention facilitates concerted efforts between governments, non-governmental organisations, farmers’ associations and participants in the agricultural production and financial value chain. Munich Re shares its co-panellists’ view that the private sector is key to food security. And that sustainable risk management tools both for large and for emerging agriculture producers will advance and be put into operation if governments play their role. These need to focus on disaster preparedness linked to an enabling regulatory framework.
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We hope you have enjoyed this issue of Munich Re Agro Insurance Info Worldwide,
Your Munich Re Agro team

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