December 20, 2016, 7:11 am
Agricultural insurance isn’t important until you need it but by then it will be too late. Let me explain.
In January 2006 we had just taken delivery of a new set of day-old layer birds to replace the old layers we sold during the Christmas of 2005. What we normally do on our poultry farm is to let specialized breeders hatch the birds, we then raise the birds from day-old to the point when the birds start laying eggs.
To ensure quality egg production and to avoid disease outbreaks, we don’t just buy our birds from any breeder. We only buy from trusted, reliable and experienced breeders who don’t compromise on rearing quality birds.
Prior to collecting our birds in 2006, there had been a bird flu outbreak in 2005—mostly in Asia (China, Vietnam, Thailand and Cambodia) and some parts of Europe (Romania, Croatia and Turkey); there were no reported cases of bird flu in Nigeria. Our birds arrived in good health and after four months, they started laying eggs. They laid eggs throughtout May 2006 and everything was going fine.
But something unusual happened one morning in June as we entered the poultry to begin work for that day. There were about 10 dead birds in the poultry. Now, it isn’t unusual to find dead birds in the farm from time to time but, from our experience, not this amount!
The following day, we discovered another 15 dead birds on the farm and we knew something was terribly wrong. We immediately called our veterinary doctor and explained everything to him. The veterinary doctor came to our farm to carry out diagnosis and proffer a remedy.
After inspecting the dead birds, he came to the conclusion that there was a bird flu outbreak on our farm. He prescribed a vaccination for them which was very expensive but it was the price we had to pay in order to prevent a wipe out of all our birds.
After we carried out the vaccination (more like medicine after death), there was a small respite, for about two days no bird died. Then on the third day they started dying in their dozens. They kept dying at this rate until all the birds on our farm were wiped out.
It was at this point that we needed some sort of agricultural insurance to help mitigate our losses but it was too late. We hadn’t taken out any agricultural insurance policy to protect our farm from such losses and to compensate us for our huge losses. We received no payment or compensation from the government as well. It took us about 1 year to recover from this incident before we resumed our poultry farming business. Agricultural insurance is a very important business tool for all farmers.
Before I dive into the topic of agricultural insurance, I think it’s proper to run through some basic definitions and concepts of insurance.
Insurance is a means of protection from financial loss in the course of doing business or going about your regular life. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. In business, Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. All type of business need Risk management and its objective is to assure uncertainty does not deflect the endeavor from the business goal.
An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.
Therefore, 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.
Benefits of agricultural insurance
Agricultural insurance is an effective mechanism for reducing the losses farmers suffer due to natural calamities such as floods, droughts, and outbreaks of pests and diseases. The following are some other benefits of agricultural insurance:
- It enables farmers to obtain credit and financing for investment in new technologies, tools, and equipment to enhance and sustain their productive capacity.
- It also assists farmers in regulating cash flows and provides a financial buffer with which to rehabilitate damaged enterprises
- It reduces business risk. In agriculture, equipment and properties are used in the operations which due to human error can be damaged or destroyed in a split second. Agricultural insurance helps to offset these types of risks.
- It provides the farmers with peace of mind. Agricultural insurance removes the worries, tensions, fear and anxiety associated with farming making it possible for farmers to be more productive and creative with their farming business
- It encourages saving through regular payment of premium which cannot be withdrawn easily before the expiration of the policy.
- It provides credit facilities. The farmer can get loans by using the insurance policy as collateral whose interest will not exceed the cash value of policy charged by the insurer.
- It accelerates the economic growth of a country by accumulating capital from the insured and using it for investments in services and infrastructure necessary to grow the economy.
- It also helps to reduce inflation caused by oversupply of money by collecting excess money in circulation in the form of premiums
- It also provides job security for employees because it can save their employers from going out of business which will lead to employees or workers losing their jobs.
Different types of agricultural insurance
There isn’t a single agricultural insurance to cover all types of farming business. As there are different types of farming business so there are specific agricultural insurance policies to protect them. Generally speaking, there are three broad classes of agricultural insurance: Animal agricultural insurance, Crop agricultural insurance and Farm property and equipment agricultural insurance.
Animal agricultural insurance is purchased by farmers who rear animals to protect themselves against the loss of their animals such as fish, birds and livestock due to disease outbreaks, accidents and natural disasters, such as hail, drought, and floods.
Crop agricultural insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance.
Farm equipment and property agricultural insurance is purchased by farmers and agro allied businesses involved in processing and packaging agricultural produce. This insurance safeguards equipment and properties used in agriculture and farming.
These broad classes of agricultural insurance are further broken down into specific coverage for the particular farming operations farmers are involved in. A breakdown of the agricultural insurance policies available to farmers in the Nigerian insurance market is given below:
Fish Farm Agricultural Insurance
This agricultural insurance product will insure your fish against death and your fish pond against collapse caused directly by fire, lightning, windstorm damage, flood, disease and accident.
The standard coverage provided by this policy will pay you the value of your fish in the event of death and for the cost of reconstructing your pond in the event of loss or damage to the position it was prior to the loss or damage.
Subject to the payment of an additional premium, you may also purchase coverage extensions. An extension increases the coverage you receive and will compensate you for 1) death of fish while in transit and/or 2) reconstruction of your hatchery in the event of loss or damage. Compensation is provided up to applicable limits as explained in the policy.
The premium you will pay for the fish vary from 2.25% - 3.0% of the value of your fish including production costs. The rate that applies to you will depend on the type of stock (breeder/table or market size) that you own as well as the quality of your pond construction
Rates for loss or damage to your ponds will vary from .075% to 0.15% depending on the quality of your pond construction. Rates are for 12 month policies; however, reduced rates apply for shorter time
Poultry Agricultural Insurance
This agricultural insurance product will insure your poultry farm including (broilers, layers, parent stock/hatchery stock) against death caused directly by fire, lightning, windstorm, flood, disease and accident.
The standard coverage provided by this policy will pay the assessed value of your birds in the event of death.
The premium you will pay for the standard coverage will vary from 4.50% - 6.0% of the value of your birds. The rate that applies to you will depend on the type of stock (i.e. broiler, layer etc) that you own.
Additional discounts will apply and will depend on the size of your farm and the level of care provided to your birds.
Rates are for 12 month policies; however, rates are available for shorter time frames for broilers.
Livestock Agricultural Insurance
This agricultural insurance product will insure your livestock (e.g. cattle, sheep, goats, rabbits, and pigs) against death caused directly by fire, lightning, windstorm, flood, accident, outbreak of pest and disease
The standard coverage provided by this policy will pay you the value of your animal in the event of death.
For an additional premium, you may also purchase coverage extensions. Compensation is provided up to applicable limits as explained in your policy.
For this type of agricultural insurance, a Veterinary Health Certificate from a qualified Veterinarian giving the age, identification marks, photographs, health, and market value of the animal in a prescribed format will be necessary.
The premium you will pay for the standard coverage will vary from 2.25% - 2.85% of the value of your animals. The rate that applies to you will depend on the size of your herd and the care provided to them.
These rates are for 12 month policies only.
Farm Property and Produce Agricultural Insurance
This agricultural insurance product will insure your farm against loss or damage to your farm property (e.g. warehouse and farm equipment) and agricultural produce that is caused directly by fire, burglary/housebreaking, lightning, flood, windstorm, explosions, airplane crashes, impacts and earthquake.
Under the standard coverage provided by this policy, you will receive compensation when your farm property or agricultural produce has been damaged or destroyed by the covered perils.
Subject to the payment of an additional premium, you may also purchase coverage extensions. An extension increases the coverage you receive and will compensate you for loss or damage to your agricultural produce while in transit. Compensation is provided up to applicable limits as explained in your policy.
Competitive rates are offered for the standard coverage. Discounts will also apply based on the risk management measures implemented on your farm.
Multi-Peril Crop Agricultural Insurance
This agricultural insurance product will insure your farm against the risks of physical loss or damage to crops caused directly by fire, lightning, windstorm, flood, pest and disease outbreak.
The standard coverage provided by this policy will pay for the production costs of crops that have been lost or damaged during the period from planting up to the maturity of the crop.
For an additional premium, you may also purchase coverage extensions. An extension increases the coverage you receive and will compensate you for the market value of the crops that were lost or damaged during harvest.
The premium rate for the standard coverage (without extensions) varies from 3.25% - 4.50% of your production costs. The rate that applies to you will depend on the size of your farm and how well it is managed.
These rates are for 12 month policies; if you require cover for less than 9 months your premium rate will be lower.
I hope this article has enlightened you about agricultural insurance and their benefits. For further information about getting an agricultural insurance suitable for your farm, send an email to firstname.lastname@example.org
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