New Swiss Re Focus report explores agricultural risks in Brazil
29 September 2009, New York
Swiss Re today announced the launch of a Focus report titled “Betting the farm? Agricultural risks in Brazil”, which demonstrates that while Brazilian farmers are aware of the risks posed by weather and commodity prices, few have the insurance coverage that could protect them. The report discusses the reasons for low insurance penetration and proposes measures at both the farm level and the national level that will help to develop a more robust agricultural insurance framework.
“Brazil is one of the world’s most dynamic agricultural markets, accounting for one fifth of global food production. For the agricultural sector to reach its full potential, it is crucial that its farmers can cover their production and price risks,” said Jürg Trüb, Head of Environmental & Commodity Markets, Swiss Re. “Based on our worldwide activities in agricultural insurance, Swiss Re has developed the skills and experience needed to support the Brazilian agricultural insurance industry in this task.”
Survey identifies farmers’ risks
Swiss Re’s report is based on the results of a survey among Brazilian farmers. The study, commissioned by Swiss Re, evaluated the risk perception and risk management strategies of 240 larger-sized farms and 30 cooperatives representing more than 130,000 members.
Brazilian farmers are exposed to a few primary risks including the weather and volatile commodity market prices for the inputs they need and for the crops they produce. For the future, they cite climate change and extreme weather as major risks. The study demonstrates that while farmers are well aware of the risks they face, many do not take advantage of the insurance options available to them. The low insurance penetration was found to be a result of different factors, including:
- Lack of insurance options designed to address the farmers’ specific needs, which largely depend upon their operating model, the crops they grow and the climate conditions they face.
- Lack of awareness about the benefits of insurance.
- Relatively low budget for premium subsidies when compared with other agricultural powerhouses.
According to Swiss Re, the lack of agricultural insurance reduces the amount of operational credits available to farmers. Expanding insurance penetration is therefore key to unlocking the full potential of the agricultural sector. The proposed solutions highlighted in the report include:
- Expanding the spectrum of agricultural insurance solutions. such as new revenue coverages and index-based solutions.
- Encouraging the government to enhance and restructure its support. For example, increase the total amount of premium subsidies and increase the maximum subsidy limit per farmer.
- Redefining the government’s catastrophe insurance fund to stimulate insurance companies’ participation.
Brazil is a significant player in the global agricultural market. Much can be done to help Brazil reach its full potential in terms of increasing agricultural production, realising greater financial gains and coping with the risks its farmers face. These goals can only be attained if all stakeholders work together to invest in the development of a robust agricultural insurance market.
Notes to editors
This is the second report in a series of focus reports on major agricultural countries. The first report, published in January 2009, focused on setting up sustainable agricultural insurance in China.
Swiss Reinsurance Company Ltd
Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “A+“ by Standard & Poor’s, “A1” by Moody’s and “A” by A.M. Best.
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