Subsidies for rural insurance premiums in Brazil

Interview with Luiz Antonio Corrêa da Silva, Director of the Rural Risk Management Department, Office of Agricultural Policy, Brazilian Ministry of Agriculture, Livestock and Food Supply, conducted at the time of the Agro Latin America Workshop, which was sponsored by Swiss Re in September 2012.

Are the agricultural risk products and the risk management solutions that are offered today by the insurance and reinsurance industry well known in Brazil? What is the insurance penetration?

Insurance penetration in Brazil is far below the needs of the Brazilian market, given its size and importance in the world. However, I would say that insurance has a way to go before it becomes a mature and consolidated market, and we are on the path for this to happen. We are neither very far behind nor very advanced. Today about 15% of the cultivated area is covered by insurance, equivalent to some seven million hectares. Our goal is to reach 30%, but that takes time.

Sometimes we hear comparisons between Brazil and other countries, such as the United States, Canada or Spain, which have consolidated insurance markets. In my view, these comparisons are not relevant because, if you look at history, these countries had to travel a long road to reach their current position. That is the road that we are now travelling.

Luiz Antonio Corrêa da Silva

The outlook for Brazil's agricultural insurance market is very good, especially after the government implemented the premium subsidy programme, which has made it possible for insurance to become more widespread and has also provided a strong stimulus to the market. However, insurance coverage is still not sufficiently widespread. We have received feedback indicating that producers are not familiar with the types of coverage, with the conditions for coverage or with the government's programme.

Hence, this has served as a lesson, both at the private level and in terms of the government, which is that we need to promote, together with industry leaders, the dissemination of information on these programmes and their benefits. We need to show producers that the cost of insurance must be part of their production costs, just as car insurance is part of their family budget.

Producers also have a lesson to learn, which is the need to better manage their business expenses. This is just beginning to be done in Brazil. Only a few producers do this rigorously, while others know how to produce but not how to neither manage their expenses nor market their products.

What is the government's view of the Rural Insurance Premium Subsidy Programme that you were referring to?

First, I must say that for the government, this programme is an agricultural policy tool. Hence, just as there is a credit policy and a marketing policy, there is a policy on insurance. As part of its policy vis-à-vis insurance, Brazil created the subsidy programme with a view to ensuring the development of the market. The subsidy programme consists of public resources that make it possible to lower insurance premiums for producers.

Brazil, as we know, is highly diversified in terms of its climate and types of crops, and for this reason the subsidy programme aims to have different approaches in response to these differences. Consequently, the programme is constantly being improved, and the one that we have through 2015 consists of implementing differentiated programmes for the various regions and type of producers in Brazil, taking into account climatic vulnerability as well as economic issues.

For example, there are regions in which agricultural and livestock activity provides an economic stimulus, and, hence, it is important for the government to support that activity in order to avoid harming the overall economy. For this reason, the subsidy programme for those regions must be diversified. It must provide incentives to encourage a nearly 100 % insurance adoption rate.

The work that we are carrying out at the Ministry has the following aim: To build a matrix that will allow us to see the importance of the activity in different regions, from both the social standpoint, which is the number of producers involved, and from the standpoint of economic, technological and other conditions, and to work with the programme differently, and at times more intensively, in some regions.

However, we are not saying that insurance is important in one region and not important in another. Insurance is important in all regions. Now, the subsidy programme must provide an incentive, with greater emphasis on some regions in which the most important considerations are not only food production but also the economy overall as well as social issues.

And have you now mapped those regions, or is that work still being done?

We have mapped some factors, for example economic and climatic vulnerability factors. However, in conjunction with Embrapa, the Brazilian Agricultural Research Corporation, we are incorporating other factors such as credit, social factors, logistics and marketing, in order to construct a matrix. That work is being carried out in stages, and we intend for it to be completely finished by 2015. But by 2013, we will implement some of these measures, just as we have done regarding the harvest this year.

In this harvest, we selected some of the priority regions for corn, soy, beans and rice, solely from an economic standpoint — because we have not fully developed the tool — and we have now established a differentiated subsidy programme for those areas. The reason for this is that these are areas where we want insurance adoption to be more widespread, because of the economic importance of the crops in these regions. In fact, on the Ministry's website you will find this information and see the municipalities in question.

Published 15 Jan 2013

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