Economic Sector

Last updated: Thursday, February 21, 2019


Agricultural Insurance Policy Brought into Practice

Posted: Wednesday, January 17, 2018

Agricultural insurance in Vietnam still has limitations and difficulties although it has been applied quite synchronously and firmly since 2011, enforcement policies and mechanisms are quite sufficient for insurers to provide the service.

Vietnam is an agricultural producer which not only meets the needs of its 93 million people but also exports agricultural products to 180 countries. It earned US$32.14 billion from agricultural exports in 2016 and over US$36 billion in in 2017. Nevertheless, agriculture is highly susceptible to high risks of natural disasters and epidemics. Moreover, Vietnamese agriculture is now comprised of both conventional farming and commercial farming. That has made the agricultural sector unable to promote its available strengths.

Hard to attract investment into agriculture
According to Mr Hoang Quang Phong, Vice President of the Vietnam Chamber of Commerce and Industry (VCCI), agricultural insurance is a traditional insurance product among more than 500 nonlife insurance products currently provided in the world (including over 250 property insurance products, nearly 200 human insurance products and approximately 100 liability insurance products.)

“Vietnam is an agriculture-based country but natural disasters and epidemics bereave farmers of assets worth of 1.5 per cent of gross domestic product (GDP) or so. Therefore, farmers need a guarantee for their work and labour and agricultural insurance is the best hope. Agricultural insurance is a solid shield to bring agriculture increasingly closer to commercial production, which must be rooted from enterprises and changes in thinking of farmers,” he said.

Although the Government as well as the agricultural sector has always provided best policy conditions to stimulate businesses to invest more, agricultural investment still makes up a small share, he said, citing that one of major reasons is low profitability and high risk in agricultural investment.

According to statistics from the Ministry of Agriculture and Rural Development, less than one per cent of enterprises operating in the country are involved in agriculture. In addition, most of them have a small operating scale, with up to 55 per cent having an individual operating fund of less than VND5 billion.

Furthermore, a very few of them have made well-planned and professional investment. Most agricultural enterprises rely on exploiting natural resources such as land and water rather than invest in fundamental factors, apply science and technology, or invest in modern equipment for deep processing to increase the added value. Meanwhile, the connectivity between enterprises and scientists and farmers in production value chains is still lax, resulting in high costs, low competitiveness, and interrupted and underperformed value chains.

As a result, farming productivity in Vietnam is the lowest in Southeast Asia and farmers find it extremely hard to get riches on their own fields. Although the agricultural sector has great potential for development, only some sectors have large-scale chain-based production like milk, poultry eggs, fish and seafood. Generally, production remains unstable and unsafe foods make people feel insecure. Although the agricultural sector has a lot of support policies, they are mainly impractical. Moreover, the involvement of authorities at all levels is ineffective.

Toward the formation of Agricultural Insurance Law
To make agriculture a highly commercial sector, authorities should select key commodities, establish concentrated agricultural zones, select locality-based priority sectors to compete with the world, create local agricultural brands and to apply flexible agricultural insurance to effectively develop specialised farming areas, Mr Phong said.

Dr Dang Kim Khoi from the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) said that the Government should regard agricultural insurance as a market-driven product where the Government provides supports to facilitate market establishment and operation (establishing an appropriate regulatory framework, supporting communication campaigns, providing technical assistances, providing data, etc.) and continues to perfect the policy system to create the Law on Agricultural Insurance. Besides, it is important to closely monitor decision-making and enforcement, rapidly change to improve insurance products by establishing effective feedback systems, building agricultural insurance information systems and forming appropriate management procedures for monitoring and optimising public and private investment for insurers, and set up tight supervisory mechanism over procedures, production processes, damage assessment and reimbursement payment to make this operation transparent, fast and effective.

In addition, the Government should continue to reasonably support premiums, training funds and communications to develop the current market; further provide subsidies to poor, near poor and non-poor people but subsidies will be lower. Together with the above support, the Government should offer preferential rates to farmers who contract with businesses to form large-scale production and improve value chains.

At the same time, the Government should consider building an appropriate reinsurance system to attract insurance companies to participate in the market by cutting direct investment for farmers by slashing budget supports to a more reasonable level to promote voluntary demand and improve risk management to reduce risks for enterprises, he said.

Mr Tang Minh Loc, Vice President of Vietnam Agricultural Development Science Association
Agricultural insurance has two characteristics. Firstly, it is necessary to change (old/backward) farming practices of farmers (the majority) to do farming. As this is a difficult, time-consuming way, it must be started from farmers who have the demand for doing farming to attract more participants. Secondly, agricultural production is prone to high risks and natural disasters such as saltwater intrusion and landslide. Insurers will face many risks of force majeure when they join this programme. Hence, the Government must have support policies such as reinsurance for them.

Agriculture is an increasingly risky sector and it is involved in many products and many farmers. So, it is very difficult to carry out without an effective supervisory process after production processes and tariffs come into being. There is a high need for educating people, engaging the entire administration system and strengthening government - business ties. As agricultural insurance is not quality enough, many incidents have not been solved satisfactorily. Participating enterprises need regular researches and timely measures to develop their business and State agencies need to keep a close watch on the reality to have timely regulations.

Ms Hoang Thi Tinh, Vice Chair of the Board of Directors and General Director of Agriculture Bank Insurance Joint Stock Corporation (ABIC)
Authorities should issue a policy framework to remove difficulties for businesses in order to mobilise more resources to promote agricultural insurance, for example, conditions for insurers to engage in agricultural insurance: no limit to joining insurers; no technical barriers to restrict participation of insurers; no mandatory requirement of having branches in provinces which are planned to have agricultural insurance.

In addition to supporting agricultural insurance premiums for buyers, it is necessary to develop incentive schemes for insurers like reducing corporate income tax, reducing provisional funds for insurers in the event of loss from agricultural insurance business.

Local authorities should provide insurers with damage databases which will help international reinsurers have sufficient ground for granting funds, insurance condition principles and rational insurance premiums; disseminate appropriate cultivation techniques for each locality; develop coordinating mechanisms between central and local authorities with insurers and farmer households. At the same time, authorities supervise cooperation process, implement agricultural insurance programmes of insurance companies, and avoid unhealthy, non-technical competition.

Mr Le Xuan Luyen, Department of Enterprise Management, Ministry of Agriculture and Rural Development
Agricultural insurance is still a very small business. The compensation coverage is over VND700 billion while premiums are just over VND300 billion. For that reason, there is a strong need for a legal corridor to engage both insurers and insurance buyers.

Therefore, insurance beneficiaries should not be limited to the poor but insurers should study on key products.

To develop insurance business effectively, insurers need buyers. Without good policies, farmers will not be interested in. For example, agricultural insurance is a condition to borrow loans.

In addition, it is very difficult to identify risks in agriculture. Insurers and insurance buyers should define economic and technical norms which the Ministry of Agriculture and Rural Development will classify for specific crops and animals.

Quynh Chi

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