Agricultural Insurance: will farmers pay a premium?

Agricultural Insurance:     

will farmers pay a premium?

Dr. I Wayan Budiasa, SP, MP

Photo: A CVM survey by a enumerator in Subak Bambang Let, Bangli

Agricultural Insurance in Several Other Countries

India has known agricultural insurance since 1972 and the adoption of massive agricultural insurance began in 1985 with a Comprehensive Crop Insurance Scheme. Agricultural insurance premiums in India of 50% are paid by the central government and 50% are borne by the provincial and state governments.

China has implemented agricultural insurance since 1982 through livestock and crop insurance. Agricultural insurance in China is voluntary and the burden of insurance premiums is borne by three parties, namely the central government and local governments through subsidies, and the rest is borne by farmers. The amount of insurance premium subsidies ranges from 20% to 100% depending on the conditions of each region.

Agriculture in Vietnam accounts for 22% of Gross Domestic Product. However, Vietnamese agriculture is often hit by whirlwinds, floods, droughts, and storm surges. Agricultural insurance in Vietnam started in 1982 on a voluntary basis without premium subsidies from the government. Agricultural insurance products covered by insurance companies include corn, cassava and rice.

Agricultural insurance in Thailand was carried out in the period 1978-1990. The insurance is closed until 2005 due to losses and the amount of administrative costs borne by the executor of insurance. In 2006-2010 Thailand developed agricultural insurance based on a voluntary climate index without subsidies with premium rates above 10%. Next, Thailand applies three types of subsidized insurance premiums, namely poor farmer households receiving 90-100% premium subsidies, other farmers 60-70%, and agricultural production organizations subsidized insurance premiums by 50%.

Japan started livestock insurance in 1929 and national forest insurance in 1937. Furthermore, Japan developed 5 types of insurance namely (1) rice, wheat, barley insurance (mandatory), (2) livestock insurance (mandatory), (3) fruit product insurance and fruit crops (voluntary), (4) field crop insurance and various plants (voluntary), and (5) greenhouse insurance (voluntary). The agricultural insurance scheme in Japan is based on solidarity between farmers, relying on a network of agricultural cooperatives at the local, regional and 300 national-level agricultural cooperatives.

Agricultural Insurance in Indonesia

The agricultural insurance program in Indonesia is mandated by Law Number 19 of 2013 concerning the protection and empowerment of farmers. The law requires the central government and regional governments to provide protection to farmers against losses from crop failures. The implementation of the law legally began in 2015 with the issuance of Minister of Agriculture Regulation Number 40 of 2015 concerning agricultural insurance facilitation. As a form of law implementation, the government through the Ministry of Agriculture and the Ministry of Finance have established the agricultural insurance program as a national food security program. The agricultural insurance program began to be widely applied in 2015 in collaboration with PT. Asuransi Jasa Indonesia (Jasindo) appointed as the executor of the Rice Farming Insurance (RFI) program with a target of 1,000,000 ha of rice farming per year. The object of coverage that will be borne by Jasindo is the paddy fields cultivated by the cultivating farmers from a group of farmers (the insured). Each insured gets one insurance policy with an overview containing the insurance coverage data of its members. The period of time used in insurance is one planting season starting from planting to harvest. The insurance price is IDR 6,000,000 per hectare with a premium of IDR 180,000 per hectare. The central government provides a premium subsidy of 80% (Rp144,000), while a 20% premium (Rp36,000) is paid by farmers. In some areas of the Province of Bali, the insurance premium of 20% is subsidized by the local government or by a private company through a CSR scheme such as by PT Setia Tani.

Willingness of Farmers to Pay RFI Premiums

 Based on the results of research by I Wayan Budiasa, I Gede Rai Maya Temaja, I Nyoman Gede Ustriyana, I Wayan Nuarsa, and I Gusti Bagus Adi Wijaya of 270 RFI participant farmers in 9 subaks scattered throughout Regencies or Cities in Bali Province for the application of RFI from October 2015 to September 2017 covering an area of ​​43,955 hectares, apparently farmers were willing to pay an RFI premium of Rp61,281.57/ha/season (34.05% of the price of the full premium). Based on the results of the study, the amount of AUTP premium that can be charged to farmers in the Province of Bali is Rp. 60,000/ha/season so that the AUTP premium subsidy from the government can be reduced to Rp120,000/ha/season. The results of the study were published in the June 2020 issue of ISSAAS Journal entitled The Willingness of Farmers to Pay Insurance Premiums for Sustainable Rice Farming in Bali (http://issaasphil.org/wp-content/uploads/2020/06/6.-Budiasa-et-al.-2020.-Rice-Insurance-Bali-FINAL.pdf).