CropCrop InsuranceInsurance

Technology Inductor Laura Neves

Technology Inductor

Index

1. Crop Insurance in the World and Brazil

2. Brazilian Grower and Risk Management

3. Private Crop Insurance

Crop Insurance

3. Private Crop Insurance

Conclusion

The Beginning of Crop Insurance

• USA- 1920B

• Japan - 1939

• India - 1947

• Sri Lanka - 1958

• Canada - 1959

Crop Insurance

• Canada - 1959

• Sweden - 1961

• Mexico - 1964

• Brazil - 1954 -1970 (Credit)

– 1998 (Production)

• Final Century XIX: Sao Paulo – Cotton & Rio Grande do Sul – Rice.

• 1954: Nacional Crop Insurance Company and Federal Fund for Crop Insurance

• 1966: Stabilization Fund for Crop Insurance – With Mandatory Credit

• 1973: Guarantee Program for agriculture and livestock -PROAGRO – IS NOT Crop Insurance –

Crop Insurance is one of the most important instruments of sustainability, protection and

maintenance of governmental agricultural politics.

History of Crop Insurance in Brazil

Crop Insurance

• 1973: Guarantee Program for agriculture and livestock -PROAGRO – IS NOT Crop Insurance –

Federal Government pays the losses

• 1988: CF Art. 187

• 1991: Law 8171 – Agriculture Law/New Proagro/ Defrayal

• 2003: Law 10.823

• 2004: Resolution3.234/04

• 2007: Complementary Law 126/2006

• 2010: PLC 374/08

Legal Frame

Crop Insurance

BrazilianBrazilian ConstitutionConstitution (1988) (1988)

Title VII, Chapter III of Agricultural Policy and Land and Agrarian Reform Title VII, Chapter III of Agricultural Policy and Land and Agrarian Reform -- Art. 187 Art. 187

Inc. V Inc. V –– The Crop InsuranceThe Crop Insurance

Economic Stability to the

Grower

Development

Inductor

Farming

Technology

Maintenance of

employment in

the field

Production

protection

Offer Credit

Protection

Equalization of

the

government

budget

LawsLaws

InternacionalInternacional

negotiationsnegotiations

Support Support

ProgramsPrograms

AccessAccess & Cost of & Cost of

CapitalCapital

PatrimonyPatrimony

LiquidityLiquidity

Market Market

AccessAccess

Adm.Adm.

AgrícolaAgrícola

Credit

Insurance,

Life

Insurance

RiskRisk

Management Management

in in AgricultureAgriculture

Crop Insurance

ProductionProduction

Natural Natural

LossesLosses

AccessAccess

AvailabilityAvailability

products andproducts and

inputsinputs

Availability andAvailability and

CompetenciesCompetencies

AgrícolaAgrícola

Production

and Damage

Insurance

Income

Insurance

Garantee

Contracts

Sources of CreditCrop Insurance

Bonds

Fonte: Banco do Brasil (2010)

Source: Bank of Brasil

Crop Insurance

Loss of production

Non compliance and

impairment of assets

Inaccessibility to credit

Socially unfair

Instead of solving Instead of solving

the problem the problem

increases and increases and

adjornsadjorns::

Agriculture without Insurance

March 2011

Inability to pay debts and

produce

High political Cost

Low economic efficiency

Socially unfair adjornsadjorns::

WEAKWEAK MARKETMARKET

3

Agriculture with Insurance Crop Insurance

Loss of production

Receipt of indemnity

New yearNew year

New Crop Season: New Crop Season:

MARKET STRONG, MARKET STRONG,

STABLE AND SELFSTABLE AND SELF--Economic growth and

Financial autonomy

Maintenance of access

to credit at fair rates

Expansion of investments

Maintenance and

guarantee of the

government budget

STABLE AND SELFSTABLE AND SELF--

SUFFICIENTSUFFICIENTEconomic growth and

development

• Insurance Industry – Brake paradigms• Statistics - Trustworthy• Infrastructure• Administrative Cost

Barriers to Implementation

Crop Insurance

• Administrative Cost• Brazilian insurance culture• Government Paternalism (historical)

Crop Insurance

NationalCouncil Of

PrivateInsurance

(CNSP) Superintendenceof Private

Insurance(SUSEP)

Ministry ofAgriculture

Insurer

Reinsurer

Barriers to Implementation

Agents of Risk

Crop Insurance

Insurance AgricultureCommittee

(MAPA)

AgronomistEngineer

Managing Agent

Insurance

Broker

Government Government (Subsidy)(Subsidy)

Foreign Investors and New ProductsCrop Insurance

Rural GrowerRural GrowerInsurerInsurer ReinsurerReinsurer

New ProductsNew Products

Without Insurance

Investment

ExpectedExpected GuaranteeGuarantee YieldYield : : R$ 60.000R$ 60.000

00 42.00042.000

Loss Indemnity Balance

00Impact on Investment =

Increased access to

insurance

Loss Finance

R.O.E.

Crop Insurance

Data: Grape insurance to hail (30% damage), 4ha, 60%. Subsidy

With Insurance

With Subsidy

With Insurance

No Subsidy

(1.176)(1.176)

(2.940)(2.940) (18.000)(18.000)

+18.000+18.000

58.82458.824

57.06057.060

insurance

Agricultural Sector ���� Federal Premium SubsidyCrop Insurance

Groups of CulturesSubsidy

PercentageLimits in R$

Beans, Corn, Corn 2nd. Crop and Wheat. 70%

96.000,00

Apple, Barley, Canola, Fig, Flax, Grape, Kiwi, Nectarine, Oat, Peach, Pear, Persimon, Plum, Rye, Sorghum andTriticale..

60%

Corn, Cotton, Rice and Soybean. 50%

Atemoya, Avocado, Banana, Cabbage, Cajun, Carrot, 96.000,00Atemoya, Avocado, Banana, Cabbage, Cajun, Carrot, Cauliflower, Castor Beans, Chayote, Cherimoya, Chicory, Citrus Family, Cocoa, Coffee, Cone, Cucumber, Eggplant, Fava, Garlic, Guava, Lemon, Lettuce, Lime, Lychee, Mango, Manioc, Melon, Obergin, Okra, Onion, Orange, Papaya, Passion Fruit, Peanut, Peas, Pepper, Pineapple, Potato, Pumpkin, Sisal, Soursop, Strawberry, Sugarbeat, Sugar Cane, Sunflower, Tangerine, Tomato, Pod, Watermelon, Zucchini and other vegetables.

40%

Source: MAPA

Crop Insurance ���� Subsidy and Growth

30.000

40.000

50.000

60.000

400

500

600

700

800

Crop Insurance

2005 2006 2007 2008 2009 2010 2011* 2012

Plano trienal 10 61 100 176 176 451 570 680

Subsidio realizado 2 31 61 157 259 198 253

Produtores subsidiados 849 16.653 27.846 43.642 56.306 38.209 51.728

-

10.000

20.000

-

100

200

300

?Source: MAPA

WhenWhen naturenature is is notnot onon youryour sideside, , wewe are!are!

ThankThank youyou!!

Laura NevesLaura Neves