Brazil Crop Insurance - 1
By Alastair Stewart
DTN South America Correspondent
SAO PAULO, Brazil (DTN) — Surveying his fields back in January 2012, all Humberto Vonwonski saw was parched soybean plants.
A localized drought in his fertile corner of Brazil had caused fields that regularly yield 42 bushels per acre to produce just 15 bpa.
Luckily, Vonwonski had chosen to take out insurance covering 70% of his projected revenues on his 2,200 acres in Campo Mourao, in northern Parana state.
"Without the insurance, I would have lost a lot of money on that crop. It would have set me back a couple of years," he told DTN.
Vonwonski’s story is rare in Brazil where there is no culture of crop insurance. Here, one bad harvest can cripple a farmer.
Brazil has risen rapidly as a grain producer over the last 25 years and now vies with the U.S. to be the No. 1 soybean producer. Soybean farming in Mato Grosso or Parana has many similarities to that in Iowa or Illinois but one big difference is the lack of universal insurance here.
That could be about to change, though.
A NEW INSURANCE PLAN GAINS PURCHASE
Efforts to establish crop insurance in Brazil go back 50 years, but all projects foundered until 2005 when the government decided to implement a copy of the U.S. crop insurance program here.
The key innovation was government subsidies for premiums, which lowered prices enough to make insurance attractive to some farmers.
In the intervening years, crop insurance has grown, albeit in fits and starts, with the percentage of planted area covered rising from 0.1% in 2005 to 10% in 2012. Last year, about 66,000 farmers insured their crops.
Under the system, farmers can contract insurance that typically covers 70% of their yields. Revenue insurance is also available in some regions, but only accounts for about 10% of total coverage. The government typically subsidizes 40% to 60% of the premium.
The new scheme was a big improvement on before, when most farmers only had access to Proagro, a government-run system designed for small farmers that covered costs but was fraud-ridden, bureaucratic and slow to pay.
The initiative attracted new insurers who wanted a piece of the growing Brazilian farming market. Back in 2006, only three companies were working with crop insurance in Brazil. That number reached nine in 2013.
Funding also rose. In July, President Dilma Rousseff pledged R$700 million ($295 million) in premium subsidies for the 2013-14 season, up sevenfold from the 2007 budget.
Meanwhile, the importance of extending crop insurance is now firmly on the agricultural policy agenda. President Rousseff recently called it the cornerstone of future farm policy and farm leaders lobby hard for increased and more regular funding for the program.
"We have established that insurance should be part of Brazilian agriculture’s future," said Pedro Loyola, director of the Parana State Agricultural Federation (FAEP) and crop insurance specialist.
CROP INSURANCE BASE IN THE SOUTH
Insurance has gained a firm foothold in the south, particularly in Parana, the No. 2 grain state, where weather risks can be elevated and the cooperative system is strong.
Coamo, Brazil’s biggest cooperative, based in northern Parana, has taken the lead and its program, run in conjunction with Swiss Re, accounts for about 9% of crop insurance in Brazil, they say.
According to Jose Aroldo Gallassini, president of Coamo, farmers were reticent about the program at first. After all, getting insurance is not a very Brazilian thing to do — only 30% of Brazilian cars are insured.
But word-of-mouth is a very powerful marketing tool and once farmers saw their neighbors benefitting they flocked to the scheme, he said.
The insurance policies offered by Coamo are pretty similar to those in the U.S.
However, the premiums paid are considerably higher.
A farmer in northern Parana would typically pay R$53 per hectare ($9 per acre) to cover 70% of yields on his soybean crop.
Almost uniquely, Coamo also offers revenue insurance, which carries a premium of R$90 per hectare ($15 per acre) in the region for 70% coverage.
In Illinois, a farmer would pay a premium of $1.95 per acre for comparative coverage.
Still, Brazilian farmers are extremely interested in revenue insurance, according to Dilmar Peri, who runs the Coamo scheme.
"We limit the revenue insurance to 1,200 farmers but we’d have many times that involved if we opened it up," he said.
So Brazil has established a base on which universal crop insurance could be built. But substantial challenges must be surmounted before a culture of crop insurance is established across Brazil, beyond the strongholds in Parana.
Next in the series: A closer look at the challenges that face the establishment of crop insurance across the country.
Alastair Stewart can be reached at firstname.lastname@example.org
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