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Rural insurance in Brazil (2010)

Author: Edilson Guimaraes, Secretary of Agricultural Policy, Ministry of Agriculture, Livestock and Food Supply
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Land use in Brazil

Area

Million ha

%

Amazon forest

360

42%

Pasture

210

25%

Yearly and perennial crops

64

8%

Cultivated forest

6

1%

Non exploited

101

12%

Cities

20

2%

Protect areas

52

6%

Others

38

4%

Total

851

100%

Rural Insurance Historical Background

Rural insurance started in Brazil in 1954 when the National Agrarian Insurance Company was founded. At the same year the Agrarian Insurance Stabilization Fund was established to provide financial assistance to farmers. This fund was reorganized into Rural Insurance Stabilization Fund in 1966. With the purpose of strengthening the farmers’ access to finance the government launched Rural Activities Guaranty Program in 1973.

Rural Activity Guarantee Program – PROAGRO

ProAgro is not a rural insurance program but the Governmental guarantee to producers of agricultural commodities. The program provides working capital to farmers however they need to have a certain portion of their own resources invested in production. The program was modified in 2005 into Proagro Plus.

Statistical information on Proagro program

PROAGRO

(a)

PROAGRO PLUS

(b)

TOTAL

(c)

(b)/( c)

%

N°  of  Contracts (thousand)

68.2

585.2

653.4

        90

Value insured (US$ billion)

     1.4

      2.7

    4.0

        66

 Premium paid  (US$ million)

         56

           54

       110

        49

Indemnifications paid (US$ million)

       106

         164

       270

        61

Net public expenditures (US$ million)

         52

         118

       170

        70

Rural Insurance Legal Framework

Rural insurance in Brazil is mainly governed by the Law 10.823 adopted in 2003. This law rules that the government would provide premium support to make rural insurance cheaper to farmers. The Complementary Law 126 adopted in 2007 opened of the reinsurance market

The national government will establish a Catastrophic Fund to support rural insurance. The draft law is being prepared and should be adopted in the nearest time. The law foresees involvement of private business in the Catastrophic Fund.

Rural Insurance Modalities

Premium Subsidy is available for agricultural crops, livestock, aquaculture and forestry. The subsidies are not provided on life insurance, betterments in the property, rural mortgage and rural producer notes.

Rural Insurance Growth

2006

2009

2010

Premium Subsidy (US$ million)

17.3

145

255.5

N° of Policies (thousand)

20.3

75

113

Capital insured (US$ billion)

1.6

5.5

17

Area covered – Ha (million)

1.6

7.0

11

The Insurance Premium Subsidy (Producer/Year)

Coverage

Subsidy

%

Limit

US$  1,000

Agriculture

40 to 70

53.3

Livestock

30

17.8

Forestry

30

17.8

Aquiculture

30

17.8

Maximum subsidy

106.8

Premium Subsidy distribution

Product

%

Agriculture

99.3

     Soy

39.1

     Maize

23.8

     Wheat

18.7

     Apple

4.1

     Others

20

Livestock

0.3

Forestry

0.4

Total

100

RURAL INSURANCE TARGETS

Supporting development of rural insurance, the government expects to increase the coverage of cultivated area, Improve farmers’ the access to rural credit, reduce the demand for rural debit renegotiation and increase the use of new agricultural technologies.

The program will help to establish higher credit limit for insured crops. The program will be based on the partnership of central government with the state governments. It will finance the portion of the premium sum to be paid by the farmers.

Rural Insurance Challenges

The program experiences several problems including

Ø  Absence of cultural attitude in favor of rural insurance

Ø  Low number of insurers

Ø  Expand rural insurance coverage to all producing regions, and

Ø  Budgetary constraints