Crop insurance: managing agriculture and flood risks

Nutan Ragoobir

Insurance Consultant

"Agriculture is the most healthful, most useful and most noble employment of man" – George Washington.

This prescient statement by one of the founding fathers of the United States and the first US president seems to have fallen on deaf ears in Trinidad and Tobago, where year after year farmers can be heard pleading for more government funding and relief, especially when floods devastate their crops.

Following the catastrophic flooding affecting areas of Trinidad during the period October 19 - 21, farmers could be seen standing in chest-high flood waters in their fields, surrounded by their flood-damaged crops. One farmer in particular stated that they (farmers) are thrown into difficulties every time floods occur, yet there has been no plan to protect farmers from flood risk. Comparing Trinidad and Tobago to Venezuela, he lamented that we will only appreciate farmers when we could no longer feed ourselves, a situation we are fast approaching given our high and rising food import bill.

Last year, about 6,500 farmers benefited from flood assistance, estimated at around $9.7 million. On average, this works out to each farmer receiving some $1,500. Even though there is no limit to this allocation and various factors such as type of crops and cultivation methods are taken into consideration, many farmers are heard to be unsatisfied with the payment, still in debt and highly demotivated.

In order to protect farmers and agriculture, over 100 countries around the world have introduced crop insurance with it now being big business in the US, Canada, EU, China and India.

Crop insurance is simply a risk management tool that protects farmers in times of low production so that they are able to meet their financial obligations and safeguard the agricultural sector. The general principle behind crop insurance is not much different from that of homeowner's (house) insurance. Many of us would pay our house insurance yearly but never claim from it, yet we continue to do so in order to avoid the low probability of a high severity loss.

In the US, the government owned Federal Crop Insurance Corporation offers multi-peril crop insurance, which must be purchased prior to planting and covers loss from most types of natural disasters including flood from excessive rain and droughts. In 2017, more than 300 million acres of farmland in the US were protected by crop insurance. Run as public-private partnerships, under these crop insurance programme, the insurer is responsible for the delivery of the policy while rates are set by the regulator. The federal government also subsidises the insurance premiums paid by farmers while providing reimbursements for insurers to assist with their administrative and operating costs. By doing so, crop insurance remains affordable to the majority of American farmers, thus preventing any debts from increasing whenever losses occur.

A US-type multi-peril crop insurance model is definitely applicable here in Trinidad and Tobago. It is now well established that Caribbean countries are very vulnerable to the impact of climate change, especially increased rainfall which increases the probability of crop disasters and makes crop insurance even more relevant. This need was borne out by the discussions at the recent international conference on Climate Change Impacts on Food and Nutrition Security, hosted by the Faculty of Food and Agriculture, UWI.

Agriculture is an important sector in Trinidad and Tobago from both an economic and a social point of view. If we are to promote food security, reduce our food import bill and protect our farmers, then crop insurance must form part of the framework to manage agriculture and flood risks.