AGRICULUTRAL INSURANCE IN INDONESIA:
PROSPECT AND CHALLENGES
I NYOMAN RAI I NYOMAN RAI
Department of Agronomy and Horticulture Faculty of Horticulrute Udayana University
International Workshop on ”Food Availability for Sustainable Improvement”
LARGE POPULATION DEPEND ON AGRICULTURE:
In Indonesia, 73.25% population rural
Number of households farming 26.13 million (2013), decreased by 5.04 million households of 31.17 million households in 2003, which means an average decrease per year of 1.75%.
VULNERABILITY OF AGRICULTURE IN INDONESIA
per year of 1.75%.
Labor in agricultural sector reached 41.20 million people or about 43.40%of the total population of Indonesia (2013).
Indonesia ranks third after China (66.0%) and India (53.2%). VERY LOW BUDGET FOR AGRICULTURE(7% from the total
WEAK ASSET BASE:
o Average size of operational holdings : < 0,5 hectares
o 82% holdings small and marginal (2 or less than 2 hectares) o Low skill, education, health, information access
VULNERABILITY OF AGRICULTURE IN INDONESIA
CLIMATE AND MARKET ABERRATIONS:
o Most of agriculture activities rainfall dependent o Diversity of climatic conditions
o Occurrence of floods, droughts, pests and disease o Low accessibility and connectivity
Vagaries of weather rainfall temperature humidity drought
RISKS AFFECTING AGRICULTURE PRODUCTION:
MAJOR CHALLENGE
drought wind Geography : earthquakes, volcanoes, erosion Pest & diseases
Quality of inputs Soil
Unexpected declines in price
MANAGEMENT OF YIELD RISK
•
DIVERSIFICATION OF PRODUCTION ACROSS
SPACE AND CROPS.
Don’t put all crops into one area (if possible)
Don’t plant only one crop
Raise both crops and livestock
AGRICULTURAL INSURANCE
• Vital for stable agricultural growth and risk management
• Agricultural insurance will protect farmers from financial losses due to crop failure.
• To provide insurance coverage and financial support to the • To provide insurance coverage and financial support to the farmers in the event of prevented of failure as a result of natural calamities, pests and diseases, low market price. etc.
• To encourage the farmers to adopt progressive farming
practices, high value in-puts and higher technology in agriculture.
HISTORICAL BACKGROUND OF
AGRICULTURE INSURANCE IN INDONESIA
• 1990: scientific studies and news report
• In 2000: Regent of Bantul (Idham Samawi) guarantees for farmers apply to certain products. The result was purchased by the local government to keep the market price so that farmers do not loss.
• In 2012: The Ministry of Agriculture has tested Insurance Rice Farming (AUTP) of 3.000 hectares in three provinces (West Java, East
Farming (AUTP) of 3.000 hectares in three provinces (West Java, East Java and South Sumatra), protection includes the risk of flooding, drought, and attacks of plant pest organisms (OPT).
In these trials, the insurance premium for one hectare of rice is Rp 180.000 (or 3%of the insured value of rice). From the amount, Rp.144.000 (80%) subsidized by the state fertilizer and the remaining Rp 36.000(20%) paid by farmers.
10
HISTORICAL BACKGROUND OF
AGRICULTURE INSURANCE IN INDONESIA
•
In 2013: had passed a lawon the protection and
empowerment of farmers
(Act No. 19 of 2013), in
which there is arranged on agricultural insurance.
•
In 2014: the Ministry of Agriculture has
ULTIMATE GOAL OF IMPLEMENTATION OF
AGRICULTURAL INSURANCE IN INDONESIA
INSURANCE PROGRAM MUST BE ENSURED PROFITABLE
FOR FARMERS
so that farmers could eventually pay a
premiumon their own without government subsidized.
AGRICULTURAL INSURANCE IS ALSO EDUCATING THE
AGRICULTURAL INSURANCE IS ALSO EDUCATING THE
FARMERS TO INCREASE THEIR FARM PRODUCTION AND PRODUCTIVITY
. Farmers are required to follow the advice
1. Farmers Objectives
2. Coverage Farm Commodity
3. Insurance Coverage
4. Value Premium and its Collection Procedures
KEY FACTORS THAT CAN DETERMINE THE EFFECTIVENESS
OF AGRICULTURAL INSURANCE SYST
EM
4. Value Premium and its Collection Procedures
5. Loss Adjustment Mechanism
6. Organizational Structure Associated with the Selected
Scheme
7. Insurer and its insurance Scheme
KINDS OF AGRICULTURAL INSURANCE
SINGLE-RISK INSURANCE:
coverage only on one type of
risk (flood, drought, pest attack)
MULTI-RISK INSURANCE
: coverage on some risks (2 or
more risk)
YIELD INSURANCE
: insured for risks that affect production
YIELD INSURANCE
: insured for risks that affect production
and profits to be gained.
PRICE INSURANCE
: coverage is paid based on applicable
minimum prices.
SOCIO-CULTURAL ASPECTS:
The mind set of farmers to insurance has not been established
Lack of public confidence to the institutions insurance
Moral hazard that affects the business element of intent in the insurance claims process.
CHALLENGES IN THE DEVELOPMENT OF
AGRICULTURAL INSURANCE IN INDONESIA :
TECHNICAL ASPECTS:
The absence of complete legal framework for the implementation of the national agricultural insurance and law enforcement in
implementing of spatial.
Lack of adequate data base to obtain information for determining design of agricultural insurance products.
ECONOMIC ASPECTS
:
The characteristics of the agricultural sector in Indonesia : the location of a business that is scattered , varied product
systems , small-scale businesses that have implications on administrative costs in the insurance business.
CHALLENGES IN THE DEVELOPMENT OF
AGRICULTURAL INSURANCE IN INDONESIA :
administrative costs in the insurance business.
Lack of knowledge and understanding of the technologythat led to a relatively high chance of failure in the production of this relates to the cost (benefit/cost) of the act attempts to overcome the risk .
AGRICULTURAL VALUE CHAIN RISK MANAGEMENT
Government Reinsurer
Agro insurer
Farmers Traders Processor Consumer
Banks/Investors Input suppliers
Agro insurer
HOLISTIC INSURANCE APPROACH
Farmer
Banks
Insurer
AGRICULTURE DEVELOPMENT
Key Drivers
•• Resources
Resources
•• Knowledge
Knowledge
•• Knowledge
Knowledge
•• Access to technology
Access to technology
•• Access to markets
Access to markets
•• Insurance
Insurance
MOST IMPORTANT KEY DRIVERS
• Catalyst for Development • Productivity
• Profitability
Insurance
Insurance
• Profitability
• Human Resource Development • Skills
• Advisory Service
HOLISTIC AGRICULTURAL
DEVELOPMENT
State
State
Banks
Banks
Insurer Insurer
State
State
