AGRICULUTRAL INSURANCE IN INDONESIA:
PROSPECT AND CHALLENGES
I NYOMAN RAI
Department of Agronomy and Horticulture Faculty of Agriculture Udayana University
International Workshop on
”Insurance as Adaptation to Climate Change Towards the Sustainable Society: Utilization of Technology for Assessment and Implementation”
March 12th, 2015 I NYOMAN RAI
Department of Agronomy and Horticulture Faculty of Agriculture Udayana University
International Workshop on
”Insurance as Adaptation to Climate Change Towards the Sustainable Society: Utilization of Technology for Assessment and Implementation”
March 12th, 2015
Farmer group insisted agricultural insurance
Approximately 50.2% of the Indonesian population resides in rural areas, where agriculture is the main source of income for 63.8 percent of them (Aryanti, 2014). These households are exposed to agricultural risks that cause adverse impacts on their income and wellbeing, which makes them stuck under poverty.
Threats of domestic food production: global climate change (precipitation and extreme drought), and pests and disease
incidences needed protection to reduce the risks faced by the farmers.
One of the main efforts to reduce the risks faced by the
farmers is through the introduction of agriculture insurance which in the early stages is given to paddy (rice farm insurance).
AGRICULTURE INSURANCE, WHY WE NEED?
Approximately 50.2% of the Indonesian population resides in rural areas, where agriculture is the main source of income for 63.8 percent of them (Aryanti, 2014). These households are exposed to agricultural risks that cause adverse impacts on their income and wellbeing, which makes them stuck under poverty.
Threats of domestic food production: global climate change (precipitation and extreme drought), and pests and disease
incidences needed protection to reduce the risks faced by the farmers.
One of the main efforts to reduce the risks faced by the
farmers is through the introduction of agriculture insurance which in the early stages is given to paddy (rice farm insurance).
• Indonesia government has targeted to achieve self- supporting food commodities by increasing 6% food productions per year. Five targeted self-supporting food commodities are: rice, maize, soybean, sugar, and meat.
• To support the target, Indonesia allocate budget for
agriculture insurance. For example, in 2014 Indonesia has allocated Rp 300 billions (approx. US$ 30 millions) budget for agriculture insurance. It is used to cover the insurance fee for 2 million ha of rice farming.
AGRICULTURE INSURANCE, WHY WE NEED?
• Indonesia government has targeted to achieve self- supporting food commodities by increasing 6% food productions per year. Five targeted self-supporting food commodities are: rice, maize, soybean, sugar, and meat.
• To support the target, Indonesia allocate budget for
agriculture insurance. For example, in 2014 Indonesia has allocated Rp 300 billions (approx. US$ 30 millions) budget for agriculture insurance. It is used to cover the insurance fee for 2 million ha of rice farming.
MAIN ADVANTAGE:
• To protect harvest failure farm risk
• To provide initial working capital for next planting season
cash for inputs
• To maintain or increase production/ productivity at certain level for national rice stock contribution
RICE FARM INSURANCE ALSO:
• Create job opportunity
• Offer new challenge for general insurance company
• Encourage regional economic development (Pasaribu, 2014)
RICE FARM INSURANCE ADVANTAGE
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MAIN ADVANTAGE:
• To protect harvest failure farm risk
• To provide initial working capital for next planting season
cash for inputs
• To maintain or increase production/ productivity at certain level for national rice stock contribution
RICE FARM INSURANCE ALSO:
• Create job opportunity
• Offer new challenge for general insurance company
• Encourage regional economic development (Pasaribu, 2014)
In Indonesia, the government’s efforts to establish an agricultural insurance scheme was beginning by forming an Agricultural Insurance Task Force three times: in 1982, 1984, 1985.
Several constraints to the development of agricultural insurance were encountered, including a lack of
awareness on the part of farmers, the general inability of farmers to pay premiums, and lack of agricultural insurance regulations.
HISTORICAL BACKGROUND AND CURRENT SITUATION OF AGRICULTURE INSURANCE IN INDONESIA
In Indonesia, the government’s efforts to establish an agricultural insurance scheme was beginning by forming an Agricultural Insurance Task Force three times: in 1982, 1984, 1985.
Several constraints to the development of agricultural insurance were encountered, including a lack of
awareness on the part of farmers, the general inability of farmers to pay premiums, and lack of agricultural insurance regulations.
HISTORICAL BACKGROUND AND CURRENT SITUATION OF AGRICULTURE INSURANCE IN INDONESIA
Since 2011 the Government of Indonesia allocates
budget to cover rice farmers’ losses due to puso (total harvest failure). The allocated fund to cover rice puso is in accordance with Act No. 12/1992 on Crops Farming and Presidential Instruction No. 5/2011 on Securing National Rice Production in dealing with extreme climate.
Rice farming is considered as puso if the paddy crop has been planted more than 30 days ago and is affected by pests, diseases, drought, or flood that destroys at least 75 percent of the farmers’ rice planted area.
Since 2011 the Government of Indonesia allocates
budget to cover rice farmers’ losses due to puso (total harvest failure). The allocated fund to cover rice puso is in accordance with Act No. 12/1992 on Crops Farming and Presidential Instruction No. 5/2011 on Securing National Rice Production in dealing with extreme climate.
Rice farming is considered as puso if the paddy crop has been planted more than 30 days ago and is affected by pests, diseases, drought, or flood that destroys at least 75 percent of the farmers’ rice planted area.
The legal basis of the agriculture insurance activities is the
Farmer Protection and Empowerment Act or FPE Act (Law No.
19/2013) which was ratified on July 9, 2013.
HISTORICAL BACKGROUND AND CURRENT SITUATION OF AGRICULTURE INSURANCE IN INDONESIA
The legal basis of the agriculture insurance activities is the
Farmer Protection and Empowerment Act or FPE Act (Law No.
19/2013) which was ratified on July 9, 2013.
ARTICLE 37 OF FPEA STATES THAT:
Government and Local Government in accordance with their authority are obliged to protect farming activities in the form of Agriculture Insurance;
Agriculture insurance is established to protect farmers from crop failure losses caused by:
a. natural disasters;
b. plant pests attacks;
c. outbreaks of infectious animal diseases;
d. impacts of climate change, and / or e. other types of risks set by regulation
HISTORICAL BACKGROUND AND
CURRENT SITUATION OF AGRICULTURE INSURANCE
ARTICLE 37 OF FPEA STATES THAT:
Government and Local Government in accordance with their authority are obliged to protect farming activities in the form of Agriculture Insurance;
Agriculture insurance is established to protect farmers from crop failure losses caused by:
a. natural disasters;
b. plant pests attacks;
c. outbreaks of infectious animal diseases;
d. impacts of climate change, and / or e. other types of risks set by regulation
The Ministry of Agriculture has implemented several pilot projects of agriculture insurance (rice farming).
One of them, a pilot project for the planting
season October 2012-March 2013 in 3 provinces (West Java, East Java and Central Java) with trials in each province, covering an area of 1,000 ha of rice fields (total 3,000 ha).
HISTORICAL BACKGROUND AND
CURRENT SITUATION OF AGRICULTURE INSURANCE
The Ministry of Agriculture has implemented several pilot projects of agriculture insurance (rice farming).
One of them, a pilot project for the planting
season October 2012-March 2013 in 3 provinces
(West Java, East Java and Central Java) with trials
in each province, covering an area of 1,000 ha of
rice fields (total 3,000 ha).
The insurance fee and claim is based on the rice production cost. The fee or premium is shared between the government and the farmers.
Assuming the production cost of paddy per ha around Rp.6 million (US$ 600), the 3% premium to be paid by farmers to the insurance company (Jasindo) amounting to Rp.180,000 or US$ 18.
In the pilot project, farmers are required to pay a premium of
Rp.36,000 (20% of the premium) and the rest Rp.144,000 (80% of premiums) paid/subsidized by the Government (PT Fertilizer).
In the occurrence of puso (crops failure), the farmers are entitled to compensation for Rp.6 million/ha which can be used to replant the rice in the next planting season (Ampri, 2014).
HISTORICAL BACKGROUND AND
CURRENT SITUATION OF AGRICULTURE INSURANCE
The insurance fee and claim is based on the rice production cost. The fee or premium is shared between the government and the farmers.
Assuming the production cost of paddy per ha around Rp.6 million (US$ 600), the 3% premium to be paid by farmers to the insurance company (Jasindo) amounting to Rp.180,000 or US$ 18.
In the pilot project, farmers are required to pay a premium of
Rp.36,000 (20% of the premium) and the rest Rp.144,000 (80% of premiums) paid/subsidized by the Government (PT Fertilizer).
In the occurrence of puso (crops failure), the farmers are entitled to compensation for Rp.6 million/ha which can be used to replant the rice in the next planting season (Ampri, 2014).
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THREE-WAY COORDINATION
Rice Farm Insurance Application Strategy Three-way Coordination Approach
Public sector
(Government/regulator/
facilitator)
13 Insurance company
(Private sector)
Farmer/farmer’s group/Gapoktan/Subak
(Rice farm) Rice Farm Insurance
(Partnership network)
Pasaribu (2014)
The mind set of farmers to insurance has not been established.
Lack of public confidence to the institutions insurance.
Lack of adequate data base to obtain information for determining design of agricultural insurance products.
Lack of personal who have knowledge both in the field of insurance and agriculture.
How to determine the percentage of damage has not been using advanced technology, so it takes effort and a long time.
PROBLEMS OF AGRICULTURAL INSURANCE DEVELOPMENT IN INDONESIA
The mind set of farmers to insurance has not been established.
Lack of public confidence to the institutions insurance.
Lack of adequate data base to obtain information for determining design of agricultural insurance products.
Lack of personal who have knowledge both in the field of insurance and agriculture.
How to determine the percentage of damage has not been using advanced technology, so it takes effort and a long time.
The Farmer Protection and Empowerment Act/Law No.
19/2013 is one of key elements for protecting farmer and supporting the development of agriculture sector.
Agricultural insurance is needed to reduce the risk of failure faced by farmers and to assure food security with stabilized price and achieving the demand and supply side target.
The premium have to be shared between the government and the farmers. Government giving subsidy to farmers.
Strongly suggested to establish agricultural insurance working group at local level (regency and province), by improving coordination and cooperation with educational institutions, agribusiness and insurance companies.
CONCLUSION
The Farmer Protection and Empowerment Act/Law No.
19/2013 is one of key elements for protecting farmer and supporting the development of agriculture sector.
Agricultural insurance is needed to reduce the risk of failure faced by farmers and to assure food security with stabilized price and achieving the demand and supply side target.
The premium have to be shared between the government and the farmers. Government giving subsidy to farmers.
Strongly suggested to establish agricultural insurance working group at local level (regency and province), by improving coordination and cooperation with educational institutions, agribusiness and insurance companies.
