Risk management is of crucial importance in the investment and financing decisions of farmers in developing countries and in transition economies. Basic risk management measures in agriculture include choice of plant varieties and animal breeds, crop and animal husbandry practices, diversification of farm enterprises as well as taking precautionary prevention measures against adverse weather events such as using mulching and shelter belts and, perhaps most important of all, securing access to supplementary irrigation facilities.
Agricultural insurance, although one of the most often quoted tools for risk management, can only play a limited role in managing the risks related with farming. The applicability of insurance in any given situation is based on consideration of whether it is a cost-effective means of addressing a given risk. In practice, agricultural insurance is almost invariably a adjunct to a whole set of risk management measures of which adequate farm management practices constitute an important element. The acid test of developing and operating an insurance programme to complement other risk management measures depends on the cost/benefit ratio - to the farmer and to the potential insurance providers.
Agricultural insurance is nevertheless a growing business driven by increasing commercialisation of agriculture, international trade, and foreign direct investment, and the development of new insurance products. The changing economic environment has also triggered a renewed interest in crop and agricultural insurance programmes and products among governments and development practitioners.
The precursor of the present publication, the AGS Bulletin 86 - "Strategies for Crop Insurance Planning", was intended to serve as a guide for the design of crop insurance programmes or for improving already existing insurance operations. Although the book was written more than 10 years ago and some of the case studies may not be anymore up to date, FAO believes that the identified 11 key issues for crop insurance design described in Chapter 2 of the publication are still valid today. The present publication is intended to be a supplement to the AGS Bulletin 86 and in particular to provide insight into some of the more recent developments in terms of new insurance products and programmes. Despite the limited experience with some of these products, FAO believes that they will create an opportunity to offer practical solutions to many of the barriers to classic crop insurance for small-scale, dispersed farmers in less developed areas of the world.
Agricultural Management, Marketing and Finance Service
Agricultural Support Systems Division