Agribusiness Insurance: How much culture is needed to understand its value!

In addition to hurricanes or heavy rainfall, drought became one of the most dangerous enemies for food production in 2015 alongside pests and diseases

Given the intense drought experienced, there’s a growing need for insurance in the collective production agreements, so the individuals or groups supporting in great measure the popular diet can make up for part of the damage these phenomena cause, and be better prepared to resume the production.

As a financial mechanism, the effectiveness of the agribusiness insurance is not rooted in indemnity, but in securing that goods –in this case food, exists. The repercussion on the market caused by drought is common knowledge, especially in the mark-up of agricultural products.

Last December, in the sessions held by the Economic Affairs Commissions of the Cuban Parliament, Finance and Prices Minister Lina Pedraza, said that from 2016 new tax exemptions would be applied in the Cuban agribusiness sector, with a view to boost food production, which is insufficient today.

In statements to the press he said that the steps approved would be indirect ways through which the state budget supports the farmers, so they produce more and prices will not be unnecessarily raised.

Among the changes, the minister announced that resources would be destined for, alongside the insurance, making up for the damage associated with drought.

Indemnity due to the impact of this phenomenon is undoubtedly reported almost throughout Cuba, but as reporter José Luis Camellón said, “let’s make it clear that such a support does not render innocuous the risk least of all the traces of the damage, because the goods, in this case, ceased to exist, the farmer only recovered part of his investment.”

According to the Cuban regulations, all the temporary or short crop cycle are insured, as well as the permanent plantations of coffee, sugarcane, bananas, fruits and flowers, and even the so called agricultural patrimonial goods.

This insurance protects the capital of the agribusiness sector against the damage caused by hurricanes, tornados, windsocks, flooding, heavy rainfall, hail storms, fire, explosions, earthquakes, collapses, fall of objects and aircraft. In some lines specific dangers like civil responsibility and collisions and overturns can be covered.

These are offered, for instance, for homes, ranches and houses for curing tobacco; finished production; machinery, equipment and means of transport; buildings and facilities, existence of tobacco; structures and greenhouse protective covers; electronic equipment and machinery breakdown.

The insurance requires the compliance with the constructive norms and usage, established by the manufacturer, as well as the storage requirements of the finished production and the supplies in warehouses.

In the case of agribusiness investment, the reimbursement of it is guaranteed until the time when the phenomenon took place, or the produce gone to waste, balanced to the cost of investment.

Some 90% of the loss will be indemnified, balanced to the cost for the work done until the moment of occurrence, recorded in the inspection and taxation registry, except for the case of covered tobacco of which 100% is indemnified, and in the case of seedbeds, forest and urban farms in which 80% is indemnified.

When the source of insurance is the output or the production of a crop, the cost taken into account for insurance is the one to be reached by the producer at the end of the harvest, based on an expected level of production per area.

Even though resorting to this mechanism entails to paying some interest policy and not all the farmers and forms of production have a good financial situation which allows them to be insured, the advantages of a monetary compensation in this type of damage cannot be ignored as José Luis Camellón said in the Escambray journal website.

There are many examples of how good it is to insure the plantations, the livestock or the sugarcane harvests, but also how much culture is needed to understand the usefulness and scope of paying an insurance-related premium.

Translated by ESTI