No appropriate policy

In fact, an agricultural insurance programme was piloted in Nam Ninh and Vu Ban districts of northern Nam Dinh province in 1982 by the Vietnam Insurance Corporation (Bao Viet). Two years later, the programme ran out of steam due to the transformation of the economic mechanism from cooperative economy into household economy. In 1993, Bao Viet continued providing services to rice growers in 16 provinces, particularly in central Ha Tinh province which was most often hit by natural calamities. After five years, the programme ended with a loss of VND2.5 billion.

The corporation later shifted to other agricultural services such as husbandry, fire protection and cash crops but they all ended in failure.

Groupama Vietnam - a wholly-French invested company – recently decided to stop all new services in Vietnam after a trial run. In the first six months of 2004, the company earned only VND5 million in revenue from such services. Before that, Groupama was confident that it would provide insurance services for agricultural production, plant and animal development and property losses. To make more profits, the investor now plans to focus on non-agricultural areas since agricultural insurance runs the risk of natural calamities and epidemics, often leading to inefficient business operations.

According to the Vietnam Insurance Association, despite its importance, this kind of service is still very much in its infancy while other insurance services have long developed in the country. That’s why enterprises now want to focus on more profitable services than agricultural insurance.

Hoang Xuan Dieu, former director of the Agricultural Insurance Department under Bao Viet, says that it is difficult to develop this kind of service in Vietnam due to its high risk and that no enterprises want to lose their touch after pouring intensive investment into this service.

The latest report from the Farmers Association shows that up to 87 percent of farmers have a desire to guarantee their property, particularly rice, but most of them lack information about agricultural insurance. In addition, it is not easy for farmers to get bank loans to develop production if they do not buy this service. On the other hand, agricultural insurers do not understand this service well. Bao Viet Company in southern Binh Phuoc province is a case in point. Several years ago, the company signed contracts to guarantee nearly 150ha of rubber plantation at a premium of up to VND190 million. Many local enterprises were encouraged to sign contracts. But when the price of rubber latex dropped, many enterprises withdrew from the contracts and the provincial Bao Viet company had to hold to the four remaining contracts covering an area of 2.36 ha with rubber growers.

According to experts, small-scaled and scattered farming practice and unsteady productivity still cause certain snags in the development of this service.

Agricultural insurance worth a try

Tran Trong Phuc, General Director of the Vietnam Insurance Corporation, says agricultural insurance is only successful when it is included in a State policy.

In the Philippines, the Government has adopted a policy on crop insurance and establishment of the Agricultural Insurance Corporation in which it is committed to covering half insurance fees for farmers. It has asked farmers to buy insurance if they want to access bank loans. In case the corporation is unable to pay premiums for buyers, the Government will provide preferential loans or subsidies to help the corporation to compensate losses.

Agricultural insurance is of great importance to Vietnam. Moreover, there is no State policy or mechanism as well as no typical model for this service. Before dissolving the Agricultural Insurance Department, Bao Viet asked the Ministry of Finance and the Government to consider subsidies to help this service exist and develop, but no progress has been achieved so far.

The Food and Agriculture Organisation (FAO) recently pointed out that agricultural insurance cannot exist and develop without Government assistance.

There is no denying that implementing State policies needs the voluntary participation of not only enterprises but also the entire society. So any policy on agricultural insurance should be closely associated with financial policies to create a favourable legal environment for the agriculture and rural development sector to attract investors and encourage the participation of farmers.