In today’s world food security according to the FAO, means having social, economic and physical access to safe, nutritious and sufficient food supplies. However growing populations, socio-economic instability and insufficient farm investment plus adverse weather conditions are key challenges for the food production industry. Furthermore, nutritional demand and food preferences are changing, putting pressure on food production and availability. Rising food prices are also of increasing concern. Out of an estimated 850 million people suffering from hunger around the globe, 98% are located in emerging markets.
Global agricultural production must therefore increase by 60% in order to feed the world’s population, which is forecast to rise to nine billion by 2050. So what can be done? One approach comes from the reinsurance and insurance group Swiss Re. In their latest sigma research report: Partnering for Food Security in Emerging Markets, Swiss Re proposes a multi-stakeholder approach to address the problem of food insecurity - agricultural insurance. Part of ensuring sustainable agricultural production includes employing holistic risk management strategies. “Insurance is an integral piece of the puzzle,” says Clarence Wong, Swiss Re Chief Economist for Asia. “Meeting growing food requirements necessitates massive investment in agriculture, even in the midst of an economic crisis. Innovative, multi-stakeholder cooperation is the way to make progress towards global food security.”
Agricultural insurance can help manage the risks in the agricultural value chain, stabilise farm incomes, promote agricultural investment and act as collateral for credit. One example is area-yield crop insurance, which bases payout on the shortfall of an area’s realised crop yield relative to its average historical yield. This type of insurance was implemented by the government of Vietnam in 2010 in partnership with reinsurance/insurance companies to provide rice farmers with risk protection.
Agricultural insurance penetration although growing remains low and is a long way from reaching its full potential in emerging markets, estimated to be three to four times the current market size. Global agricultural insurance premiums were estimated at US$23.5billion in 2011, around US$5billion of which was generated from emerging markets, mainly India and China, according to figures from the World Bank and Swiss Re. Growth requires a combination of proactive, enabling government policies, support from farmers, communities, cooperatives and agribusiness, cost-effective business models, new insurance distribution channels and technologies plus innovative insurance products to energise the market. Although insurance on its own cannot provide food security in emerging markets it can facilitate by aligning production incentives, raise awareness of the importance of risk mitigation and encourage investment in agricultural efficiency.
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