Covering crops: The recovery from Typhoon Pablo puts a focus on insurance

When Typhoon Pablo hit the Philippines’ southernmost island of Mindanao in December 2012, it was a stark reminder of the havoc that unforeseen weather phenomena can cause to agriculture. According to National Disaster Risk Reduction and Management Council reports, the typhoon caused an estimated P26.53bn ($639m) worth of damage in the sector, along with infrastructure damage of P7.57bn ($182.4m). Mindanao is the country’s top banana-producing region in addition to being a substantial corn and rice grower, and the cost of these events can be felt not just in terms of losses to individual farmers’ and the economy, but also to the wider global commodity market.

After the category-5 typhoon (Pablo was the second major typhoon to hit the region in as many years), the state allocated P1.6bn ($38.5m) for the repair, rehabilitation and construction of farm-to-market roads. Meanwhile, the government-operated Land Bank of the Philippines, which offered loans of P430,000 ($10,400) per ha at 6% for 19 years to affected farmers.

INSURANCE: To mitigate the costs of future devastating weather events such as typhoons, droughts, floods and the like, the government has been rapidly expanding its crop insurance scheme under the Department of Agriculture’s food self-sufficiency programme. Overseen by the Philippine Crop Insurance Corporation (PCIC), coverage is available to farmers of rice, corn, fisheries, livestock, high-value commercial crops, coconut and non-crop assets. Policies are paid for through government subsidisation and smaller farmer contributions (which are generally 45% of total policy cost).

“We have experienced the effects of climate change in each of the past four years here. Part of our programme is to adapt to climate change through a risk-transfer mechanism, which is why demand has been so great recently,” Norman Cajucom, acting senior vice-president of the PCIC told OBG.

Although the programme is still in its early stages – only around 3% of corn farmers and 6% of rice farmers were insured in 2012 – more funding is expected to drive participation closer to the 25% target set for 2016. This stimulus is expected to be driven in large part by a bill recapitalising the PCIC from P2bn ($48.2m) to P10bn ($241m), which is expected to be signed into law in 2013, although this had yet to be finalised at the time of publication. “This will really strengthen the PCIC and help us expand our coverage. It will give us more financial leverage, which will translate into more farms insured without fear of encountering financial difficulty,” Jovy Bernabe, president of PCIC told OBG.

NEW PROGRAMME: Some of the funding to advance insurance will be channelled through a Department of Agrarian Reform programme, which will distribute P1bn ($24.1m) in 2013 to 250,000 farms involved in rice, corn, livestock, fisheries and other high-value products with a target of an additional P2.5bn ($60.2m) in outflows for 2014. Carried out in conjunction with six local government units, the programme’s primary objective is to introduce crop insurance to previously uninitiated farmers in the hopes that participation in the scheme will continue even if the government eventually reduces its subsidisation of the industry.

In 2012 the corporation generated P10.6bn ($255m) in insurance policies, up 97.6% over the previous year, with land area covered up 23% to 187,619 ha from 281,852 farmers, according to the PCIC. Of these, 134,662 were rice and corn farmers, 12,947 raised livestock, 1111 were high-value crop farmers and 21 were fishermen. The remaining policies were term insurance packages and non-crop insurance coverage.

The PCIC attributes the increase of insurance take-up to the number of cooperatives and grassroots organisations that purchased rice and corn production loans from the Land Bank; the participation of the National Agribusiness Corporation in the corn insurance programme; the implementation of compulsory insurance for farmers participating in microfinance programmes; and the government’s third cropping programme for rice farmers. In 2012 the PCIC paid P195.64m ($4.7m) to 27,369 farmers, most of who raise rice or corn.