P.A.D. Secretan
Managing Director,
AUMS
The weaknesses of traditional crop insurance programmes with regard to South America have been analysed and described (Wenner and Arias, 2003), together with some new developments intended to make agricultural insurance more accessible, more efficient and more sustainable. The report lists the following ten risk management strategies and techniques often prescribed for farmers to mitigate common risks:
acquiring revenue insurance.
Only the first three listed above were widely available and accessible in the countries of South America. In order for the remaining seven to materialize, certain market and supply conditions have to be met, and appropriate legal and regulatory as well as physical infrastructure have to be in place. In most South American countries these conditions were missing or incomplete, which compels farmers to depend more on the first three strategies on-farm. These inhibit achieving economies of scale in production, reduce farm profits, and lower production and productivity.
The same report also noted that many crop insurance programmes in the developed countries, including the United States and Europe, continue despite high fiscal costs. This is because developed countries have a greater financial capacity to sustain the costs through higher levels of income and the relatively fewer agricultural producers in the total population. In South America, the public treasuries do not have the same financial capacity. Their average annual incomes are much lower, and in addition, the number of producers in the agricultural sector is usually very large.
Some Spanish insurance companies have been advising Latin American governments on the development of a new, more rational crop insurance scheme. Spain has a mixed public-private insurance scheme; several species of farm-raised fish are among the many crops and animals that qualify for insurance in its national programme (Wenner and Arias, 2003).
South America’s aquaculture sector has grown rapidly over the last decade. The volume of production in 1995 was estimated at around 409 000 tonnes and in 2004 reached the 1.1 million tonnes benchmark. In 2004, the most important aquaculture products of South America in volume terms were: Atlantic salmon (349 000 tonnes), whiteleg shrimp (172 000 tonnes), rainbow trout (139 000 tonnes), Coho salmon and tilapia (each 90 000 tonnes), Chilean mussel (77 000 tonnes) and common carp (46 000 tonnes).
In 2004, the aquaculture sector in South America generated an estimated production value of almost US$4.6 billion. This figure is a considerable increase from US$1.6 billion in 1995 and the estimated US$2.6 billion reported in 2000. In 2004, the most important aquaculture products in value terms for South America were: Atlantic salmon (US$1 536 million), whiteleg shrimp (US$803 million), rainbow trout (US$608 million), Peruvian calico scallop (US$324 million), Coho salmon (US$298 million) and tilapia (US$281 million).
7.2.1 Brazil
Whiteleg shrimp, tilapia and common carp are the main aquaculture products in volume terms produced in Brazil. In 2004 the country produced some 76 000 tonnes of whiteleg shrimp, 69 000 tonnes of tilapia and 45 000 tonnes of common carp. Compared to 1995 the industry has grown at a remarkable pace. In 1995 the total aquaculture production volume of Brazil was estimated at 46 000 tonnes, while in 2004 production volume reached almost 270 000 tonnes.
Brazil’s aquaculture production value increased between 1995 and 2004 from US$172 million to US$966 million. Just under one-third of this value in 2004 came from whiteleg shrimp production; followed by tilapia production valued at US$221 million and common carp production with an estimated value of US$144 million. Other aquaculture species with a production value in 2004 of over US$100 million are Cachama (also called Pacu) and characins. While most species report higher values in recent years, the production value of common carp shows a decreasing trend from US$175 million in 2002.
7.2.2 Chile
In 1995 the aquaculture production of Chile was estimated at 206 000 tonnes, including 98 000 tonnes of salmon and 43 000 tonnes of rainbow trout. By 2004 the total production figure had increased to 695 000 tonnes. This figure includes 439 000 tonnes salmon (of which 347 000 tonnes are Atlantic salmon]) and 126 000 tonnes of rainbow trout. Thus in one decade the production of salmon quadrupled and that of trout, tripled. It should be noted that not all aquaculture activities saw an increase in recent years in Chile. Since 2001 the seaweed production decreased from 65 000 tonnes to less than 20 000 tonnes in 2004. The culture of Chilean mussel increased from 35 to 77 000 tonnes over the same period. The volume of production of Peruvian calico scallop in 2004 was estimated at 24 000 tonnes.
Chile’s aquaculture production in 2004 had an estimated value of US$2.8 billion, of which over 53 percent originated from Atlantic salmon culture. In 2004 the Atlantic salmon production in Chile alone had an estimated value of over US$1.5 billion. Chile’s rainbow trout production in the same year was valued at US$568 million. Other products with estimated production values of over US$100 million in 2004 were coho salmon (US$294 million), Peruvian calico scallop (US$240 million) and Chilean mussel (US$131 million). The aquaculture industry has grown tremendously since 1995 when the total production value was estimated at US$584 million.
7.3.1 Brazil
There are neither public organizations nor commercial insurance companies offering aquaculture insurance in Brazil. Enquiries revealed that one company is investigating the industry but is far from reaching a decision to get involved. Any cover offered will undoubtedly follow the methods and processes widely used in the world market, including similar application forms, providing comparable terms and conditions, and employing the claim handling processes that are employed throughout the industry.
7.3.2 Chile
Aquaculture insurance has been available in Chile for over ten years. The Chilean subsidiaries of multi-national aquaculture companies are most likely to be insured under their groups’ worldwide insurance policies. However, there are also many relatively smaller national aquaculture entrepreneurs that buy insurance. Confidential insurance industry estimates put the premium volume in the Chilean market at around US$8 million to US$9 million annually.
Supply is obviously a problem as far as Brazilian aquaculture producers are concerned, because as of July 2005, no insurers are willing to insure Brazilian aquaculture producers. In Chile, however, a well-developed aquaculture insurance market covers many farms. Where insurance is available, the main complaint of producers is that the terms and conditions of insurance services offered do not meet the economic conditions of the producer. This may occur because insurers decide that some farms are not of an insurable standard, and if not refusing insurance outright, will apply substantial terms and conditions to them which may prove to be uneconomical for producers.
7.5.1 Brazil
It is believed that no Brazilian aquaculture operations are insured.
7.5.2 Chile
According to information obtained from Chilean insurers, between 300 and 400 policies are in force in the country.
Policies in Chile generally protect against named perils. "All risks" cover is not generally available, except possibly to subsidiaries of multinational companies under their group policies.
Atlantic salmon, coho salmon and rainbow trout are the main species insured in the Chilean market. However, there are many other species that are likely to be brought into cultivation in Chile. As they go into production, the insurance industry will undoubtedly attempt to develop suitable terms and conditions for them, according to the normal procedures of insurers.
The growing systems insured are onshore, gravity flow systems and marine cage culture systems. Hatchery and nursery operations of subsidiaries of multinational companies are insured as well under their group policies.
7.9.1 Brazil
Although there is presently no aquaculture insurance market in Brazil, there is a developing aquaculture industry that could benefit from the risk spreading and managing facilities offered by the insurance industry. Insurers should therefore be encouraged to consider making their services available in Brazil.
7.9.2 Chile
The insurance needs of the indigenous aquaculture industry are met by a consortium of local insurance companies, backed by reinsurance from the European market. These insurers have developed substantial expertise in the field.
Most specialist insurers use site surveys to assess the physical risks inherent in production units and to ensure that high standards of operation are always maintained on farms that they insure.
Surveys are generally carried out by individuals who have either been trained in aquaculture inspection techniques or who are drawn from the insurance industry’s worldwide inspection force of professional surveyors. Though the latter are unlikely to have experience of the peculiar risks and hazards of aquaculture, many of their skills are directly relevant to the physical arrangement and components of aquaculture systems. This especially applies in the case of marine sites, sites that use extensive pumping and aeration technology, and those that rely on sophisticated alarm systems.
The insurance industry’s marine surveyors in Chile are familiar with the extremes of wind and wave forces, and with the currents and tides that occur along local coastlines, and they can materially assist in locating and maintaining cages and their moorings. The insurance industry’ electrical and mechanical engineering surveyors can evaluate generators, pumps and alarm systems used in aquaculture operations to see that they are appropriate for each job, and ensure that they are properly installed and maintained. In addition, there are specialist insurance surveyors in numerous other disciplines, including health and safety, fire and food processing.
Aquaculture claims handling in Chile is well developed and there are very experienced aquaculture loss adjusters who can be used by insurers to handle losses anywhere in the country. There are also a number of sophisticated academic organizations and institutes capable of providing excellent disease diagnosis facilities, and high-level research. As with all other areas, claim handling relies on prompt reporting and the level of mitigation efforts.
7.12.1 Brazil
No aquaculture underwriting experience is available for Brazil.
7.12.2 Chile
Private insurance industry sources advise that the insurance results over the eight years from 1996 to 2003 were as follows: 1996, 1997 and 1998, "very bad", followed in 1999 with a very good year. The start of the new millennium then brought two bad years, 2000 and 2001, which were followed by two "very good" years, 2002 - 2003. This indicates that underwriting Chilean aquaculture business is moving towards profitability. This is essential if insurers are to maintain their commitment to the Chilean industry.
Aquaculture insurance can become much more widely established in South America if demand for the service is expressed more widely. Ultimately, it is up to aquaculture producers to approach the insurance industry for cover, and in this respect Chile is well served by a flourishing insurance industry. Inquiries directed to the international insurance companies and brokers in the Brazilian market will most likely be taken up by the aquaculture insurance market.
The authors’ recommendations to the industry in South America are similar to those listed already under chapter 5.14 for Europe. These recommendations are the following:
to review lessons learned and establish an international programme for awareness-raising and capacity building to promote the use of aquaculture insurance;
to improve the collection and analysis of information on the aquaculture insurance market as part of a risk management strategy to sustain an increasingly global aquaculture industry.
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[9] Please see Chapter 2,
section 2.2, footnote 2. |
