Agricultural production faces a lot of risks and uncertainty which is a major causes of huge losses made by farmers and food shortages all over the world. Examples include climate change,flood, pests and diseases. The impact and economic costs of such disasters may increase further in the near future because of climatic factors occasioned by climate change. These events, in most cases can lead to impoverishment of farmers and loss of investments if not checked or controlled.
Agricultural Insurance is a useful tool that Agricultural producers must use to mitigate and manage the risks associated with pest infestation, disease outbreak or any natural disasters. Farmers all over the world should see insurance as a way of complementing and enhancing risk management activities.
Agricultural risks will not only affect farmers, they also affect the whole agribusiness value chain. All stakeholders in the supply chain, from the suppliers of inputs to the end consumer, are subject to these risks. The agribusiness value chain include the following:
- Financial Institutions
- Input Supplier
- Products Distribution
- Food or Raw Materials Shortage.
Agricultural insurance offer protection to the farmers from the effects of natural hazards through payment of appropriate compensation sufficient to keep the farmers in business after suffering a loss, promote agricultural production and encourage the flow of agricultural credit facilities from banks and other lending Institutions to the farmers.
Agricultural insurance is well embraced in developed nations than in the developing countries, the following are its huge benefits:
- Agricultural Insurance cover is designed to prevent all farmers from risks and uncertainties .
- It gives farmers peace of mind and confidence in the event of any insured loss, they will recieve compensation sufficient to keep them in business after suffering losses.
- It provides compensation for financial losses incurred as a result of natural disasters, farmers have increased confidence to invest more in Agriculture with consequent increase in Agricultural production.
- It serves loans collateral which provide cover for farmers to access Agricultural loans from Banks and other lending Institutions.
- It boosts lending Institutions confidence to disburse more funds for Agricultural production.
- It helps farmers to be financially stable
Farmers should take advantage of insurance to mitigate risks; they may seek to lessen the risk by transfering all or part of the risks to a third party through an insurance contract. A stitch in time saves nine.