THE ROLE OF AGRICULTURAL INSURANCE IN ENHANCING AGRICULTURAL PRODUCTIVITY

Abstract

Insurance is needed in order to alleviate the financial losses suffered by policy holders or the general public where the liability under policy is a contingent’s one. Therefore agricultural insurance takes care of the losses suffered by the farmers. To do this very successfully by an underwriter the compensation has to be made from contribution (premium) of all parties participating in the insurance. It is the aim of this research work therefore to find out if agricultural insurance has contributes in any meaningful way to enhancing agricultural productivity. Weather agricultural insurance has actually gained acceptance by the rural farmers. If compensation and adequately paid when losses are encountered by the farmers. And the possible areas the farmer can over with agricultural insurance policy the research work. Contains a general background discussion on the role of agricultural insurance in enhancing agricultural productivity. It went further to state the problem to be studies and why this research study was carried out, the scope and limitation of the study and finally the research questions and the definition of terms. AA number of related literature as it affects agricultural insurance were critically reviewed to provide enough background to the study.

CHAPTER ONE

INTRODUCTION

• Background of the study

Agricultural insurance as an alternative for risk management started as crop insurance in Europe more than one hundred year ago and then spread to the United States of America at the beginning of 20th century. It has then been embraced by a lot of the world like Canada, Mauritius, Zimbabwe, Philippines, Iran, Zambia and Nigeria with varying degrees of success and failures in agriculture production. In Nigeria, there has been growing need since, 1976 to evolve a worthwhile and more permanent natural approach to risk management in agricultural and this has continued to attract the attention of the various governments. To this effect, Nigeria agricultural Insurance Corporation was established by funded largely by her with the predication of state government and organization private sector. Nigeria agricultural Insurance Corporation started as a company but became a corporation in 1993 by the virtue of decree 37 of 1993. The introduction and formal lunching of the Nigeria agricultural insurance scheme by the president and commander in chief of the armed forces of Nigeria, president Ibrahim Babangida Badamosi on 15th December, 1987 was designated to benefit the small, medium and large scale farmer from the effect of natured hazards in consideration of a determined price called premium. Agriculture has been provider of food for teeming population and the largest employer of labor force in the country (Amaza, 2000). The Nigerian agriculture as in most developing countries of the world is anchored mainly on subsistence farming methods. In this regards small scale farming operators producing about 80% of the total food production for the ever increasing population, operate on fragmented farm of between 0.5 – 2hectares (Salami, 1994). The federal office of statistics (2006) recorded that food production grew at a rate of 3.5% with an annual population growth rate of 2.83%. In a desperate bid to solve the country’s food and nutrition problems, various food related policies, programmes and projects were put in place. In spite of various programmes and projects, the food problems continued unabated and food importation had to step up. Aderinola et al (2007) gave the following reasons for the perpetual food deficits: Agricultural insurance is a special line of property insurance applied to agricultural firms. In recognition of the specialized nature of this type of insurance, insurance companies operating in the market either have dedicated agribusiness units or outsource the underwriting to agencies that specialize in it. There are several features of this type of insurance that validate it being treated as a special line of business. Difficulties in achieving adequate diversification because of the nature of the risk, asymmetries of information in underwriting, the geographical dispersion of agricultural production and the complexity of the biological processes of production, which requires skilled and expert underwriting justify it being considered a special business line (Iturrioz, 2009).  More so, Nigeria agricultural insurance scheme is to ensure the payment of appropriate compensation sufficient to keep the farmer in business after insuring any loss on their insured form.

1.2     Statement of Problem

In the result past, various governments in Nigeria have launched different agricultural policies in their relentless effort to enhancing agricultural productivity.

They also have committed a large sum of zealous desire to achieving an increased agricultural production but have continually and repeatedly failed. One of the reasons for this failure is that most farmers in Nigeria have never discovered the need to insure their farms and other agricultural of the federal government in establishing the Nigeria agricultural insurance scheme (NAIS).

Sourcing of fund has proved highly impossible because the lending institution also are supposed to fund agricultural development are quite doubtful of advancing loan to this sector because of the risks of uncertainty and insecurity.

1.3     significance of the study

Agricultural insurance unlike the conventional insurance is relatively new in Nigeria. consequently, there are many problems involved in collecting data and other materials for research in the field of insurance. this problem underscore the significance of this piece of work hence, the study will be helpful to students of insurance and other interested displine who may wish to carry out further study on this new field.

The research will assist both the federal government and the Nigeria agricultural insurance corporation which are directly as the device better ways of improving their performance. this will also enlighten e various marketing intermediaries on the need to participate more effectively in the operation of the scheme to ensure it success.

Furthermore, since the scheme serve as a kind of production to the insuring public (ie the insured farmers) thereby enhancing greater confidence to all farmers) (whether insured or not) on adopting a new and improved farming practice and in making greater economy’s perhaps aids to increase the state agricultural production.

1.4     objective of the study

1. To investigate the number of claims that was reported to NAIC yearly.
2. To investigate the amount paid by the farmers as premium.
3. To investigate the performance of the relevant financial institution and agricultural lending institution on the insurance policy.
4. The research will also check the output achieved in farming activities under the agricultural insurance scheme.
5. To investigate the claim settlement methods and procedures of the agricultural insurance scheme.

1.5 RESEARCH HYPOTHESES

H₀: farmers in Nigeria does not subscribed to insurance policy

H₁: farmers in Nigeria do subscribed to insurance policy

H₀²: farmers who subscribe to insurance cover do not pay the required premium

H₂: farmers who subscribe to insurance cover do pay the required premium

1.6  Scope and Limitation of the study

Nigeria Agricultural Insurance Corporation is the only corporation underwriting all agricultural policies in Nigeria with a network of branches made the study unique. The research work carried out tend to be in dynamic setting as the scope of the work extend from the head office of the Nigeria agricultural insurance corporation in Abuja to the nearby zonal office here in Enugu. The research work covered agricultural crop, insurance product. The volume of work local require in a research of this nature could not be carried out without some limitations. first, was inadequacy of finance, second was the death of book, journal magazine on agricultural insurance as secondary source of data collection thirdly, the illiteracy level of respondent farmers constituted serious handling and mount loss of vital information relevant to this piece of work.

1.7 definitions of terms

The following terms used in this study should taken to mean the following:

1. Agricultural Insurance:Is insurance cover giver to farmers or stake holders in the agricultural sector.
2. Underwriting: It means undertaking by signing an insurance policy0 to pay damage when ever losses occur. This is done by the insurance company or society which, therefore, is called the underwriter.
3. Policy holder: The individual or corporate body who purchase the insurance cover from the insurance company.

ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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