In this article, the agricultural insurance scheme government put in place to mitigate the adverse effects of production and distribution of agricultural products in the country is discussed.

Nigerian Agricultural Insurance Corporation (NAIC)

An Overview of Agricultural Insurance Scheme in Nigeria

The Nigerian Agricultural Insurance Corporation (NAIC) is the agency that operates the Nigerian Agricultural Insurance Scheme (NAIS).

Risks in agricultural undertakings are more widely spread and far-reaching than in most other enterprises because they go beyond all the well-known and researched entrepreneurial hazards and uncertainties in the business world. Such hazards include the vagaries of nature, inclement weather conditions, pests, along with floods and fire outbreaks.

All of these eventualities impact very seriously on the success of any agricultural enterprise. Therefore, any nation with a clear vision for boosting its agricultural productivity and meeting the food needs of its populace and industries must, of necessity, put in place mechanisms that would reduce risks and uncertainties to a bearable minimum.

There is, therefore, a need for a mechanism that functions to keep farmers in business. This necessitates the need for an agricultural insurance scheme in Nigeria.

NAIC is presently wholly owned by the government and is the sole underwriter of agricultural risks in the country. While operating the NAIS, the premium due is subsidized to the tune of 50%. This means that the farmers pay 50%, while the Federal Government and the State Government (where the project is located) pay 37.5% and 12.5%, respectively.

Main Objectives of the Scheme

The broad objective of the NAIS is to protect the Nigerian farmer from the effects of natural hazards by measures that ensure prompt payment of appropriate indemnity (compensation) sufficient to keep the farmer in business after suffering a loss. The scheme was specially designed to:

i. Promote agricultural production, since it would enhance greater confidence in adopting new and innovative farming practices, and at the same time bring about greater investments in the agricultural sector of the Nigerian economy, thereby increasing total agricultural production.

ii. Provide financial support to farmers in the event of losses arising from natural disasters.

iii. Increase the flow of agricultural credit from lending institutions to farmers.

iv. Minimize or eliminate the need for emergency assistance provided by the government during periods of agricultural disasters.

Functions of the Nigerian Agricultural Insurance Corporation (NAIC)

With the aim of assisting farmers in cases of unforeseen adverse farming conditions, the Nigerian Agricultural Insurance Corporation (NAIC) was established, with headquarters in Abuja. In the beginning, the insurance cover offered by NAIC was limited to rice, maize, cattle, and poultry. However, it has since been conceived to cover wider ecological zones in the country.

According to Decree No. 37 of 1993, which enabled the corporation, its functions include the following:

i. To implement, manage, and administer the Agricultural Insurance Scheme established by Section 6 of Decree No. 37 of 1993.

ii. To subsidize the premiums chargeable on selected crops and livestock policies from grants provided by the Federal Government, State Governments, and the Federal Capital Territory, Abuja.

iii. To encourage institutional lenders to lend more for agricultural production, having regard to the assurance of their loans provided by the corporation.

iv. To carry on insurance business on a normal commercial basis and without subsidies on premiums for farm buildings, machinery, equipment, and other items which form part of the total investment on farms. NAIC carries out this aspect of its operations through well-established channels with reputable re-insurance companies.

v. To operate other types of insurance businesses as may be permitted by the Commission of Insurance.

Beneficiaries of the Scheme

The scheme was established to provide security for all categories of farmers, namely, small, medium, and large-scale holders, either in groups or as individuals.

The scheme is especially compulsory for farmers that benefit from any form of agricultural credit under the scheme. Most of these transactions are made by or through the lending institutions. The scheme also provides cover for self-financed farmers, government-sponsored or assisted projects, and other ventures where formal lending facilities may not be involved.

Perils Covered by NAIC

Since not all perils to which a farmer is exposed are insurable, the perils covered are restricted to those pertaining to elemental and physical risks to production only. There is no cover for economic risks resulting from price fluctuations and loss of profit.

The exact perils covered in respect of crops depend on crop type, area, exposure, and ease of controlling the peril. The major perils covered for crops include fire, lightning, windstorm, flood, drought, pests, and damage caused by animals.

For livestock, the perils covered also depend on the animal type, the prevalence of epidemic and endemic diseases, and the preventive measures available. The major perils covered for livestock include death or injuries due to fire, lightning, windstorm, flood, and diseases.

Losses caused by negligence or willful damage are not covered. Additionally, insured farmers under NAIC are required to meet the conditions for good husbandry practices.

Benefits of the Scheme

The scheme is immensely beneficial to the farmers and hence the nation as a whole. Some of the benefits include:

1. Assurance of Security to Farmers:The insured farmer has an added advantage in his/her production efforts, knowing that should a loss occur, it will not be total as NAIC will indemnify him/her. This serves as an added impetus to his/her efforts.

2. Adoption of Technology: The farmer, now armed with the added security advantage as mentioned in (a) above, is now positioned to follow time-tested laid down guidelines that will improve his yields. The adoption of new approaches, which is a major requirement for insured farmers, is therefore compulsorily carried out, leading to greater yields and improved farm incomes.

3. Enjoyment of Premium Subsidy: There is also the incentive that only 50% of the premium is paid by the farmer on crops and livestock under the subsidized category. The other half is paid on his behalf by the Federal and State Governments, depending on where the project is located. This is one of the attractive features of the scheme. More farmers are hereby encouraged to avail themselves of the Corporation’s policies, which is the veritable ship of financial stability through which many have been sailing to their shores of prosperity.

4. Facilitation of Easy Access to Credit Facilities: The NAIC cover also enables easy access to greater credit facilities since the insurance cover can serve as security for loans. It works this way: if farmer X, who has taken a loan of N5,000.00 which was insured, succeeds in paying back the loan, he will be entitled to a bigger loan of say N10,000.00 and above.

5. Generation/Creation of Wealth: The accessibility of greater credit facilities, as mentioned in (d), would result in an increase in the size of production, giving rise to increased income for the farmer, which in turn will lead to higher farm earnings, more wealth generation, and general improvement in the quality of life of the citizenry.

6. Provision of Extension Services: Insured farmers benefit immensely from technical advisory services which are provided by staff of the Corporation in the various areas of agriculture and risk management during monitoring visits to insured farm projects. These extension services are provided free of charge.

Furthermore, the professionals involved are highly reliable and tested in their fields of agriculture and seasoned insurance experts. This translates to the basic fact that the farmer can save his hard-earned money, which he ordinarily would have spent on consultants, most of whom may turn out to be fakes.

7. Assistance in Agricultural Loans Recovery: Banks whose clients have been covered under the Nigerian Agricultural Insurance Scheme have found it easy to recover loans disbursed, thereby leading to more farmers enjoying credit facilities from such banks.

Problems and Limitations of the Scheme

A number of problems and limitations have been identified to constrain the successful implementation of the scheme in Nigeria. These include:

1. Inadequate Infrastructural and Administrative Facilities: Inadequacy of infrastructural facilities such as good roads and other efficient means of transportation, power supply, etc., could hamper the successful operation of the scheme.

These facilities are needed to facilitate prompt and speedy intimation of losses by the farmers, for assessment of losses, and for payment of indemnities. Federal and State Governments are expected to provide these facilities.

2. Poor Farming Practices and Differential Level of Farm Development: Poor farming practices and differential levels of farm development may cause variations between average farm yields. The adoption of homogeneous geographical areas as the unit of insurance assumes uniform yields within each ecological zone.

Different levels of development may cause serious deviation of farm yields from the average. In the determination of indemnity for crops, particularly under the third stage of development, reliance is normally placed on the standard yield per hectare. Differential levels of farm development may result in unintended over-indemnification.

3. Inadequate Funding: Like most publicly owned corporations, adequate and timely funding of the scheme is lacking. Agricultural insurance is a very costly venture, and as such, arrangements for adequate funding should be made.

4. Lack of Trained Personnel: The successful management of the scheme requires the availability of personnel trained in agriculture and insurance at the national, state, and local government levels as evaluators, supervisors, loss adjusters, and so on.

There is an acute shortage of agricultural insurance specialists within the Nigerian insurance industry, and this hampers the technical aspect of agricultural insurance.

5. Ignorance and Lack of Awareness Among Farmers: The ignorance and lack of awareness by the majority of farmers of the need, practice, and value of agricultural insurance constitute a problem to the effective practice of the scheme.

6. Lack of Data: A major problem that affects the implementation of the scheme is the dearth of data on farm operations, on crop yields and losses arising from natural hazards, as well as on the occurrences and effects of these hazards. Such data are necessary for the computation of premiums and indemnities.

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