Agricultural products are of a different nature than industrial products. The features of these products can be divided into three major types based on production, marketing, and consumption. Each of these features has problems associated with it that necessitate insurance taking.
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Problems of Agricultural Products Necessitating Insurance
The major agricultural products can be broadly grouped into foods, fibers, fuels, and raw materials (such as rubber). Food classes include cereals (grains), vegetables, fruits, oils, meat, milk, eggs, and fungi. Over one-third of the world’s workers are employed in agriculture, second only to the service sector.
However, in recent decades, the global trend of a decreasing number of agricultural workers continues, especially in developing countries where smallholding is being overtaken by industrial agriculture and mechanization, which brings an enormous increase in crop yield. According to Muller (2015), the following are the key problems:
1. Seasonal Production: Unlike consumer goods and industrial goods, which are produced throughout the year, agricultural goods can only be produced during specific periods. There are summer crops and winter crops. Certain crops require a lot of water, while others need only minimal amounts. Due to these differences, not all crops can be grown in all months of the year.
2. Difficult to Control Production: For consumer and industrial goods, producers can exercise direct control over production. However, in the case of agricultural goods, nature plays a vital role. If a cultivator sows seeds and awaits rains, a failure of rains will hamper production. Agricultural production is heavily dependent on the availability of abundant water, which, in turn, depends on rainfall.
3. Difficult to Control Quality and Quantity of Output: Producers of consumer and industrial goods can control both the quality and quantity of output. This is not the case with agricultural production. Even if farmers use high-quality seeds, fertilizers, and manures, the quality and quantity of output are primarily determined by natural factors.
4. Long Waiting Period: Production of consumer and industrial goods occurs almost continuously on a daily basis. However, for agricultural goods, the gestation period is too long, making continuous production impossible.
5. Loss of Crops Due to Pests and Animals: Crops need to be protected from pest and animals. Every year, farmers suffer heavy revenue losses due to crop damage caused by pests, insects, and animals. To protect their crops, farmers use pesticides, insecticides, and electrical fences to safeguard against cows, elephants, and other animals.
6. Loss of Production Due to Litigation: Another peculiar problem inagricultural production is the frequent litigation between farmers over land territory and other issues. As a result, farmers may spend significant time, money, and effort on legal battles, which reduces the time available for production and affects output.
7. Small-Scale Production: In India, the number of small and marginal farmers is larger than the number of big landlords. Small and marginal farmers often own only a few acres of land. The quantity of output they produce is barely sufficient for their family needs, with most producing for their families rather than for the market.
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8. Use of Primitive Techniques of Production: In developed countries, agriculture receives the same importance as industry. However, in India, despite significant industrial development, agriculture remains a neglected sector. Farmers often follow conventional methods of production, which affect yield. They lack access to the latest machines and equipment due to affordability issues.
9. Ignorance of the Producers: Producers of consumer and industrial goods have greater awareness than agricultural producers. As a result, the former can adapt to changing situations and overcome problems. For example, they can modify or update their products to align with market trends. In contrast, farmers tend to be conservative, preferring to grow the same crops year after year.
10. Lack of Collective Bargaining: Industrialists have associations through which they represent their grievances to the government and find solutions. However, farmers lack such prominent associations. As a result, despite having grievances, they are unable to represent them effectively.
A vast majority of Nigeria’s population depends on agriculture for its livelihood. Agriculture also provides employment opportunities, both directly and indirectly. However, the production and marketing of agricultural goods pose unique challenges for producers.
These challenges stem from the peculiar characteristics of agricultural goods, which necessitate insurance taking. These characteristics make it essential for farmers to undertake insurance coverage to remain in business in the event of unforeseen circumstances.
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