Left: Dr Badrul Haque, special representative of the World Bank in Jamaica. Right: Donovan Stanberry, permanent secretary in the Ministry of Agriculture and Fisheries. - File photos

The World Bank has come up with an outline of what an insurance scheme for farmers could look like, but the lending agency is cautioning that the document can by no means be defined as a blueprint, saying the findings of a prefeasibility study are still to be tested, and remains a draft to be refined.

There is at the same time discussions between the World Bank and Jamaica's agriculture ministry on a plan to test the scheme on small farms, a project that will design an insurance policy for the farmers and fix coverage of their operations for a year.

The prefeasibility study by CGM Gallagher, contracted last year for US$80,000 to analyse the financial viability of insurance coverage for the agriculture sector, was completed in June and the findings presented in a paper titled 'Towards a Strategy for Financial Weather Management in Agriculture'.

"The document will be further revised," said Badrul Haque, World Bank special representative in Jamaica.

"Based on this additional review, we will share the final draft officially with the government and seek their agreement to publish."

The first draft of the study outlines key lines of action required for the design and implementation of a market-based insurance coverage for small vulnerable farms.

$13-billion damage

Agricultural data shows that the sector sustained damage of up to $13 billion over the period 2004 to 2008.

The losses drove Jamaica Producers out of export bananas, and crippled some coffee farms.

The CGM study found that farmers would not be able to afford insurance coverage and that any scheme to be developed would likely require governmental and donor support.

"The World Bank will focus next on running two pilot studies: a model for small farmers with a mix of all crops in the parishes of St Elizabeth and Portland; and a model specific for coffee," said Donovan Stanberry, permanent secretary in the Ministry of Agriculture and Fisheries.

Haque said that while discussions are under way, "no formal agreement has been reached yet" on the pilot.

The ministry said the models, which will be developed over the course of one year into 2010 for the small farms, and in 2011 for the coffee operation, will determine the premium to be paid, and the trigger-level of the policy - with a decision also to be made on whether Government will pay a percentage of the cost to insure crops.

"It will take quite a bit of data, but expect the coffee model in particular to work fairly easy, as these farmers are accustomed to paying premiums," said Stanberry.

"Coffee up to 2006 had insurance, but not a parametric model, so was a fairly easy mechanism."

A parallel study to the World Bank's, focused on the legal framework needed, or amendments required, to insure agriculture, is under way by the Inter-American Development Bank.

The agriculture ministry said a three-month contract valued at US$60,000 was issued June 30 to international expert Raul Lases Zayas of Mexico, working along with John Llewellyn Thompson, a local lawyer with his own private practice.

Differences in risk exposure

The findings are to be reported in September.

The CGM Gallagher study points out that one insurance product cannot sufficiently cover all the weather risk faced by the agriculture sector, and attributes it to the wide differences in risk exposure by crop and location.

It is likely, CGM found, that the private sector will need initial capacity and technical assistance in order to develop commercially viable products.

This proposal was further supported by the point that a large segment of small vulnerable farmers might not have the capacity to pay for commercial insurance.

Consequently, it was recommended that the structure of the insurance scheme to be developed includes an emergency fund to be administered by the agriculture ministry, with suggested financing arrangement by a combination of fiscal resources, lines of credit or donors.

The strategy document also proposes that the public sector initiate various short-term steps that would facilitate the design of agricultural insurance products by local insurers and international reinsurers, for example, recovery of historical weather records, investing in and expanding the density of weather stations, and improving agricultural yield statistics at the local level.

The calendar of activities put forward in the document suggests it could take five years to craft a weather risk insurance system which would include in year one, developing an index insurance policy for small farmers; modernisation of weather stations, improving farmers' information system and the development of a commercial index insurance for coffee in year two; developing the capacity and efficiency of the Meteorological Service of Jamaica and crafting another policy for coconut in year three; and insurance models for other agricultural commodities in years four and five.

sabrina.gordon@gleanerjm.com