THE ROLE OF INSURANCE IN MANAGING AGRICULTURAL RISK (A STUDY OF NIGERIA)

THE ROLE OF INSURANCE IN MANAGING AGRICULTURAL RISK (A STUDY OF NIGERIA)

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ABSTRACT

The study examined the role of insurance in managing agricultural risk in Nigeria. Faced with the problem of food insecurity and a significant negligence to agriculture in Nigeria, the paper critically examines the following objectives; to promote agricultural insurance and promote the agricultural sector of Nigeria; to provide ideas for financial support to farmers in the event of losses arising from natural disasters; to find out the impact of agricultural insurance on farmers in Nigeria; to find out the type of covers available on agricultural insurance in Nigeria. Concerning methodology, both primary and secondary data sources was employed for the study. A sample size of thirty-five (35) insurance agents and farmers were issued well-structured questionnaires to achieve the objectives of the study. Data was analysed using a four point Likert scale and chi-square with a significance level of 0.05. Key findings of the study revealed that farmers in Nigeria are not aware of insurance policies on agricultural and this calls for serious attention as such acts have the tendency of discouraging people from venturing into agriculture. Also, the impacts of agricultural insurance on farmers in Nigeria include but not limited to that it helps to protect the farmers from risk faced due to natural factors; it helps to minimize the loss to farmers’ income due to uncertainty and guarantee a minimum level of income; in times of volatile prices, crop insurance helps to protect revenue and that it is a more efficient risk management tool. Key recommendations from the study are; that government should, through the aid of the media should carry out adequate awareness on the role of insurance in managing agricultural risk. They should be well informed, educated and sensitized on the benefits of agricultural insurance; especially farmers in the rural areas; policies made  should  be  conscious  of  the  need  to  ensure  the combination  of  job  creation  and improvement of overall economic efficiency of the peasant farmers in order to enhance their productivity and income generation. The multiplier effect of this will lead to a quantum leap in agricultural output in Lagos State in particular and Nigeria at large; sufficient number of extension agents should be deployed to the rural areas so that more peasant farmers can be reached by extension agents and be offered extension services in their critical areas of needs. This will help the farmers adopt risk mitigating measures that would further reduce or out rightly avert the negative effects of agricultural risks, thereby increasing their agricultural productivity and income; more rural farmers should be encouraged to join cooperative associations as this can increase their chances of mitigating the negative effects of agricultural risks due to the comparative advantages associated with membership of cooperative societies.

CHAPTER ONE

INTRODUCTION

1.0    INTRODUCTION

Agriculture has been the provider of food for teeming population and the largest employer of labor force in the country.

Agriculture is the art and science of crop and livestock production. In other words, Agriculture comprises of a wide range of technologies associated with production of useful products from plants and animals, including soil cultivation, crop and livestock management, and the activities of processing and marketing. Agribusiness includes all the technologies that bring in the total input and outputs of the farming sector. In this view, agriculture focuses on a wide range of economic activities involved in production and distribution of equipment’s used in farming; the farm production of crops, animals and animal products, the processing of their materials into finished products and the provision of products at a time and place demanded by consumers.

Agriculture looks at a wide range of specialties and techniques, also ways to expand the lands suitable for plant rising, by digging water-channels and other forms of irrigation. Cultivation of crops on arable land and the pastoral herding of livestock on rangeland remain at the foundation of agriculture..

However, Agriculture insurance offers farmers the opportunity to be saved from losses or damage to crops and livestock or to minimize the effect.

1.1    BACKGROUND OF STUDY

The Nigerian economy, during the first decade after independence could be described as an agricultural economy because agriculture served as the engine of growth of the overall economy. From the view of occupational distribution and contribution to the GDP, agriculture was the leading sector. During this period, Nigeria was the world’s second largest producer of cocoa, largest exporter of palm kernel and largest producer and exporter of palm oil. Nigeria was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins. The agricultural sector contributed over 60% of the GDP in the 1960s and despite the reliance of Nigerian peasant farmers on traditional tools and indigenous farming methods, these farmers produced 70% of Nigeria's exports and 95% of its food needs. However, the agricultural sector suffered neglect during the hey-days of the oil boom in the 1970s. Ever since then Nigeria has been witnessing extreme poverty and the insufficiency of basic food items. The neglect of the agricultural sector and the dependence of Nigeria on a mono- cultural, crude oil-based economy has not augured well for the well-being of the Nigerian economy. In a bid to address this drift, the Nigerian government as from 1975 became directly involved in the commercial production of food crops. Several large scale agricultural projects specializing in the production of grains, livestock, dairies and animal feeds, to mention but a few were established.

Agricultural insurance is defined in the Nigerian Agricultural Insurance Scheme (NAIS) operational guideline (1989) as the stabilization of income, employment, prices and  supplies of agricultural products by means of regular and deliberate savings and accumulation of funds in small installment by many farmers in favorable time periods, to defend some or a few of the participants in bad time periods.

Agricultural investments unfortunately are among the most risky economic ventures one can embark upon. The absolute dependence on unpredictable weather conditions, like hailstorm, flood, drought and other natural hazards make income from crop production to be very unstable. Other agricultural products like livestock, poultry and dairies are exposed to the risks of which occur in catastrophic proportions. The recent cases of bird flu and pig swine in Nigeria comes readily to mind. Agricultural insurance policies protect the farmer against these unforeseen circumstances by way of indemnification, it also serves as securities for banks as indemnification for financial losses suffered by farmers from damages to their products and will provide funds for servicing such loans.

1.2      AIM OF STUDY

The broad aim of this study includes

A) To promote agricultural insurance since it would enhance greater confidence in adopting new and improved farm practices and in making greater investments in the agricultural sector of the Nigeria economy, thereby increasing the total production;

B)  To provide ideas for financial support to farmers in the event of losses arising from natural disasters;

C)  To find out the impact of agricultural insurance on farmers in Nigeria

D)  To find out the type of covers available on agricultural insurance in Nigeria

1.3   SCOPE OF STUDY

The study aims at investigating the impact of agricultural insurance to farmers in Nigeria and how best it can be introduced to them. This study will be carried out among selected farmers in Nigeria and majorly those that are operating within Lagos state. This is due to the face that Lagos is the center of commercial activities in Nigeria.

1.4   RESEARCH QUESTIONS

Do farmers know about Agricultural Insurance?

What will be various farmers attitude towards Agricultural Insurance?

How best can it be introduced to them?

1.5   RESEARCH HYPOTHESIS

To a reasonable extent, farmers know about agricultural Insurance

The farmers’ attitude towards agricultural insurance varies on the type of risk involved.

It can best be introduced to them either through innovative programs, symposium or a mini conference to create awareness.

1.6   JUSTIFICATION OF STUDY

Agricultural insurance and other risk transfer solutions can be part of a systematic adaptation approach and can enable vulnerable countries to better manage the new climate risks. Agricultural insurance can provide financial security against the economic impacts of extreme climate events and may for some climate change perils, be more cost effective than certain prevention measures. The combination of risk transfer and prevention adaptation measures is a subjective change that depends on policy preferences, investment choices and opportunity costs. There are three mechanisms by which insurance can be an important component of adaption.

The first is by directly transferring the risks away from the vulnerable allowing people to use insurance payouts to recover from shocks and maintain their livelihoods.

The second is by allowing them to take productive risks (e.g. to take or make a loan, to invest in their own productive capacity and to develop economically). The poor are almost always the most exposed to climate impacts. They are more likely to escape poverty if they are able to better protect themselves.

The third mechanism is through the signals provided by insurance by pricing insurance sets a price tag on risks.

If certain activities become riskier under a changing climate the insurance price will rise to reflect this risk. The place increase can incentivize change to less risks activities and to other comprehensive risk management strategies

1.7 LIMITATION OF THE STUDY

This study focused on the effect of marriage on academic performance and well-being of female students who have experienced marriage while still schooling in selected Nigerian Universities in south-west.

However, the research has some constraints which are:

a) Availability of Research Material: The research material available to the researcher is insufficient, thereby limiting the study

b) Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Unwillingness of the respondents to participate in the survey because of fear of victimization.

1.8   DEFINITION OF TERMS

Insurance:  a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

Agriculture: - It is the art and science of crop and livestock production

Agricultural Insurance: - This is a type of insurance that indemnifies farmers on losses arising from loss from their crops or livestock.

Risk: - a possibility of harm or damage against which something is insured.

REFERENCES

Net journals of agricultural science vol.1(1), pp 1-9, march 2013 review

Global advanced research journal of agricultural science vol 1(5) pp 99-103, july 2012

Thesis submitted to the graduate school of Egerton University





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