Report - Risk Management in Brazilian Agriculture

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Risk Management in Brazilian Agriculture: Instruments, Public Policy, and Perspectives Brazil’s rural insurance market is also highly concentrated among a few companies. Figure 6 shows the market share of each insurance company in the total premiums focused only on rural insurances for agriculture, livestock, and forestry for the year 2019. Only 14 insurers were present during that year. One company - Brasilseg Companhia de Seguros 6 linked to Banco do Brasil - represents more than 52.3% of the market share for rural insurance. Figure 6. Brazil’s Total Premiums Percentage by Insurance Company in SUSEP, 2019 Note: Data considers crop, livestock and forestry insurance. Source: Climate Policy Initiative with data from SUSEP 6 Brasilseg Companhia de Seguros encompasses Companhia de Seguros Aliança do Brasil after a corporate restructuring of the partnership maintained between BB Seguros, the holding company that concentrates Banco do Brasil’s insurance business, and MAPFRE Brasil. Brasilseg, through its insurance companies, operates in the Life, Housing, Rural, and Massified (Residential, Corporate, and Condominium) segments with products sold mainly at Banco do Brasil branches and on its digital channels. 10
2. BRAZIL’S PRIMARY RISK MANAGEMENT INSTRUMENTS AND POLICIES This section describes each of Brazil’s four insurance programs designed to protect producers from adverse shocks: Premium Subsidy Program (PSR), Agricultural Activity Guarantee Program (PROAGRO), Garantia-Safra, and Minimum Price Guarantee Policy (PGPM). Despite the important contributions of each of these programs to the marketplace, large holes remain in coverage needs. 2.1 PREMIUM SUBSIDY PROGRAM (PSR) PSR’s objective is to help farmers and producers mitigate the risks associated with their agricultural activity and ensure their financial recovery capacity in case of adverse climatic events. Through this program, the federal government subsidizes the cost of acquisition of rural insurance policy for producers. PSR is administered by MAPA. Decree No. 5,121 established the program in 2004, but it became effective in 2006. PSR is a public-private partnership program similar to the Federal Crop Insurance Program 7 in the United States, which subsidizes the premiums to reduce the cost to farmers and encourage them to insure their crops. PSR supports crop, livestock, and forest insurance. However, as Table 1 above shows, 99% of PSR subvention was used for crop insurance in 2018. The limits, for the year of 2018, of the subsidy were R$72,000 for crop insurance and R$24,000 for the others, with the possibility of producers accumulating subsidies in different categories. The proportion of the premium that can be subsidized varies according to the insurance category, type of product, and level of coverage acquired. In 2018, it ranged from 30% to 40%. PSR allows the government to transfer the responsibility of compensation payments to the insurance companies while subsidizing the producers’ premium. Private companies set the pricing for the risk, develop and sell the products, pay compensation, and insure or reinsure operations. Hence, the government is protected from moral hazard or collusion involving producers and insurance companies. Figure 7 shows the evolution of the number of insurance policies and the average subsidy in PSR from 2006 to 2018. The number of insurance policies has increased from 21,783 in 2006 to 63,178 in 2018, despite some oscillation in a few of the years. After a significant drop during the economic crises of 2015, there was a subsequent slow recovery over the past three years. The average subsidy shows a consistent growth between 2006 and 2015, attaining its peak when the number of policies was at a historically low level. 7 In 2018, the Federal Crop Insurance Program directed more than USD 6.2 billion to subsidies, which comprised 63.3% of the total premiums. 11
Page 1 and 2: Risk Management in Brazilian Agricu
Page 3 and 4: CONTENTS List of Figures, Tables an
Page 5 and 6: LIST OF ACRONYMS ABGF - Brazilian G
Page 7 and 8: EXECUTIVE SUMMARY Rural producers f
Page 9 and 10: Executive Summary BOX 1. BRAZIL’S
Page 11 and 12: 1. RISK MANAGEMENT IN BRAZIL: OVERV
Page 13 and 14: 1. Risk Management in Brazil: Overv
Page 15: 1. Risk Management in Brazil: Overv
Page 19 and 20: 2. Brazil’s Primary Risk Manageme
Page 25 and 26: 2006 2018 2. Brazil’s Primary Ris
Page 39 and 40: 4. Reinsurance 4. REINSURANCE 4.1 R
Page 41 and 42: 4. Reinsurance 4.2 RURAL INSURANCE
Page 43 and 44: 5. How Risk Management Instruments
Page 45 and 46: 6. International Comparison of Agri
Page 47 and 48: 6. International Comparison of Agri
Page 49 and 50: 7. Improving Risk Management and Ag
Page 51 and 52: Bibliography BIBLIOGRAPHY Agência
Page 53: Bibliography SUSEP. Sistema de Esta

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