Report - Risk Management in Brazilian Agriculture

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.
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