Absa champions agricultural insurance partnership dialogue

22 February 2013 Absa

Financial services company Absa Group, together with the South African Insurance Association (SAIA), are leading the development of a framework where the public sector needs to play an important role in implementing a Public-Private Partnership (PPP) mode

This stems from the Strauss Commission report, which stated that the government should enter in a risk-sharing agreement with the private sector to assist farmers and agricultural producers, therefore mandating the national Department of Agriculture, Forestry and Fisheries (DAFF) to strategically adopt risk and disaster management and the ensuing role of Agricultural Insurance.

A joint study conducted in 2002 by DAFF, financial institutions, insurance companies, farmer organisations and farmers, with the support of the United States of America/Republic of South Africa Bi-national Commission, recommended an insurance-based solution in the agriculture sector. This resulted in drafting an Agricultural Insurance Bill and a Standard Reinsurance Agreement.

Willie Lategan, Chief Executive of Absa Financial Services, says: “The Turkish Agricultural Insurance Pool, which is principally the Turkish PPP equivalent to the South African process, will assist us to formulate our own local system. We will apply the insight gained back to our own policy dialogue. We are ready to test the process against a successfully implemented and internationally acknowledged Agricultural Insurance PPP.

We need a new model for agricultural insurance. Farmers see self-funding and government disaster relief as their risk-management tools. Reinsurance is becoming a problem as a result of increased severity and frequency of losses recently..”

After several attempts to establish a sound agricultural insurance system in Turkey, the long- anticipated agricultural insurance law allowing public-private partnerships, offering technical and economic resources to preserve the agricultural sector from suffering under difficult conditions, was passed in 2005. The aim of the law was to determine and establish procedures and principles regarding the implementation of agricultural insurance to compensate farmers for losses occurring in their agricultural activities because of natural risks.

Lategan said that PPP’s in agriculture insurance were needed to ensure sustainable food security, where a shared risk pool was created with government and insurers that had long-term insurance and reinsurance commitment, with ensured flow of non-asset based finance. “This could ensure farmer net worth protection and resultantly ensure rural job sustainment and creation. At a national scale this will ensure state savings due to social grant savings with rural job creation, disaster payout savings and food imports for security.”

It is hoped that this dialogue will provide an opportunity for South African public and private companies to work together and learn from other countries that have implemented PPP’s in agriculture sector successfully.

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