INSURANCE AS A VEHICLE FOR AGRIBUSINESS DEVELOPMENT IN NIGERIA
By
Dr Adelaja Adesina
Managing Consultant, Bdellium Consult Ltd, Lagos; Nigeria
Presented at the Insurance Industry Consultative Council Conference,
Transcorp Hilton Hotel; Abuja
JULY 11TH 2016.
Profile
Dr. Adelaja ADESINA, Ph.D., M.Sc., B.Sc. (Ife)
Managing Consultant, Bdellium Consult Ltd
Over 30 years post qualification experience in Agribusiness Conceptualization & Development
A leading light in the poultry industry in Nigeria.
Former Special Adviser to Honorable Minister of Agriculture & Rural Development.
Dr Adesina was also a Consultant to the poultry value chain of Federal Government Agricultural Transformation Agenda (A.T.A.).
Consultant to a number of state governments and some multilateral agencies operating within & outside Nigeria
Consultant, African Chickens Genetic Gain Project (A.C.G.G.)in Nigeria
Nigeria’s Project Manager – Global Alliance for Livestock Veterinary Medicine (GALVmed) – Multilateral donor Agencies projects
He is a member, Nigerian Society for Animal production, Animal Science Association of Nigeria and The Nigerian Institute of Animal Science. And so many other international agribusiness bodies
Poser for an oil producing nation
Crude oil
$50 per barrel
Refined products
Petrol
Diesel
Kero
N145 -N188per litre
What are stock prices?
Palm oil
$85 per barrel
Refined palm oil products
Regular palm oil
SPO
PKO
N250 – N500 per litre
What are the stock prices?
Which is easier to produce???
CRUDE OIL
Complicated
Very capital intensive
Degrades the environment
Non Renewable
PALM OIL
Simpler
Reasonably priced
Friendly to the environment
Easily renewable
Another poser!
Cement
50kg is N1500
N30 per Kg
Chicken
50kg sells for N35,000
N700 per Kg
Which of these two can you wake up tomorrow anywhere in Nigeria to say you want to start producing?
These posers were given to buttress the well known facts about the enormous potentials of agricultural in our great country Nigeria
Agric Potentials
Not business
Not food
Certainly not money
Chart of Nigerian GDP composition
Nigeria’s agric insurance profile
Federal Government set up Nigerian Agriculture Insurance Corporation (NAIC) in 1987/8
Presently 3 active firms still grappling with the business
Penetration rate is less than 1%
Agricultural insurance is still at infancy in Nigeria
This presents a great opportunity for growth
Agriculture is a growth area for insurance business in Nigeria
Indices are right:
Population of about 177 million
2.47% population growth rate
70% labour force engaged in agribusiness
Diversification of economy is being strongly canvassed
Nigeria is the “Hotspot for agribusiness”
CBN’s intoduced a revolutionary approach to boost agricultural lending
Nigeria Incentive-based Risk Sharing System For Agricultural Lending (NIRSAL)
NIRSAL was supposed to be a dynamic and holistic approach that tackles together both the agricultural value chains and the agricultural financing value chain.
Other pillars of NIRSAL
Summary of CBN Survey
Insurance is Key to agribusiness
75% of Nigerian banks rated insurance as a key enabler to reducing credit risk and increasing lending.
Insurance against adverse weather conditions was considered the most critical form of insurance required
Appropriate premium was also an issue for consideration
The Insurance industry
Can be the vehicle to drive our agricultural potentials
Must understand and build capacity for agribusiness
Must have agric desks managed by qualified and experienced professionals who understand the different spectra of agribusiness.
Agribusiness Value Chains
Investment Terms in Agribusiness
Short term (3 – 12 months)
Medium term (1 – 3 years)
Long term (3 years & above)
EXAMPLES:
Crop Production 1
Cereals
Maize
Rice
Planting to harvest is between 3 – 5 months
Crop Production 2
Root & Tuber Crops
Cassava
Yam
Coco yam.
Legumes
Soya beans
Groundnuts
cowpeas.
Duration is between 5 to 12 months
Fruits:
Mangoes
Banana
Plantain
Pawpaw
Pineapple.
Duration is 1 – 3
years.
Permanent crops
Oil palm
Cocoa
Rubber
Coconut
Duration is more than 5 years.
Vegetables
Duration is 1 – 6 months
Cabbage
Pepper
Tomatoes
Lettuce
Spices
Melons
Leafy vegetables
Flowers and ornamentals
6 – 18 months
Poultry
Broiler chickens
Duration = 2 months
Egg Layers (Chickens)
Duration = 5 -12 months
Cockerels /Pastured Chicken
Duration = 6-12 months
Pigs (9 months)
Sheep & Goats (12 – 18 mths)
Cattle (12 – 48 months)
Fish (6 months)
Can the Agric Officers in insurance companies understand all these??
NO
There must be collaboration with other professionals in the various fields of agriculture
Outsource the technical side to people or companies that have the know-how
Insurance firms are already outsourcing
HR
Engineering
etc
Why not your agribusiness?
Find your space in the value chains
On a lighter side
There should be insurance cover for this
How about this?
Agric Insurance Options
Crop Protection
Poultry Insurance
Livestock
Fish farming
Farm machinery and Equipment
Plantation insurance
Goods in transit / Transportation cover
Storage
Processing packages
Etc
Point to note!
Agricultural insurance must be modelled and designed to take cognizance of the peculiarities of each type of Agribusiness
Value proposition to customers
The customers should be aware of the benefits of insurance
There is need for public enlightenment and customer education
Risks management in Agribusiness
AGRIC RISK ANALYSIS AND MANAGEMENT
Insurance companies understand insurance business, they must now try to understand agribusinesses
It is important to have a clear understanding of the risks involved
Insurance firms must understand these risk mitigation measures
Risks management………
Insurance premium can then be appropriately priced
Premium discounts can be given to stakeholders who have taken risk mitigation measures
Agric risk management should be the focal point, not just the payment of premium and claims settlement
Pricing of agric insurance products
Premium Rate Computation
Premium risk
External cost
Capital cost
Other costs
Profit
Premium subsidies by Governments
This is a global practice to support agriculture
The EU & USA examples
There should be premium subsidy in Nigeria too
In Nigeria there is subsidy for
Inputs like seeds, fertilizer etc
There was G.E.S. etc
50% subsidy should cut across all players
Agric insurance in Nigeria should be driven by Premium subsidies given by Government
Loss adjustments
Loss adjustments for agribusiness is totally different from regular loss adjustment
Loss adjusters must understand the peculiarities of the different scenarios
Appointment of loss adjusters
Who are your loss adjusters?
What is their competence or technical know how in that field of agriculture.
Are they square pegs in squares holes?
LOSS ADJUSTMENT……
Loss notifications procedure should be understood
Loss Verification – what caused the loss
Pay the claim
This is the most important story to farmers and other players in agribusiness
Conclusion
If we say 60% of our GDP is from agriculture, then why limit the business to 3-4 companies?
Government should as a matter of urgency liberalize the space to register more companies to undertake agric insurance
Lobby the government to extend 50% subsidies to all agric insurance companies not just NAIC
Practitioners should understand the value chains and know when to outsource critical components to qualified and experienced professionals
Conclusion……….
Agric risk management should be the focal point
Insurance can be collaterals for agric loans
Identify your niche and play your part
We can use insurance to spark off industrial revolution in agribusiness
Recommendations
Premium subsidies given by Government should be for all agric insurance companies
Insurance companies should outsource the fieldwork and management of agric and agric related projects to reduce staff overhead costs
Insurance firms need data to function effectively.
Rainfall
Yields data, etc.
Must invest in infrastructure
Satellite imagery
Softwares for agric solutions
etc
SMART Agribusiness Insurance
Simple
Measurable
Acceptable
Rewarding
Technologically driven
THANK YOU
FOR YOUR
ATTENTION
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