New Insurance Product Gives Rice Farmers a Break
October 15th 2015 | Khmer Times, Cambodia

Farmers hit by drought in Battambang this year are already benefitting from a new crop insurance product for rice farmers introduced by Forte Insurance, with at least 60 families in two districts of the country’s main rice-growing province collecting payments so far.

Soum Soth, a 48-year-old father of six in Banan district’s Snoeng village, told Khmer Times that he bought the insurance from Forte in July after a company representative visited the village to promote the product. Two months later his rice fields were hit by drought, damaging almost all of his seedlings, he said.

“I bought the insurance in July from the company because the price was acceptable and it could protect my rice. And, then, my rice field did not get enough water so the insurance company paid us the claim,” Mr. Soth explained.

Forte Insurance introduced the pilot project in July. It is the first of its kind in Cambodia. Industry observers expect this type of insurance to expand and say that it will help offset the effects of climate change, which is expected to take a heavy toll on Cambodian farmers due in part to the lack of sufficient irrigations systems here. This leaves them almost entirely dependent on increasingly erratic weather patterns, including rainfall.

Starting Small

Youk Chamroeunrith, director general of Forte Insurance, told Khmer Times that this was the first time Forte had expanded its crop insurance to cover rice. It introduced insurance for agricultural products, such as rubber, corn and cassava, earlier this year before taking its first step into rice in July.

“We just launched it as a pilot project in two districts of Battambang – Bavel and Banan – to test demand for this kind of service,” Mr. Chamroeunrith explained. He said that the company had intended to cover 1,000 farming households but because the insurance product was so novel few farmers were interested. “They hesitated at buying the service because the idea is so new to them,” Mr. Chamroeunrith said.

Still, 60 farmers signed up. They bought insurance for one hectare, paying $17 each, Mr. Chamroeunrith said. The first claims for damage due to drought were made on September 19, he added.

These payments were the “first step” during the insured period of the farming season which ends in mid-December, Mr. Chamroeunrith explained. If the farmers’ rice continues to be damaged by drought the insured farmers will receive more money, he added.

Payments Welcomed

Mr. Soth said he has four hectares of rice but only insured one, as stipulated in the contract with Forte Insurance. “The company did not allow us to buy [insurance] for more than 1 hectare because they just want to let us test the product,” the farmer explained.

“So far, I have received around $17 from the company which is nearly the same as the cost of the insurance,” he said, adding that the insured period was five months – from planting to harvest.

Te Tieng, a 64-year-old farmer in Phnom Sampov village, also located in Banan district, said he received his first damages claim for crop insurance last month.

Assessors from Forte had visited his farm and determined that the hectare of rice insured had been damaged by drought.

“Yes, we just got a claim payment from them of around $17,” he told Khmer Times by telephone yesterday. Mr. Tieng said the payment was equivalent to the amount he paid to ensure the crop, and he blamed the damage on a lack of rain that was so severe it almost destroyed his seedlings.

“I think this service is very good for all farmers,” he said. “If our rice fields get a shortage of water, low level of rain or flooding, we will get back the money from the company,” he explained.

Next Steps

Economist Srey Chanthy yesterday welcomed reports of the pilot insurance product for rice farmers, saying it could contribute to the development of the agricultural industry. “I am very happy to hear that this is happening now in Cambodia. It is good,” he said.

“It has been done in other countries, both in the developing and developed world, successfully. It will help farmers to transfer risk to insurers. But this is just one risk [climate change],” he said. Farmers here also face other risks such as fluctuating markets, lack of access to technology and logistical hurdles, he said.

In the face of climate change, government interventions are necessary, Mr. Chanthy said, adding that in industrially advanced nations farmers are heavily subsidized. “Government interventions have to be within its means and resources, and within perspective,” he said.

About 234,695 hectares of rice fields in 16 provinces have been affected by drought as of the first week of this month, according to the Agriculture Ministry.

An official from the Environment Ministry previously warned that climate change will cost Cambodia 1.5 percent of its GDP annually by 2030 and that this could rise to 3.5 percent by 2050.

Mr. Chamroeunrith said that Forte will continue repaying claims to farmers for the rest of the season if their insured crops are damaged. “I think this product is a big help for them once they are affected by climate change during the farming season. We look at the water level, less rain, and if their paddy dies [to assess damage],” he said.

He also noted that the market for this product is immense because 65 percent of the Kingdom’s population relies on agriculture to make a living.

“As we are a private company, we don’t only focus on profit, but we need to also focus on social responsibility so we need to find a way to help farmers,” Mr. Chamroeunrith said. “We need to help farmers attain stability in their daily lives, which will also help them take loans to invest in their farms," he added, saying insurance could help farmers – especially those who remain entirely dependent on rain – attain stability.

The company plans to meet with government officials to discuss expanding the pilot project nationwide, he added.

Slowing Growth, Climate Change

According to a World Bank report, growth in the agricultural industry slowed to less than 2 percent in 2013-2014.

Growth of at least 5 percent over the next 15 years is necessary to keep incomes of farming households growing, the report said.

With 5 percent growth, incomes for farming households could triple from $1,200 per person annually now to $3,760 in 2030, the World Bank report said. Annual growth of 3 percent would see incomes rise to only $2,500 by 2030, the report said.

The World Bank announced that it could increase its funding for mitigating climate change by 7 percentage points this year. It says that it spends $10.3 billion on climate-change related projects and that this will rise to $16 billion.

The Asian Development Bank also announced last month that it was increasing funding to mitigate climate change. It said it will double annual climate financing from $3 billion a year to $6 billion a year by 2020, and that this rise would push its funding for climate-change mitigation to 30 percent of total financing.