Neither insurance nor assurance: Vietnamese agriculture left in the lurch

Lam Trong Nghia

Vietnam suffered nine storms that killed 200 people and caused losses of more than VND20 trillion ($860 million) last year. Data from the Food and Agriculture Organization show that the bird flu epidemic has claimed 1.8 percent of Vietnam’s gross domestic product (GDP) and 125 lives between 2014 and 2017. So far this year, the African swine fever has been responsible for the death of over 2.2 million pigs in Vietnam and a loss of more than VND3.6 trillion ($154 million).

Eight years ago when I was working as manager for a company processing tra fish in the Mekong Delta’s Dong Thap Province, the annual flooding destroyed a tra fish pond just next to the area I managed.

All the fish in that pond had grown enough for harvesting when disaster struck. The owner, a farmer named Phu, told me: "I couldn’t imagine the floods would come that fast, There was no time to prepare for anything." And he stood there, looking as though his soul had been sucked out of him. Not surprising. He had just watched assets worth over VND6 billion ($257,000) swept away in the raging Mekong River.

Several days later, I heard that he had sold whatever was left of his pond to a tra fish processing firm and accepted to work as an employee for that company. The floods had inflicted a huge loss and put his family deep in debt.

"Perhaps it’s just God’s plan," he said, sighing, when I met him again last year.

After Phu lost his fish pond, disaster struck the company I worked for. It lost more than VND3 billion ($130 million) as the tra fish was infected with the Edwardsiella ictaluri disease, which causes multifocal white lesions on the liver, spleen and kidney of the fish. All solutions we tried to prevent and treat the disease failed to save the fish, and up to 80 percent of them died.

I remember to this day the workers taking turns spend all day just removing dead fish out of the ponds. Our company was not alone. A series of other tra fish firms encountered the same situation.

Phu and my company were just two of many instances where a farming family or agriculture or aquaculture company had been left empty-handed in the blink of an eye, no thanks to epidemics and natural calamities.

Now let’s just imagine this: a rich man’s luxury car gets swept away in the floods. What happens next? Yes, that’s right. He collects insurance. The contrast is striking. Both the car and the fish pond costs billions of dong, but most farmers and agriculture companies I know, can collect no insurance.

Epidemics and natural disasters are virtually occupational hazards for farmers. They invariably inflict heavy damage that farmers take a very long time to recover from, if ever.

A farmer collects dead fish in his farm in Dong Nai Province, May 2019. Officials said the fish was killed as heavy rains brought waste from upstream. Photo by VnExpress/Thai Ha.

Despite being a key economic sector for the country, agriculture is much less protected than other sectors.

There is no government or other entity that can accurately predict all the risks and eventualities in agriculture, so policies to keep farmers safe from them are not there. This is why it is very important that the governments create some "shockproof mattresses" for farmers to take the fall, when they are hit by unforeseen circumstances.

Key solution

Agricultural insurance is a key solution to the problem.

With insurance, people like Phu and companies like the one I worked for could have resumed their fish-farming business. This also means that the economy itself could make more progress if it was supported by agricultural insurance. 

The government is not unaware of this and has issued some incentive policies to support those investing in the agricultural insurance sector, but so far, not many companies have expressed interest. On the other side, farmers do not care much about getting insurance for their farms.

There are many reasons for this standoff, but the core issues of the agricultural insurance problem are costs and benefits.

Agriculture is a sector with a lot of threats. When damage occurs, the cost of inspecting and assessing it is high. In order to make a profit, insurance businesses will have to collect high premiums and offer low compensation and at the same time, inspect its customers very carefully.

Such policies are obviously not attractive to farmers, who need decent compensation and pay low insurance premiums via quick and simple procedures.

While this looks like a lose-lose situation, the bigger picture is that the entire economy can benefit significantly from agricultural insurance.

Farming households that get adequate compensation can work to recover their business, companies in the production chain can guarantee their revenues and, as a result, the nation’s economic growth is maintained.

The market, therefore, needs the government to work as the motivating force.

There are successful approaches that indicate the way.

In South Korea, the local and central governments support farmers with more than 70 percent of the insurance premiums, and compensation is more than 1.8 times the total investment, making agricultural insurance more attractive to South Korean farmers.

Another solution is to design insurance packages for specific risks or threats. In the case of Phu, for instance, since his tra fish pond was near an embankment, he could be insured for specifically for an embankment breach.

If something like the "embankment breach insurance package" exists, the insurance firm could be more assured because they do not have to pay compensation in case of an epidemic or even extreme weather conditions like drought. The compensation scope will be considerably narrowed, leading to lower insurance premiums that would also make it easier for farmers to accept the package.

In the meantime, while waiting for a "shockproof mattress" from the government, farmers should be instructed to equip themselves with handy protective measures.

Associations and cooperatives should be a source of support for farmers, generating reserve funds through members' contributions each year for use only in emergency situations.

One thing we can be certain about. For now and in the near future, diseases and natural disasters are going to be part of "God’s plans" and the agriculture sector will bear their brunt.

All stakeholders, including millions of farmers out there, can work together for an effective agricultural insurance policy.

I think it is not too farfetched to say that if this task is done successfully, farmers, the sector and the economy itself will able to enjoy stable growth that mitigates risk impacts.

And when this happens, we can take firm steps towards sustainable development.

*Lam Trong Nghia is an agricultural expert working in the Mekong Delta. The opinions expressed are his own.