A day with two Peruvian farmers

Thursday, November 23, 2017
On the occasion of the 13th International Microinsurance Conference, La Positiva Seguros and Agrobanco organised a field trip to the Chincha Baja region of Peru. Fifteen conference participants took part in the trip, including four Microinsurance Network staff members, Dirk Reinhard of Munich Re Foundation and Shilpi Shastri from Women’s World Banking. 
The field trip took participants to visit two sub-divisions of the village of Canyar, near the city of Chinca Baja, where they had the opportunity to meet and interact with local farmers, in particular Ms Rosa and Mr Angel, who produce mainly avocado and artichoke.
Ms Rosa and Mr Angel are clients of Agrobanco, the national agricultural bank, and Ms Rosa has taken an up a crop insurance policy, through Agrobanco, with La Positiva covering crop loss for her avocado cultivation in the event of climatic events. La Positiva and Agrobanco collaborated to develop this insurance product, which has a low premium since they are able to bypass commissions from intermediaries or brokers. Since the bank carries out a risk analysis for each farmer prior to any loan disbursement, the insurance policies can be issued without a prior visit to the field, reducing the overall costs that are passed on to clients through lower premiums. Another interesting feature is that the insurance covers total production costs, including compensation for labour as well as other physical inputs. 
In 2017, there has been a huge decrease in policies issued because of the El Niño event and resulting floods, which saw a substantial decline in the number of loans issued by Agrobanco, and corresponding reduction in the number of new insurance policies sold. At the same time, there have been about 2,000 reports of losses due to El Niño. The insurance loss ratio rose from 45% in the first year of operation to 85%. 
La Positiva and Agrobanco now face a dilemma around balancing affordability and sustainability: given the higher loss ratio, should they keep premiums low or raise them? To address the problem, they have started embedding best-practice incentives into the policies to help reduce client risk. In addition, with the aid of technology, they have been able to set up a weather alert system for the farmers using text messages. 

Ms Rosa received compensation from La Positiva for two consecutive years when her harvest was negatively affected by adverse temperatures and drought. Ms Rosa is married and has four children. Only one of them works with her in the field. Her other children moved to the capital, Lima. She recalled that she has always been a farmer and that initially she was growing cotton and maize. She has six hectares of land. About ten years ago, based on advice from a cooperative, she switched to farming avocados, having previously focused on maize. She has always relied on loans from Agrobanco to support her farming activity and has been purchasing agricultural insurance from La Positiva for four years now. She also receives technical support from Agrobanco. Ms Rosa recalled that twice in the past she had lost her harvest due to bad weather conditions and had been forced to rent out her land and seek other employment to survive. Today Ms Rosa has a savings account where she is able to keep some savings. Keeping her earnings at home is risky. Mr Rosa highlighted that young farmers in the region are in the process of organising themselves to sell their products directly to companies abroad so as to avoid going through intermediaries and obtain better prices and guarantees. 

Later in the day, field trip participants visited Mr. Angel’s artichoke plantation, which was currently being harvested every week. Angel has five hectares of fields where he grows artichokes and he explained how the artichokes are grown. The field trip concluded with a lunch at Hacienda San José, a beautiful Peruvian hacienda where delicious local food was served. Participants enjoyed typical local music and dancing, and also benefited from a presentation on the local agriculture and the history of the estate.
Field trip participants were accompanied by Lourdes del Carpio, Yonel Mendoza and Sophia Salcedo from La Positiva, as well as Carlos Burneo and Angela Torrecilla from Agrobanco. Agrobanco has 84 office across Peru that serve as distribution points for the crop insurance. La Positiva also works with Caja Sullana, a local MFI. 
The field trip highlighted that crop insurance can bring farmers real value, both in terms of resilience after adverse climatic events and in terms of providing peace of mind and the confidence to pursue better farming practices or new crops. While the challenges of making crop insurance work in a financially sustainable way are not to be taken lightly, the benefits that can result from strong partnerships providing valuable and low-cost insurance offerings should not be ignored.