Insurance of agrarian sector is important and difficult process

Politics Materials 24 September 2008 12:06 (UTC +04:00)

In present development stage of the agriculture of Azerbaijan, when mainly the transfer to the private form of management was completed, the first plan includes the tasks of developing the infrastructure of the agrarian market. The important element of this infrastructure is the system of financial-credit provision, in particular, the system of insurance of the agricultural production. The insurance in the agricultural sphere of Azerbaijan is one of less developed sectors, its share in the general portfolio of insurance comprises less than 1%.

The problem of the financial protection of their property interests in view of the high dependence of the agrarian sphere of the economy on the spontaneous forces of nature always stands before the agricultural producers. Thus, for instance, natural cataclysms in Azerbaijan showed the importance of the development of insurance in the agricultural sector at the beginning of the present year.

The forces of nature are not predicted. Therefore, there is insurance with one of the effective instruments of managing risks in the agriculture and making it possible to ensure stable conditions of the production activity of economic subjects irrespective of the natural anomalies. The effectiveness of this protection under the market conditions depends on the level, development of economic system as a whole and system of agrarian insurance in particular.

Unfortunately, today the agrarian sector lost its positions in the national economy. The collection of the industrial crops of cotton growing, tea growing, tobacco-cultivation and viticulture especially sharply reduced. However, at the beginning of 1980 the viticulture was the priority sphere of agriculture, which brought nearly 40% of the national income.

But even today the viticulture has large chances to be revived. The development of the agrarian sector in Azerbaijan can become one of the priority directions of the national economy, being serious alternative to the oil sector of the country. The farmers need support for this. State repeatedly rendered financial aid to the agrarian sector, special attention was paid to the agricultural production.

Due to the measures taken, it was possible to achieve the noticeable successes in the collection of grains, and also to re-establish the activity of the poultry-breeding enterprises for creating industrial production of the bird meat and chicken eggs. Over recent years, due to an increase in the financial possibilities of State, the agrarian sector began to obtain significant financial aid and grants for agricultural production.

New stage for the development of the country's agrarian sector must be State Program on Reliable Foodstuffs Supply for Population of Azerbaijan in 2008-2015, which was approved by the President of the country. The Program envisages measures on insurance in the agriculture. The measures imply the introduction of contemporary insurance in the agricultural production, and also the improvement of the list of risks for the financed agricultural property.

The list of the agricultural crops being insured due to the Public budget includes the wheat, barley, corn, sunflower, potatoes, sugar beet, vegetables, verdure. The list also includes fruits, fig and leguminous cultures. According to the additions made to the law on aid and development of agriculture in Azerbaijan, the share of State financing for the agricultural insurance was increased from 25% to 50%. The average tariff for the agricultural insurance in Azerbaijan is nearly AZN 1500 per year (five percent per hectare), provided that the average profit on 1 ha is nearly AZN 25,000 per year.

The insurance of the agrarian risks is an important and difficult type of insurance, which requires joint efforts of insurance sector and governmental bodies for its development. The insurance of the risks of the agricultural production in the entire world is an important element of the financial-credit system for agricultural producers. The first and central goal of the insurance of the agricultural risks is to partially or completely compensate farmer the loss of harvest, which is possible due to unfavorable natural occurrences such as drought, hail, hurricane, etc.

The second goal of insurance is to improve the financial condition of agricultural producers from the point of view of his solvency. The credit organizations of all types - banks, credit unions, private individuals - give preference to the agricultural producer, who has a guarantee of maintaining certain level of his income in case of natural calamities and loss of harvest.

At present in the world there are different systems of the agricultural insurance supported by States. Thus, for instance, in Greece the system of insurance is in the hands of State. Through its state insurance company the State collects insurance payments, manages functioning of the program and covers losses. Commercial insurance companies deal only with the insurance of the cultures, which do not have support from the State.

The systems based on the close co-operation of state and private sector effectively work in Spain and Portugal where the State plays a key role, ensuring the subsidy of insurance premiums and re-insurance. In Italy, France, Austria and Germany the preference is given to the private sector.

It is early to speak of how this system will function in Azerbaijan in future, but the experience of other countries testifies that it is necessary to accept at least 5 years with the prospect to form the system. Usually firstly the basic concept of the system of agrarian insurance is devised, in which it is desirable to prescribe the role of basic sides (state, insurance companies and producers) and to determine the tasks of system, and then it is possible to make additions.