Not only must the agricultural sector cope with production problems caused by natural disasters, such as typhoons and torrential rain, it must also worry about the risk of price drops caused by imports or imbalances in marketing and distribution channels.
These hazards make it difficult for farmers to maintain a stable income. Climate change and an increasingly deregulated economy will bring even greater risks to farmers and impact long-term investment and sustainable operations.
The best way to deal with agricultural risk is agricultural insurance. By shouldering part of its cost, farmers receive better protection against natural disasters than they do through disaster aid or price subsidies.
Since the government supports agricultural insurance, it can redirect traditional production subsidies toward insurance premiums and change the subsidy policy structure, so that the goal of supporting farmers’ income becomes clearer and can be more easily achieved. At the same time, agricultural insurance can be seen as a policy tool to modernize the sector and improve its production structure and operational approach.
The government has been testing agricultural insurance in recent years. In a two-pronged approach using both commercial and policy insurance, it has developed many insurance products that compensate for actual losses, income guarantees, weather parameters and so on. These types of insurance cover almost 20 kinds of agricultural and aquatic output, such as pears, pineapples, rice, bananas, mangoes, aquaculture, groupers and more. Farmers are beginning to purchase insurance, and it now covers about 9 percent of agricultural land.
Agricultural insurance is common in many other countries, and while Taiwan has been slow in adopting the practice, efforts with pilot cases are leading to improvements and results, and change is happening.
A few problems can be anticipated. For example, there is a lack of risk-sharing mechanisms, which would increase the financial risk to the government and farmers.
There is also no agricultural insurance fund, which would make it difficult to achieve financially stable insurance services, and the lack of development of different kinds of agricultural insurance would have an impact on insurance scope and diversity, while the scarcity of independent, complete data and damage surveys would increase the government burden further.
Finally, there is a lack of programs for training personnel and promoting the initiative. In addition, the relationship between agricultural insurance, existing production subsidies and disaster relief, as well as their respective responsibilities, must also be clarified.
These issues cannot be resolved at the current testing stage, mainly because there is no legal foundation.
The Cabinet submitted a draft agricultural insurance act to the legislature on July 22, but as the current legislative session is the last before January’s elections, legislators are busy campaigning and have given little attention to reviewing bills.
Reviews of bills that are not passed this session would not continue in the next, which is tantamount to returning it to the Cabinet, which would have to resubmit it. This would impact the long-term planning and operation of agricultural insurance.
The draft agricultural insurance act must be passed during the current legislative session in order to offer farmers real income guarantees and to bring the contributions by the incumbent legislators to a successful and historic end.
Yang Min-hsien is a professor at Feng Chia University and former president of the Rural Economics Society of Taiwan.
Translated by Perry Svensson
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