Top 6 Contributions of Farm Credits and Insurance in Agricultural Development That You Are Aware of.
Overview
Farming is highly uncertainty due to the effect of climate change acting upon the earth’s surface, theses climate change indexes have affected farmers, value-added players, and investors.
however, Insurance serves to protect major players in the agricultural industries to provide relief to farmers in the event of uncertainty.
Read Also: History of Farm Credit in Nigeria from the Precolonial Era till the 2000s.
Make Finance Available for Farming
This is one of the contributions of Farm Credits and Insurance in Agricultural Development. Farm credit and insurance ensure that finances are available for farming.
Farmers who require financial assistance can leverage an insurance company for financial assistance. The farmers need capital to purchase or rent land, hire farm machines, prepare the land to accept seed and buy farm inputs (such as improved seed, high breeds of animals, agrochemicals, and fertilizers).
Farm credit and insurance institutions become avenues through which farmers can source income to finance their farms.
In agriculture, the farmers require capital for all the activities that take place on the farm ranging from pre-planting activities to post-harvest activities, and also require adequate capital for the day-to-day running of the farm.
Encourage large Scale Farming
Farm Credits and Insurance plays significant roles in ensuring large-scale farming, farmers cannot expand their farm beyond the subsistence level without the aid of farm credits and insurance.
While both farm credits and insurance are tools for expanding agriculture, insurance aid more in protecting the farmers against loss due to unforeseen circumstance.
To encourage commercial farming the farmers must be able to make maximum use of farm credit and insurance as a tool for large-scale farming.
Ensure Continuity in Farming
Farming is highly uncertainty due to the level of natural disasters that usually come upon the earth’s surface. This natural disaster is so dangerous that it can render a whole farm completely empty when it occurs.
Financial tools like Farm Credits and Insurance can become an avenue for farmers to continue farming.
In the event of occurrences of these unforeseen circumstances, the farmers that have their farm insured can apply to receive insurance premiums to cover for the losses encountered during these periods. Peradventure a farmer is under a certain commitment to financial obligation, insurance may be able to pay off that loan for the farmer and ensure continuity.
Manage Farmers’ and Financial Providers’ Risk
Insurance plays a significant role in helping in the sharing of credit risks and losses encountered by farmers, agricultural investors, and financial institutions.
Agriculture is a highly risky business, and insurance helps to provide expanded coverage for agricultural activities by coming up with new innovative insurance packages beyond indemnity-based insurance to accommodate new types of insurance for farmers such as weather index, yield index, new strains of pest and disease, and so on.
Farm credits are needed to provide technical assistance to farmers by focusing on building their capacity of financial ability and agricultural value chain players for the effective production and processing of agricultural products. It also helps in fixing broken agricultural value chains in the processing agricultural industries.
More so farm credit institutions provide rating mechanism to rate lenders in agriculture and agricultural value chain actors based on their social impact and their effectiveness in granting and repaying loans while insurance provide incentive mechanisms for rewarding agricultural value chain actors, financiers, and farmers.
Encourage Investment
The presence of Farm Credits and Insurance in the agricultural sector encourages investment in farming.
Agriculture is very lucrative, but the lack of finances and the uncertainty in farming deprive people of going into farming or taking up farming as an occupation.
But with the presence of farm credit and insurance, more investors with access to financial credits can invest in agriculture, taking advantage of insurance coverage to avert risks associated with farming.
Ensure Credit Worthiness
Financial institutions do not just grant farm credit to farmers, and value chain actors, they try to ascertain the farmer’s past history or the ability to repay the loan.
Farmers with insurance coverage have more access to financial credits compared to farmers without insurance coverage since farming is uncertain financial institutions are also very concerned about their resources, hence financial institutions are very sensitive to whom to grant financial credits, this is because whenever natural disaster occurs, insurance serves as the escape route from uncertainty occurring in farming.
In Conclusion
The contribution of farm credits and insurance in agricultural development cannot be overemphasized in helping farmers, investors, and agricultural value chain actors succeed in farming.
Some of the contributions of farm credits and insurance in agricultural development are: making finance available for farming ensuring continuity in farming, managing farmers’ and financial providers’ risk, encouraging investment, and ensuring creditworthiness.
Reference