Latin America and the Caribbean will increasingly depend on agricultural insurance in the coming years if the region’s vocation as the world’s breadbasket is to be strengthened. Latin America produces a wide range of crops and it is the biggest producer of some of them, including soybeans, coffee and sugarcane (Brazil), as well as quinoa (Peru). The region and its roughly 15 million farms are a net exporter of food. However, the losses caused by extreme weather events pose a real threat to agricultural activities all over the planet.
This was the main message of the FIDES Talk led by Rodrigo Belloube, chief underwriting officer at Munich Re, based on an approach to thinking about agricultural activities in a more strategic way, including the insurance and reinsurance markets in this context.
In 2020, according to World Bank data, Latin America and the Caribbean accounted for 16% of global food production, up 2 percentage points from the previous measurement. However, Belloube said that continuing with this expansion will come up against various challenges, such as growing without generating environmental damage; maintaining subsidized rural loans (and insurance) despite the fiscal pressure on Latin American countries; overcoming logistical and infrastructure bottlenecks; living with price volatility or shortages of fertilizers and other agricultural inputs due to geopolitical tensions; improving risk management through a new technological arsenal; and, above all, adopting more robust insurance programs in the region, expanding the scope of coverage. Recent examples, such as the ongoing drought in the southeastern United States, considered to be the most severe in 1,200 years, or the drought that affected the Brazilian state of Rio Grande do Sul in 2021 and 2022, indicate that greater penetration of farming insurance is and will be fundamental for the global agricultural market to remain resilient. It’s worth remembering, however, that this expansion can’t just rely on the primary (insurance) market, but it should also be stimulated through public-private partnerships and even disaster relief funds set up by governments to help rural activities in the event of extreme weather events. “All countries will need well-founded and robust insurance policies, taking into account the normalization of these extreme events,” Belloube said. He also pointed out the need for innovative reinsurance policies, such as those that include individualized premiums, based on the productivity of rural properties, as well as region-specific evaluations of business concentration, fast claim settlement and the simultaneous provision of farming insurance and rural credit.