Ministry of Agriculture & Fisheries

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The Ministry of Agriculture, today (January 26), signed a Memorandum of Understanding (MOU) with the World Bank, to evaluate the feasibility of market-based weather risk management practices for the coffee industry.

The feasibility study will specifically involve farmers operating in the Blue Mountain region.

Speaking at the signing at the Ministry's Hope Gardens headquarters, in Kingston, Minister of Agriculture, Hon. Dr. Christopher Tufton, explained that the success of the project would require a four-way commitment, involving the Government, in terms of providing infrastructure to measure the parameters, such as the provision of automatic weather stations; farmers who will be required to pay premiums; the insurance companies, which will provide coverage; and the re-insurers, who will be underwriting the risk.

"The issue of agricultural insurance has now become, and for some time has been a critical part of the discussion, particularly in countries like Jamaica, where the risk profile of the agricultural sector is severely impacted by the vulnerability to weather-related occurrences. We are located in the hurricane belt; there are advantages to that, but also severe disadvantages, particularly to the sector," the Minister said.

He noted that between 2004 and 2007, agriculture was negatively impacted in the sum of some US$50 million, due to a series of hurricanes, including Ivan, Emily, Dennis and Dean.

"As a result of these unfavourable weather systems, since 2007, the agricultural insurance schemes, which were in place for several of the sub-sectors, including the coffee industry, have ceased to operate because the risk by those who manage and offered these schemes has been calculated as just being too great - in other words, they weren't able to make any money," Dr. Tufton said.

The Agriculture Minister noted that an even greater challenge is presented by the profile of the average farmer in Jamaica, which makes the risk for insurers more significant. "Some 76 per cent of our famers operate on one hectare or less, and the trend analysis suggests that this is an ongoing situation, expanding rather than contracting," he noted.

He said this situation is a regional one, which is aggravated because of the difficulty in attracting re-insurers, and hence, the consequences have far-reaching implications for the sector, and innovative ways must be found to deal with agricultural insurance.

Therefore, over the past five years, there have been major developments in the field of weather indexes linked to cropping, particularly through the World Bank's Commodities Risk Management Group. "Based on this, the Government of Jamaica approached the World Bank and the Inter-American Development Bank for support in designing a country strategy for managing weather risks within the sector, using the parametric insurance model," he outlined.

This model establishes pre-determined parameters, so that in the event of a disaster, compensation is made on submission of evidence that these defined parameters have been triggered, due to a particular disaster.

Last year the World Bank undertook a study on weather risk management in the agricultural sector, which indicated that such an insurance scheme could be effectively introduced in Jamaica. The IDB then undertook the second leg of the pre-feasibility study, which examined the legal framework for the introduction of the scheme. Both studies totalled $11 million.
Under the MoU, the scope of activities include: carrying out weather risk modelling, assessing weather risk qualifications, assessing different insurance prototypes, designing the delivery channel for administration of the scheme and premium collection payouts.

Meanwhile, the Coffee Industry Board will take on a number of obligations, including: the establishment of a team to act as the technical counterpart to the Bank in developing the project; arranging consultations with coffee farmers, dealers and factories on the requirements of the insurance scheme; and working with the Bank to develop training and outreach programmes for the famers.

In his address, World Bank Senior Economist, Mr. Diego Arias, said weather risks have become a key determinant of the livelihood of many farmers.

"The increased frequency of weather events has significantly affected Jamaica's coffee industry, which represents one of the largest earners of foreign exchange. Given this negative experience, we are pleased to partner with the Government of Jamaica and the Coffee Industry Board to develop a transparent and efficient financial risk transfer instrument. The World Bank is truly committed to supporting Jamaica in this effort," he said.

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