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Brazil's Government to Back Farmers With Crop Insurance Subsidy

This is expected to drive investments in Brazil’s agricultural industry.

Unlike many developed nations, including the U.S., farmers in Brazil have long desired the option of crop insurance.

The South American country is now preparing to offer its farmers this level of protection.

The most common types of insurance in Brazil are auto and health insurance. The first is not mandatory and the major issue is not automobile crashes, but car theft in Brazil’s large cities. In the case of health insurance, most of the Brazilian middle class carries it to avoid public hospital, but not everybody can afford the insurance.

For the Brazilian agricultural sector, affordability was always the top issue for farmers. According to the country’s Ministry of Agriculture, from 10% to 15% of the Brazilian agricultural surface is covered in some way by crop insurance, while the USDA says 80% of the surface is insured by the Federal Insurance Program.

The affordability issue is now being tackled by the current government. For next year, the Bolsonaro administration is preparing a package of R$ 1 billion (nearly $244.6 billion), which is triple the current amount subsidized today.

For most experts, the probability is that most of the new insurance contracts will go to southern farmers. While drought rarely impacts the midwest state of Mato Grosso, the largest soybean producing state, the weather outcomes in Parana and Rio Grande do Sul (in southern Brazil) can be impacted by drought, frosts, or floods. In the case of winter crops, it is a bigger issue because those crops, like wheat or oats, are more sensitive than soybeans or corn.

Currently, the state of Parana leads the number of farmers insured with 38% of the purchases, followed by Rio Grande do Sul with 21%.

The benefits of increasing the percentage of crops insured would not just impact grain production, but would extend to all crops – including fruits. An estimate of the Brazilian Confederation of Agriculture and Livestock says that the increase in subsidies would increase the purchases to 20% or more of the surface.

“We are still trailing the U.S. by several hectares, but the new government measures are a significant step forward,” said José Mario Schreiner, president of the Agricultural Policy Commission at the Confederation.

With the new government plan, for each 120 hectares insured by farms, 100 hectares would be paid by farmers, while the rest would be a result of government help. Also, a lower cap of subsidy equalling $11.70 per producer would be put in place, allowing tens of thousands of new farmers to have access to the benefit next year. The current cap today is approximately $17.60 per farmer. Depending on what type of crop insurance each farmer buys in Brazil, that can range from 3% to 15% of production, but as more farmers hire the service, the cost tends to go lower.

“Nowadays, every time there is a new weather incident, all farmers get interested in getting insurance, but when they see the costs, they give up. That will change, and I guess the purchases will grow 100% in one year,” said Patricia Siqueroli, director at insurance company Mapfre.

Wheat growers from Parana and Rio Grande do Sul praise the possible solution, while the farmers who already have insurance say it’s worth every dime.

“Without any crop insurance, I’d have totally given up growing wheat. It is an unaffordable and hard to grow crop, but I could also say that about corn. The only sustainable crop without insurance is soybeans,” stated Paulo Vargas, who grows 700 acres of soybeans and 200 acres of corn in the summer, 500 acres of wheat in the winter, all in Carazinho, state of Rio Grande do Sul.

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