Agricultural insurance policies for farmers in Peru

In Peru, three-quarters of the population works in the agricultural sector, and around sixty per cent of rural dwellers are poor. They are especially vulnerable to crop failure caused by, for instance, storms, drought or flooding. These extremes of weather are occurring with increasing frequency and intensity owing to climate change, which is further exacerbating the situation in the South American country.

An initiative from the Peruvian Ministry of Agriculture is providing a remedy: since 2014, it has been setting up a risk transfer system with agricultural insurance products, with the support of GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH) and the reinsurer Munich Re. This enables farmers with insurance to recover more quickly from crop failures. German involvement in the project is financed by the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), using International Climate Initiative (IKI) funding.

The initial success of the project is already apparent: more than 280,000 small-scale farmers are now insured, almost double the number at the start of the project. In addition, public-sector staff and private-sector insurance companies are being trained to respond quickly in disaster situations, so that the money reaches the farmers without delay.

Banks are promoting the expansion of agricultural insurance products; planting loans are only approved if a corresponding insurance policy is taken out. This means that the farmers are in a position to continue paying their loan instalments even if they lose the income from the crop. The state subsidises the premium and ensures legal certainty.

Even though the farmers now have better protection, growing high-risk crops is to be discouraged. That is why, for example, some farmers in Peru are increasingly planting bananas instead of rice, in order to cope better with severe drought, because bananas need significantly less water to grow.