Risk transfer system for the agricultural sector in Peru. Philine Oft, GIZ Peru

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1 Risk transfer system for the agricultural sector in Peru Philine Oft, GIZ Peru

2 Lessons Learned More than 20 years for public and private initiatives to develop a market for agricultural insurance without success It is important to develop a risk transfer system that comprises all types of risks and financial instruments that can be offered to the producers.

3 Exposure of agriculture to climatic events Main Hazards: Drought, Flood, Strong rainfall, Frost, Hail. Climate change influences the increase of extreme weather events Extreme El Niño -Phenomena lead to high economic impacts and costs: 1982/83 and1997/98 loss of more than 3 Billion USD (7% and 5% of GDP)

4 High exposure to climatic events People affected by climatic events in Peru Drought Landslide Rainfall Flooding Frost Hail Source: INDECI, Elaboration IPACC

5 Credits and Insurances in the agricultural sector Heterogeneous structures amongst producers: Size of Land Type of farmer Number of farmers % 0-5 ha Small 1.8 Million 82 5,1-50 ha Medium > 50,1 ha Large Insufficient offer of financing and insurance services: 8,8% of the agricultural producers has taken a credit contract (high credit costs) 8.7% of the cultivated areas (361,314 ha) have an agricultural insurance 100% State subsidized crop catastrophic insurance for subsistence farmers

6 Component I: Institutional structures Development of an appropriate institutional and legal framework to establish a risk transfer system. Component II: Information system Establishment of a georeferenced system of data collection and administration to gather information on output and yields in the agricultural sector. General objective of the project Component III: Management of the risk transfer system Specialist staff and decisionmakers are being capacitated to manage and monitor the risk transfer system. Development of a risk transfer system supported by the state and the private sector making a sustainable contribution to adaptation to climate change within the agricultural sector.

7 Private Insurance Companies and Financial Institutions They shape and market insurances against climate risks Project partners Munich Re Strategic Alliance Climate, Agriculture and Risk Transfer Project Feb Feb 2019 Governmental Institutions They hold the political and legal framework for the development of the market Small, medium and large Producers Producer Associations They buy and benefit from insurances against climate risks Political counterpart Local and Regional Governments Political and technical support for the promotion and financing of products

8 Main Milestones of the Project ) Development of a concept for the Risk Transfer System 2) Cooperation Mechanism between Insurance Companies 3) Implementation of Management Agency for Risk Transfer 4) Development of crop insurance products with uniform insurance conditions. 5) Establishment of a Monitoringand audit system.

9 Challenges and future prospects 1. Changing political priorities in the Government (related to frequent change of Ministers) 2. Frequent staff turnover and partly blurred responsibility areas inside the Ministries (esp. Ministry of Agriculture) 3. Cooperation with institutions with high decision power: Ministry of Economics and Finance (MEF) and Superintendency of Banks, Insurance and Pension Fund Administrators (SBS) 4. Concentration of expertise as important success factor 5. Political and institutional risks must be planned and minimized through corresponding structures and processes

10 The Climate, Agriculture and Risk Transfer project (CAT) is part of the International Climate Initiative (ICI) of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB).