Southern Brazilian Drought Costs Billions

Unfortunately many Brazilian producers skip crop insurance.

Nothing like a drought to get you thinking about crop insurance.

One Brazilian consultancy says main-crop corn yields in Brazil's southernmost state of Rio Grande do Sul are going to be down 45% from last year, to as low as 48½ bushels per acre. And while things got less awful as you go north from there, farmers in two of the country's top ag states are hurting badly this year from the vagaries of the weather.

The two states have estimated crop losses from the drought at something like $3 billion so far.

So it's a good thing their producers have crop insurance. Well, some of them have it, anyway. According to local media, just 11.8 million of Brazil's 123.5 million acres of crops planted in 2010 were covered by crop insurance. In money terms, insurance covered less than four percent of the total value of Brazilian crops that year.

And a good chunk of those with any crop insurance at all are just exactly those in the drought-hit South. But crop insurance in Brazil, offered by no more than a handful of companies, is seen as expensive, bureaucratic and full of holes.

By expensive, one economist said coverage for main-season crops may come to 5%-7% of estimated crop value—and as much as 13% for second-crop corn and wheat.

The government has sometimes helped with the cost of premiums, but that assistance is usually too little and too late.

João Conrado Scmidt, who farms in Brazil's top corn-producing state of Paraná, says a lot of producers get insurance only as a condition of applying for one of the government's cropping cost loans at a subsidized interest rate. His insurance for corn, he says, covers up to 70% of his county's historic average yield, for rain, drought, hail, frost, lightning, fires, high wind and similar disasters.

"In our case," he says, "even though our average yield is above 159 bushels per ac re, the coverage cap on is on a yield of 107 bushels, which is the average for Ipiranga County, Paraná."

To get 70% coverage, he says, the producer pays 5.85% of production costs, with half that amount subsidized by the state.

"Normally," he says, "producers get insurance when it's demanded by the bank doing the financing. After all, you spend a lot to produce 159 bushels per acre of corn, and you can only insure about 75 of those bushels, so it's an option that's only attractive to the insurance companies."


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