Thailand's new crop
insurance
system ready to go:
An overview
By Jon Fernquest 
Today's
Bangkok Post has an excellent summary of the Thailand's new crop insurance
programme. The problems of the old system it is replacing are also reviewed.
The new system isn't completely new.
In 2008 the World Bank ran a crop insurance test programme in Thailand (Read article).
Crop insurance has also been a topic of research projects at the Thailand Development Research Institute (TDRI) (Read article).
Here is today's article in full:
Crop insurance programme not expected to hit rice exports
WICHIT CHANTANUSORNSIRI18/09/2009
Thailand's new crop insurance programme will not affect the country's position as the world's leading rice exporter, say local academics.
Somporn Isvilanonda, an economist with Kasetsart University, said the crop insurance programme was in line with market principles while still reassuring farmers of receiving a fair price.
insurance
- a system of protection against loss, a person pays money every month
(premiums) for a guarantee that the company will pay them money if they
or their property is damaged or lost (See Wikipedia)
การประกันภัย
crop insurance - insurance protecting farmers against the loss of their crops due to natural disasters, such as drought and floods, or the loss of revenue due to declines in the prices of agricultural commodities (See Wikipedia) การประกันผลผลิตทางการเกษตร
academics - professors and lecturers at universities and colleges
market principles - the basic rules of economics that govern markets such as "supply equals demand determines the market clearing price"
in line with market principles - following market principles
reassuring - saying and doign things to make people stop worrying
crop insurance - insurance protecting farmers against the loss of their crops due to natural disasters, such as drought and floods, or the loss of revenue due to declines in the prices of agricultural commodities (See Wikipedia) การประกันผลผลิตทางการเกษตร
academics - professors and lecturers at universities and colleges
market principles - the basic rules of economics that govern markets such as "supply equals demand determines the market clearing price"
in line with market principles - following market principles
reassuring - saying and doign things to make people stop worrying
Old system
For years, the government has supported the prices of key crops such as rice by allowing farmers to with the pledge their cropsBank for Agriculture and Agricultural Co-operatives at set prices. If market prices fall below the mortgage price, then farmers can transfer their crops to the state. On the other hand, if market prices stay above the mortgage price, farmers can sell their crops in the open market and pay off the bank directly.In practice, mortgage prices have often been set to subsidise farmers, resulting in upfront outlays for the government of more than 100 billion baht per year.
supported the prices of key crops
- kept the prices that farmers received high, even when
market prices fell
pledge their crops - when farmers turn over crops to the bank in exchange for a loan
Bank for Agriculture and Agricultural Co-operatives (BAAC) - Thai government bank specialising in microfinance and banking for farming households (See website, a case study [pdf], at the FAO)
sell their crops in the open market - sell their crops in a market not controlled by the government
subsidise farmers - pay part of the costs of farmers
outlays, upfront outlays - the money that must be spent to start a new project
pledge their crops - when farmers turn over crops to the bank in exchange for a loan
Bank for Agriculture and Agricultural Co-operatives (BAAC) - Thai government bank specialising in microfinance and banking for farming households (See website, a case study [pdf], at the FAO)
sell their crops in the open market - sell their crops in a market not controlled by the government
subsidise farmers - pay part of the costs of farmers
outlays, upfront outlays - the money that must be spent to start a new project
New system
The new system is an insurance programme under which the government will pay farmers the difference between market prices and guaranteed prices for a limited quantity of crops. The change will slash the state's upfront costs and indirect expenses such as storing pledged crops.Benchmark prices will be announced on the 1st and 16th of each month.
upfront costs -
things that must be paid before to begin a project or programme (before
any benefits have been received)
benchmark prices - on most important price used to set other prices (plus or minus an amount)
benchmark prices - on most important price used to set other prices (plus or minus an amount)
Problems
Volatile global prices and rising production costs threaten small farmers, which could lead to Thailand's agricultural sector being dominated by large producers, said Mr Somporn.Mortgage prices jumped from 7,000 baht per tonne of paddy in 2004 to 14,000 baht in 2008 as global prices rose.
But the price rise and the price mortgage programme led farmers to increase production with too little consideration for quality and efficiency, said Mr Somporn. As product quality fell, the country lost competitiveness to countries such as Vietnam, the world's second-largest rice exporter, he added.
Top-quality Thai rice still enjoys a premium of about US$100 per tonne over Vietnamese rice in the global market, he said. But some farmers have been prompted by high pledging prices to cultivate lower-grade, faster-growing strains for quick returns, to the detriment of the overall industry.
Only 40% of the 100 billion baht committed to the rice mortgage programme in previous years is estimated to have actually reached the hands of farmers, he added. In his view, the insurance programme is likely to be much better at directing funds to farmers and at cutting waste and corruption.
volatile global prices
- prices around the world are moving suddenly, unpredictably, by large
amounts
too little consideration for Y - not think enough about Y or be concerned enough about Y
efficiency - putting resources to their best use without waste
lost competitiveness - products don't sell as well as others (competitors) (because quality or price is worse)
X enjoys a premium of Y - the price of X is higher than others by amount Y
prompted by X to Y - X caused them to do Y
faster-growing strains - faster growing varieties [of rice]
too little consideration for Y - not think enough about Y or be concerned enough about Y
efficiency - putting resources to their best use without waste
lost competitiveness - products don't sell as well as others (competitors) (because quality or price is worse)
X enjoys a premium of Y - the price of X is higher than others by amount Y
prompted by X to Y - X caused them to do Y
faster-growing strains - faster growing varieties [of rice]
Ennoo Suesuwan, the acting president of the Bank for Agriculture and Agricultural Co-operatives, said guarantee prices under the insurance programme would be based on average prices sampled at different markets across the country.
Guarantee prices should be within 5% of market prices, with export prices and Chicago futures prices also being used in the calculation.
Insurance will be offered free to registered farmers for now. But in the future, insurance coverage might be free for up to 25 tonnes of produce per customer, with a guarantee fee being charged for coverage of additional produce, he said.
guarantee - a
promise to do or give something
guarantee prices - promised prices
sample - choose some items from a large group to provide information about the group as a whole
sampled at different markets - took some from different markets to compare at different markets
registered farmers - farmers who have officially recorded their names with the government
coverage, insurance coverage - what kinds of damage and loss the insurance would pay for สิ่งที่กรมธรรม์คุ้มครอง
guarantee prices - promised prices
sample - choose some items from a large group to provide information about the group as a whole
sampled at different markets - took some from different markets to compare at different markets
registered farmers - farmers who have officially recorded their names with the government
coverage, insurance coverage - what kinds of damage and loss the insurance would pay for สิ่งที่กรมธรรม์คุ้มครอง
(Source: Crop insurance programme not expected to hit rice exports, WICHIT CHANTANUSORNSIRI, 18/09/2009, link)
