Agripreneurs, insurance and the law

In this piece, Lagos lawyer Nathaniel Ojobo explains how a national policy that provides insurance cover and other benefits can help farmers and agripreneurs protect their businesses.

Introduction

Ignorance, they say, is the mother of all evils. True to the above, many farmers in Nigeria have suffered and are still suffering huge losses of their crops and animals due to several issues – ranging from natural to man-made issues – without any form of compensation made to them and to which they could fall back on for support. Usually, this is because farmers are unaware that they could have ameliorated their plight by subscribing to a National Agricultural Insurance Policy in existence.

The Federal Government of Nigeria on November 15, 1987, established the Nigerian Agricultural Insurance Scheme (herein referred to as “the Scheme”) and its supervising body, the Nigerian Agricultural Insurance Company Limited, now known as the Nigerian Agricultural Insurance Corporation (herein referred to as “the Corporation) by virtue of the enactment of the Nigerian Agricultural Insurance Corporation Decree (now Act) of 1993.

The motivation for creating the scheme was mainly due to huge losses suffered by farmers and occasioned by natural disasters thereby creating disinterest in farming by rural dwellers, who after experiencing the challenges as stated above, moved in their numbers to the cities in search of other sources of livelihood. The situation was made worse due to the fact that the insurers available at the time were not willing to insure risks associated with farming. The natural consequence therefore, was that food security, for a vastly increasing population such as Nigeria’s became an imminent threat. This is not to talk of the effect the issue had and still has on national revenue and economic growth.

The essence of this piece is to therefore inform our readers and more particularly the ‘Agripreneur’ on the availability of a national policy which provides for an insurance cover and benefits to farmers in order to aid the protection of their business interests.

Legal framework and relevant provisions

The Nigerian Agriculture Insurance Corporation Act (herein referred to as “the Act”) is the Law that provides for the establishment of the Corporation and the Scheme. The corporation is governed by a board of directors comprising of a chairman and other members as provided for by the Act. The functions and powers of the corporation and the board are provided for in sections 3, 4 and 5 of the Act.

The Act provides for the creation of the scheme and goes ahead to state that “the general objective of the scheme is to protect the Nigerian Farmer from the effects of natural hazards by introducing measures which shall ensure an indemnity sufficient to keep the farmer in business…” and further goes ahead to specifically list out the objectives of the scheme to be as follows:

1. a) provide financial support to farmers where loss to crops or livestock arises from natural hazards;
2. b) induce the provision of credit by financial institutions to farmers;
3. c) promote agricultural production; and
4. d) minimise or eliminate the need for government to provide adhoc assistance to farmers during agricultural disasters.

The scheme covers crops, livestock and other agricultural items and enterprises as the corporation may determine, as well as farm buildings, machinery and equipment used on a commercial basis and which forms part of the investment on a farm. The scheme also covers any other thing that the corporation may deem necessary for giving effect to the objectives of the scheme. The implication of the above is that the corporation is empowered to expand the scope of coverage of the insurance scheme to include other things not specifically mentioned in the Act.

The Act provides that in the case of crops, the risks which are covered are damages or losses caused by fire, lightning, windstorm, flood, drought, pest or invasion of farm by wild animals. Regarding livestock, the risks covered by the scheme are death or injuries caused by accident, disease, fire, lightning, storm or flood. Also, any farmer insured under the scheme is mandatorily expected to comply with such conditions relating to a good husbandry as the corporation may specify from time to time.

The amount of premium payable under the scheme is such percentage of the sum assured by the farmer, as determined by the corporation. In determining the said percentage, the corporation is required to consider the pure risk premium, the reserve premium and the administrative loading. The corporation is also mandatorily required to contribute to the premium, a sum that is not more than 50 per cent of the premium payable by the farmer. This is to be by way of subsidy. The subsidy shall be paid by the Federal and each of the state governments at the rate of 37.5% and 12.5% respectively and the said payment must be made for each year, within the first three months of the ensuing year. Where any of the state of the federation defaults in paying its contribution, the Federal Government is mandated to deduct from the funds due to such state (perhaps from its monthly allocation paid to it by the Federal Government) and remit same directly to the corporation.

Where a loss or damage is witnessed by a farmer of crops from any of the occurrences envisaged by the Act, such farmer is entitled to be indemnified with an approved input cost (the cost of monies expended on the farm from inception to the point when the loss or damage occurred). In the event that some crops were salvaged from the loss or damage, the indemnity payable to the farmer shall be made less the value of such crops which were salvaged or harvested.

In the case of livestock, the corporation is to pay the indemnity based on a valuation table for each class of stock. In the case of crops, livestock and other agricultural items specified from time to time by the corporation, the amount of the indemnity payable is to be the agreed value of the crops, livestock or item.

Furthermore, a farmer who wishes to benefit from the scheme shall see that the following requirements have been fulfilled:

1. a) obtained an insurance cover with the corporation before the damage or loss occurred;
2. b) have a valid insurance cover with the corporation at the time the damage or loss occurred;
3. c) must have followed the laid down practice for livestock and crop production;
4. d) make sure the cause of loss or damage must have been one of the risks covered by the Insurance Policy;
5. e) notified the corporation of the damage or loss within the stipulated time;
6. f) satisfied such other conditions as the Corporation shall stipulate from time to time.

It must be noted that all the above conditions must be satisfied in unison.

Farmers who take out the venture based on their personal resources may decide to either take out an insurance policy with the corporation or not. However, for farmers who take an agricultural loan facility or credit from the government, a bank or other financial institution, they are mandated to take out an insurance cover.

The Act requires every lending institution (defined in the Act as “an organisation giving credit for agricultural production and includes a bank and non bank financing agency”) giving out an agricultural loan to a farmer to deduct the insurance premium due from the loan or credit at the point of issuing the loan to the farmer, and remit same to the corporation not later than 30 days from the date of disbursement of either part or the whole of the loan to the farmer. The above is however subject to the provisions of the Act and other directives as may be issued by the governing board of the corporation.

Recommendations/Conclusion

It is the opinion of the writer that knowledge about the existence of the corporation, the service it offers and the advantages of such services are not known by most Nigerian farmers. There is therefore need for vibrant and consistent publicity of the corporation’s existence and essence by all stakeholders.

The writer also notes that farmers have the potential of facing more risk at this time than those envisaged by the Act. The recent outbreak of the Coronavirus gives credence to the above as the pandemic has affected Nigeria’s agricultural sector. The lockdown caused farmers to experience difficulty in assessing their farms for the purpose of tending after their produce. This is not to talk of the fact that the lock-down and interstate travel ban affected the movement and transportation of crops from the farms to the markets. The overall effect of the above meant that farm produce (inclusive of crops and livestock) got spoilt, had its quality deteriorated or died. It is therefore the writer’s proposal that the Federal Legislature should live up to its billing in ensuring that the scope of risks contemplated by the Act should be expanded beyond its current coverage to cover risks like those associated with or emanating from the Coronavirus pandemic.

Regarding Section 10 (c) of the Act (which provides to the effect that in the case of crops, livestock and other agricultural items specified from time to time by the corporation, the amount of the indemnity payable is to be the agreed value of the crops, livestock or item), it is the writer’s view that the failure of the section to set out the method of determining the value of such crops or livestock and leaving the determination of same to be such as will be agreed upon by the farmer and the corporation could serve as a set-back especially where the parties do not eventually agree. It is advised that the section be amended to expressly capture the point that the valuation should be carried out by an independent and expert agricultural produce valuer.

With the situation on climate change, issues surrounding food security and advent of mechanised farming, the need for farmers, especially those who engage in the venture on a commercial scale, to insure their produce and large scale farming equipment under the scheme becomes imperative, more so, with the breakout of COVID-19 and the threat that it poses to food security in Nigeria.

While it is hoped that the above recommendations are applied, it is also hoped that farmers  will take the initiative in bolstering their stake, while the government leverages on the various extant legal frameworks on agriculture to boost up production of agricultural produce especially at a time when the clamour for economic diversification and job creation is on the increase.

• Ojobo, an Associate of the Chartered Institute of Arbitrators, heads the Lagos Office of The Firma Advisory.