REDUCING RISK OF LOSSES, GOVERNMENT PROVIDES INSURANCE FOR RICE FARMING

The Financial Services Authority (OJK) in collaboration with the Ministry of Agriculture, Ministry of State-Owned Enterprises, and a consortium of Insurance companies will apply the provision of insurance for the agricultural sector to reduce farming losses due to uncertainty of season.

Chairman of the Board of Commissioners of OJK, Muliaman D. Haded, in his statement at the President’s Office on Wednesday (October 7), said that rice agriculture insurance scheme will be the first to be applied by insurance company, which 80% of the premium is paid by the government.

Through agricultural insurance it is expected that rice farming, which is frequently by the uncertainty of season, resulting in farmers being exposed to losses, would be able to reduce the losses suffered by farmers, Moreover, with such an insurance scheme, farmers become bankable. “Because usually they lose money, cannot repay the loan, but, now there is someone to bear the losses, so they can repay the loan. With their bankable status through insurance company facilities, it is expected to stabilize income of farmers,” said Muliaman.

For the first phase, the government has allocated premium funds amounting to IDR 150 billion. Fund is targeted to cover approximately one million hectares of rice farming. Agricultural insurance premiums for 6 million hectare area amounted to IDR 180,000, where IDR 150,000 is paid by the government through subsidies, and the remaining IDR 30,000 have to paid by farmers. Potential credit for farmers with this scheme is approximately IDR 6 trillion.

Deputy Commissioner for the Supervision of non-Bank Financial Industry (IKNB) of OJK, Dumoli Parded, in Jakarta (October 8) said that based on data from the Ministry of Agriculture, on a national scale the size of agricultural land affected by floods, droughts and harmful organism on average reached 1,051,228 hectare/year of the annual harvest area of about 12,886,255 hectare or 7.69%.

Furthermore, Dumoli said that agricultural GDP grew by 0.66% in 2014 compared with 2013. However, labor absorption in 2014 fell by 0.78% compared with 2013, which was around 36.05 million, as a result of increase of conversion of agricultural land to non-agriculture land and increasing urbanization due to the development of industry and services sectors.

The decline also occurred in farmer exchange rate in 2014 which decreased by 2.81% compared to 2013, which 104.95 this is caused by the fall of international prices of primary commodities, while farmers have to pay a more expensive price for their daily necessities. Likewise, the achievement of agricultural trade balance in 2014 decreased by 30.10% compared to 2013 at IDR 15.98 billion, due to decline of demand as a result of economic recession in America, Europe, and East Asia, and the fall of international prices of primary commodities. (E)

Business News - October 12, 2015