(2016) Study on the lessons learned from the National Agriculture Insurance Pilot Program in Vietnam

Funded by: GIZ

Agriculture, the main economic engine and income source for 70% of Vietnamese is highly exposed to risks. Different measures were adopted to mitigate these risks, by both farmers and government, of which, international experiences indicate that agricultural insurance (AI) can be an effective tool. AI has been implemented in Vietnam for nearly 30 years but were not developed. In 2011, in order to develop AI market thenceforward promote agricultural production and ensure social security, Vietnamese government had issued a groundbreaking program, called National Agricultural Insurance Pilot Program (NAIPP). After 3 years of implementation from 2011-2013, this program had achieved some significant results and Vietnamese government have directed Ministry of Finance (MoF) and Ministry of Agricultural and Rural Development (MARD) to continue to develop AI in Vietnam. In this context, this research aims to review and explain the development of AI in Vietnam, especifically NAIPP. This research use both qualitative and quantitative methods (Propensity Score Matching and Difference in Differences) to evaluate the achievements and shortcomings of NAIPP and the impacts of NAIPP on rice and livestock farmers’ livelihoods. Combining with the experience from revewing international experience in developing AI, this research provide aims to recommend solutions for policy makers in Vietnam and other ASEAN countries on improving the effectiveness and efficiency of AI programs.

Results from this research shows that before NAIPP, AI market was very small, AI companies lack of agricultural experts and the connection between different stakeholders related to AI is very loose. Farmers’ awareness about AI is limited and their small and fragmented production cause a lot of constrains for insurance companies to penetrated agriculture market. During the NAIPP, more than 300 thousand farmer households/agriculture enterprises participated in the Program, of which 77% were poor households and 15% were near-poor. This indicates a low voluntary participation rate because poor and near-poor house enjoyed a 90-100% premium exemption. Total value insured by the pilot programme was VND7,747.9 billion (USD342.2 million), total revenue from AI premiums was VND394 billion (USD17.2 million) and total compensation paid was VND701.8 billion (USD31.0 million). While rice and livestock sector have a suitable compensation rate and insurers made profit, compensation rate of aquaculture reached 306.83% and caused the overall loss of the Program.

Results from emprical analysis of this study show that impacts of NAIPP on farmer production were different between sector. In Dong Thap (rice sector), NAIPP did not have significant impacts on farmer income, cost and profits. In Vinh Phuc (livestock sector), the impacts were much more significant. After eliminating all other factors, NAIPP helped increase farmers’ income, reduced production costs, thus, increased their profit. Farmers who participated in NAIPP were also more specialized, thus their contribution of livestock production in their total income is higher than other households.

From the research results, we recommend Vietnamese government to narrow down the objectives of the AI development policy to increase effectiveness. Government should not expand NAIPP to all crops and livestock but to focus on the main commercial crops and large cattle. Aquaculture insurance is not recommend until Vietnamese farmers can manage its internal (production process) and external (water source, quality of inputs) risks at certain level. AI program should also be associated with current supporting policies to reduce state budget pressure. This research also recommend a 50-70% supporting rate, similar to international experience, and provide more preferential subsidy rates to farmers who have farming contract with enterprises to create large-scale production zones and complete value chains.