Part of the reason for local investor indifference to the agriculture sector has to do with the absence of risk management mechanisms in the sector. Local commercial banks have learnt a costly lesson from their losses in the sector, notably in the rice industry. More recently, several of the country’s small and medium-sized coastal agricultural ventures took a battering during the floods of 2005/ 2006. In effect, the real challenge confronting the government in its current effort to woo large local investors into the agricultural sector has to do with the fact that those efforts coincide with increasing evidence that climate change is likely to pose challenges to the security of the sector; and of course there are still no insurance mechanisms available in Guyana for mitigation against crop damage.
As Agriculture Minister Robert Persaud correctly told this newspaper in an interview earlier this week, risk insurance is only a single facet of an overall risk management mechanism for the sector. It is, however, the one that appears to matter most to investors and bankers. Nor does the minister question the view that serious investment in the kind of large scale agricultural production envisaged both as a food security mechanism and as a means of maximizing the country’s export earnings is most unlikely to occur in the absence of a reliable insurance mechanism.
In its search for such a mechanism, Guyana has turned to the Caribbean Catastrophe Risk Insurance Facility (CCRIF) a facility funded by several countries including Japan and supported by the World Bank and designed to bring a measure of relief to countries affected by natural disasters. Up until now, however, the CCRIF insurance mechanisms cover only earthquakes and hurricanes.
In order to secure access to disaster relief from the CCRIF, therefore, Guyana literally had to make a case for floods to be covered under its compensation facility. the government has done so by proposing that what is described as an “excess rainfall” model be added to those compensation models that are already in place for hurricanes and earthquakes. The case has been made and, it seems, has been endorsed by CCRIF. It is, however, passing strange that such a case had to be made in the first place.
Part of the reason for what Minister Persaud himself described as the “sad” omission of floods from the CCRIF’s original compensation arrangements may well repose in the origins of the Facility, created as it was in the wake of the succession of hurricanes that ravaged the island states of the Caribbean in 2004. On the other hand one would have thought that an “excess rainfall” model would have been taken on board at the very inception given the fact that climate change has rendered those island states no less vulnerable to floods than low-lying states like Guyana. In effect, the addition of the “excess rainfall” facility to the insurance models available under the CCRIF not only creates an important potential breakthrough for private sector investment in agriculture but also positions the CCRIF to better serve the disaster insurance needs of the region as a whole.
If indeed the CCRIF facility can be ready for activation by year end it would create a climate of greater assurance for potential investors in the sector. That plus the ongoing domestic initiative involving government and local insurance companies designed to create an insurance facility from which individual farms can benefit could significantly reduce the extent of the exposure which small and medium sized farmers have had to ensure for decades. The additional potential benefit to such farmers is that their existing enterprises could benefit from more significant investments that could transform small enterprises in larger ones. There is too the potential that inheres in possible, regional and extra-regional investment in the sector which, hopefully, will increase if a more risk averse climate can be realized through a reliable insurance regime.
