Azernews.Az

By Gulgiz Dadashova

Agricultural insurance is an important financial tool to develop agriculture on the modern basis in Azerbaijan.

Chairman of Azerbaijan Insurers Association (AIA) Orkhan Bayramov believes that it is time to introduce agricultural insurance in Azerbaijan and it is very important for Azerbaijan to study relevant international experience.

The Azerbaijani Finance Ministry has reached a preliminary agreement with the International Finance Corporation (IFC) and the Swiss State Secretariat for Economic Affairs (SECO) to implement a project on applying an international model of agricultural insurance by adjusting it to the requirements of the Azerbaijani market, Bayramov told Trend news agency.

"A positive milestone is that the state incurs no expenses on implementing the project. SECO will finance the project on introducing an international model of agricultural insurance development," he said.

In this regard, the Association is committed to organizing work on coordination with the market and to develop a national model.

Bayramov said that currently different models, in particular, the Turkish model, which envisages the creation of a pool, and a Ukrainian model, are being studied. The Association is also eyeing the Russian model, which stipulates both public and private contributions to this sector.

"We are not considering one particular model. As the practice shows, a model of only one country is not used generally. We can relate to the Turkish and Ukrainian models. But the decision will be made after the proposed IFC models are examined," he emphasized.

Bayramov noted the state care for this sector, which has vast potential within the development of the non-oil sector of the economy.

"President Ilham Aliyev pays special attention to the development of the agrculture sector and this was stressed at the meetings on socio-economic development in the first and second quarters of 2013," Bayramov said.

"In any case, insurance cannot be implemented independently. First, a system should be established, based on which a model of insurance can be created. Since the country's agricultural sector is not so large, it would be wrong to have great expectations at an early stage," he said.

However, it is possible to ensure intensive growth with the state support, taking into account the priority of this direction. Bayramov said that one year or a year and a half will be required to prepare an effective mechanism for launching agricultural insurance.

AIA also plans to hold a meeting with the Azerbaijan Microfinance Association (AMFA) as part of the efforts to develop an agricultural insurance mechanism. AMFA offered to create a fund for agricultural credit insurance based on the Turkish model (a relevant fund, TARSIM, operates in Turkey).

"This model envisages creating a public fund whereby insurance companies act as agents," he said. "This system works as follows: insurers transfer fees to the fund and get their 15-20 percent. In case of an insured accident, the country pays compensation. Such a model may be acceptable for Azerbaijan, but it needs to be discussed, as there may be other more interesting options. We are ready to receive AMFA proposals for evaluation," he said.

Currently, the potential of the Azerbaijani agricultural insurance market is estimated at 100 million manats (about $127 million). The market could grow by at least 20-30 percent, as a new field of activity will emerge after the new law on "Insurance of agriculture" is passed.

Azerbaijan has the necessary legislation to stimulate insurance in the agriculture sector.
The country allocates a certain amount of funds from the state budget to insure risks in the agricultural sector every year, but local farmers apparently show little interest in this field.

According to the amendments to the Law on "Assistance and agricultural development in Azerbaijan" approved in summer 2007, the share of public funding of agricultural insurance premiums increased from 25 percent to 50 percent. The list of agricultural crops insured through the state budget included wheat, barley, corn, sunflower, potatoes, sugar beets and vegetables.

The average fee on agricultural insurance is about 1,500 manats per year, and the average profit per hectare of land is about 25,000 manats per year.