Thursday, 15 July 2010

Heat wave results in farming feud

As the heat wave continues to ravage Russia’s harvest, farmers have attacked insurers for conning them out of their premiums.

Russia’s Grain Union leader Arkady Zlochevsky criticised insurance companies at a press conference on Monday, saying they use “intricate contracts [that] allow [them] to find loopholes” to avoid paying compensation.

Farmers in 11 regions of Russia where the worst drought since 1972 has destroyed half the crops are on the brink of bankruptcy, while 13 regions have declared a state of emergency.

Due to the difficulty of claiming compensation only 20 per cent of farmers have insurance, and the rest are relying on government handouts.

The grain union favours making insurance compulsory, and although the authorities have been pushing policies many farmers have resisted.

“Insurance in agriculture is still not complete,” said Natalya Agapova, chairman of the Agriculture Industry Centre. “Many farmers still try to avoid this despite various government and Ministry of Agriculture resolutions.”

Prime Minister Vladimir Putin promised loans and subsidies to those affected by the drought, and those who got insurance are first in line for handouts to tide them over until they receive their compensation.

“Though everyone will get aid, it’s a good thing that state and regional authorities are stimulating those who chose to insure their crops,” said Anton Shaparin, a spokesman for the grain union.

The premier also issued a warning to insurers not to try to make money by exploiting the situation.

Insurers hit back, saying there were no loopholes but that there was an absence of quality standards, particularly in some firms that specialise in agriculture.

“It is a bad state of affairs [but] the policy holder should receive something in any case,” said Nikolai Galushin, the deputy general director of Ingosstrakh. “A habit has been
developed – whether or not there is a crop – that the unprofitability (in volume of payments) from such insurers does not exceed 50-60 per cent of the collected insurance premium.”
Galushin added that information given by policy holders was often inaccurate and that a special law was needed for to make insurers pay up in full and on time.

The grain union is requesting 40 billion roubles ($1.3 billion) in aid for stricken farmers, according to Zlochevsky. Agriculture minister Elena Skrynnik said the request had been turned over to the finance ministry and the funds would be distributed through regional authorities.

“The government gives strong state support to the agriculture industry, prolonging their credit to banks and leases and giving new loans under low interests,” said Agapova.
Insurers, however, have criticised the handouts to farmers who weren’t insured, saying that they removed the incentives for anyone to get a policy.

“[The state support] should work only concerning those policy holders who voluntarily carry out insurance of crops, otherwise there will be no stimulus for insurance,” said Galushin of Ingosstrakh. “[It is] easier to wait with an outstretched hand for help from the state.”

The government has been criticised in some sectors for being too slow to act, while President Medvedev only chimed in on Tuesday, saying everyone should concentrate on preserving what’s left of the harvest.

Some reports say authorities only intervened when local newspapers started stirring fears that the price of bread would shoot up.

Experts, however, have played down these fears, saying that Russia has more than enough bread and that the cost of a loaf isn’t strongly linked to the price of grain.

Skrynnik, the agriculture minister, said that the harvest projection had to be cut from 97 billion tons to 85 billion tons. Russia consumes around 77 billion tons of grain every year.

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