RISKS OF AGRICULTURAL PRODUCTS AND THE NEED FOR INSURANCE IN ARMENIA Текст научной статьи по специальности «Сельское хозяйство, лесное хозяйство, рыбное хозяйство»

ECONOMY

RISKS OF AGRICULTURAL PRODUCTS AND THE NEED FOR INSURANCE IN ARMENIA

Hrant Hayrapetyan

Armenian State University of Economics, Aspirant in the department of Finances, Accounting

DOI: https://doi.org/10.31435/rsglobal_sr/30042020/7053

ARTICLE INFO

ABSTRACT

Received 15 February 2020 Accepted 12 April 2020 Published 30 April 2020

Agriculture is one of the main sectors of the economy of the Republic of Armenia. The efficiency of agricultural production in the province is mainly due to climatic conditions. For this purpose, first of all, a systematic study should be carried out on the situation in the provinces, the agricultural features of each province, the dangers posed and the agricultural work being carried out. The features of this system are different in different countries, and their study will allow us to find similarities that can be applied in Armenia. Assessing the importance and difficulties of agricultural insurance, it is necessary to introduce an insurance system that equally expresses the interests of both the insured and the insurer. In other words, to neutralize farm risks, insurance companies will not increase their risks, so a reasonable way to balance them is to introduce a state-subsidized agricultural insurance system.

KEYWORDS

agriculture, risk,

insurance, plant species, disaster. JEL- Q140

Citation: Hrant Hayrapetyan. (2020) Risks of Agricultural Products and the Need for Insurance in Armenia. Science Review. 4(31). doi: 10.31435/rsglobal_sr/30042020/7053

Copyright: © 2020 Hrant Hayrapetyan. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

Introduction. Given the fact that agriculture in the Republic of Armenia is largely conditioned by the risk factor, taking into account the country's vital activity and food security, the key importance of the sector in raising the general living standards of the national economy is one of the main goals of state policy, created as the insurance system with mechanisms. As an effective factor in the development of a number of key areas of the economy and in solving the problems that ensure the normal functioning of society, insurance has proven its importance, role and significance in market relations.

In the developed countries, insurance had been penetrated all spheres of public life, thus deepening people's consciousness, without which society did not imagine its normal functioning. Due to various reasons, people insured almost everything, such as: life, property, investing significant financial resources, realizing the need for it and assessing the possible risk factor in the future. The regions of the Republic of Armenia were located in the middle or high risk zone of natural disasters. Armenia was the mountainous country where droughts and water resources were disproportionately distributed. Undergoing natural disasters and erosion, the country becomed sensitive to adverse climate change, making agricultural activities vulnerable. At the same time, the agricultural sector was of great importance for the Republic of Armenia. It provided the significant part of the livelihoods of rural communities in Armenia, rural development, food security, and product exports.

Literature Review. Within the framework of the selected topic, reference was made to the scientific works of many foreign and Armenian authors, the ideas presented by them. Taking into account the fact that agricultural insurance, as a separate direction of insurance, does not yet have its proper manifestation in the Republic of Armenia, the study of scientific works with closer and more practical connections on the topic becomes more complicated.

Research Methodology. The topicality and problematic nature of the topic made it more popular both in terms of research and in terms of creating trends for its application in Armenia. As agricultural insurance in Armenia did not yet reflect the positive results that exist in many countries, there was the need for the comprehensive study and the emergence of unique approaches. The introduction of a test agricultural insurance system in Armenia has been allowed some entities to have agricultural insurance. But at the moment, agricultural insurance in Armenia refered only to a few farms, and it did not have the general calculation method for all types of plants. So, wanting to create the general calculation methodology, we started studying agricultural insurance and agriculture from a new page. Numerous analyzes were conducted during the study of the topic, comparisons were made, parallels were drawn between the facts, information and "results" related to the topic, and the issue of involving the average calculation methodology for obtaining an average yield over the years was addressed. We were talking about the trend of changing agricultural products over time. Finally, it was proposed to create a new calculation methodology based on common calculation and forecasting methods.

Analytical part. There were different classifications of intrinsic risks to crops that could be summarized in the following groups:

✓ Climatic risks due to the negative impact of nature, which occur in the form of elementary disasters, plant diseases, climate change, etc.;

✓ Sanitary risks: rodents, pests, epidemics, various diseases, etc.,

✓ Market risks related to price fluctuations in local or international markets for agricultural products, changes in quality requirements for goods, etc.;

✓ Legislative risks arising from possible non-compliance with the new laws in case of non-compliance with the norms defined by the legislation or their amendment;

✓ Quantitative and qualitative changes in production factors, which are reflected in the deterioration of the quality of plant seeds, fertilizers, malfunctions of used technical means, reduction of productivity. Other similar factors.

✓ Other risks, which were not included in the previous groups due to human factor: conflicts, financial and economic crises, loss and slaughter of agricultural animals, looting of agricultural property, damage, etc. [1]

According to another classification, the risks to crops could be divided into risk factors (frostbite, snow, ice, drought, flood, hail, storm, etc.). It was also possible to classify sanitary risks among the climate risks.

Harvest losses and deficiencies in the Republic of Armenia had several times exceed similar losses in other countries due to various factors, including natural disasters, such as acute equipment shortages, unreliability and imperfections due to service life compared to foreign counterparts. with equipment.

Let's look at the following classification of common agricultural risks to crops and sowing areas: [6]

✓ Natural risks,

✓ Low investment efficiency risks,

✓ Profit Loss Risk

✓ Risks of depreciation of fixed assets due to the negative impact of climatic factors,

✓ Self-reproduction risks,

✓ Risks of seasonality of agricultural production,

✓ Risks of climatic characteristics of significantly differentiated regions according to natural

zones,

✓ Risks of unequal turnover of assets of agricultural enterprises related to production seasonality (risks of not receiving loan financing);

✓ Low risks of efficiency of agricultural production compared to other sectors of the economy;

✓ Low competitiveness risks of agricultural production;

✓ Risks of inability of agricultural enterprises to participate equally in interstate and international competition;

✓ Risks of slow implementation of scientific and technological innovations;

✓ Risks of inadequate, slow, conservative market changes;

✓ Risk of change in demand for goods;

✓ Reproductive cycle risks;

✓ Risks of non-compliance between the cost of agricultural products and the cost of resources required for its production,

✓ Limited attractiveness of agricultural products for investors,

✓ Risks of decresing sowing and arvesting areas;

✓ Natural and climatic risks, which are reflected in the fact that most of the territory of Armenia is in the agricultural risk zone;

✓ Risks of rising agricultural prices;

✓ Risks of declining international competitiveness of agricultural products;

✓ Risks of fixed assets, low security of agricultural machinery, risks of reduction of production and technical potential;

✓ Risks of financial insolvency of agricultural enterprises;

✓ Risks of insufficient support to the state budget.

The main difficulty in providing insurance coverage for the cultivation of agricultural crops was agricultural risk, which was due to a number of objective and subjective factors that distinguished it from other insurance risks. Subjective factors included the catastrophic distribution of risk over time, which has been reflected in the alternatives of the production years and its cumulative nature. Subjective factors reduced the workforce in agriculture, the level of scientific training of rural producers, the ability to adapt to a competitive environment, and the ability to find one's own "economic depth." It was difficult to formulate subjective factors when assessing agricultural risks.

Armenia, despite its relatively small area, was characterized by a pronounced diversity of flora and fauna, which was the result of the complex physical-geographical conditions of the area and the favorable geographical and geographical position, more than 100 species per 1 km2. was one of the highest indicators in the world.

69% of Armenia's territory was agricultural land. Agricultural farms employed more than 500,000 people or about 44% of the economically active population. According to the Ministry of Emergency Situations of Armenia (MES), 12% of the country's territory was subject to frostbite, 15% to drought, and 17% to hail. There were regions whose areas are vulnerable to several types of dangerous climate. According to the Food and Agriculture Organization of the United Nations (FAO), one of the most common recurring natural disasters in Armenia was drought, which was accompanied by a dry climate. Strong droughts were observed in the territory of Armenia in the Ararat Valley. It was also significant in some regions of Vayots Dzor and Syunik regions. With drought, the quality of the crop decreases, plant diseases increase, the volume of imported food, the cost of food products. As a result, the incomes of those involved in agriculture are declining, at the same time affecting the overall economic growth rate. All regions of Armenia were vulnerable to frostbite. They were often seen in the valleys of the republic, in the Ararat valley and its gorges, in Tavush and in the valleys of Syunik. The most vulnerable was the Ararat Valley, where the probability of frostbite is 45-50%. Armenia was also considered one of the most dangerous areas in the world. Hail caused great damage, especially to agriculture. About 4-5% of the annual crop rotation in Armenia has been destroyed by hail: [5]

In the form of Table 1, we presented a number of plant species that are of great agricultural importance in Armenia, and the threatening risks of each plant could be classified as follows:

Table 1. Risks threatening plant species in Armenia [3]

Vegetables: Vegetables:

1 2

Breads

Wheat Frostbite, drought

Barley Drought

Corn Frostbite, drought

Vegetable garden

Potatoes Drought, hail, phytophthora, hard insects!

Tobacco Hail, dry wind, drought

Tomatoes: Choleptyl larvae

Pepper Teaser:

Eggplant Excess air humidity

Cucumbers

Continuation of table 1.

1 2

Pumpkin Hail, dry wind, drought

Melon Drought, hail, larvae, ticks

Watermelon

Complaint: Hail, dry wind, drought

Onion / Garlic head Sons:

Cabbage head Hail, dry wind, drought

Beets / carrots

Greens

Apricot tree Early flowering frostbite, excess moisture in the air, spore diseases, larvae

Apple tree Dry air, larvae

Pear Drought, dry air, bacterial burns, larvae

Peach Humidity, larvae, frostbite of early flowers

Grapes: Frostbite, hail, excess air humidity, sports diseases

Acid Winter frost and hail

Cherry

Plum Drought, larvae

Walnut Winter frost and hail

Strawberry Drought, dry air, ticks

Note: Winter frost and hail

Raspberry tree

Beans, peas Frostbite, drought

According to Table 2, if 6,217,032 cents of wheat were produced in Armenia in 2016, in 2018 the yield was only 3,376,502 cents, which was almost half of the 2016 figure. In 2018, in terms of vegetables, compared to 2017, there has been a decline again. In 2017, the vegetable index was 8,610,022 cents, and in 2018, it was 6,281,591 cents.

Table 2. Gross crop of basic agricultural crops by regions of RA and Yerevan cityin the period of 2016-2018 [21_

Cereals and grains Potatoes Vegetables

2016 2017 2018 2016 2017 2018 2016 2017 2018

1 2 3 4 5 6 7 8 9 10

Yerevan city 4 600 150 - 19 016 4 513 4 011 64 310 15 050 6 430

Aragatsotn 930 330 334 437 389 725 412 500 300 216 192 248 366 538 168 288 105 770

Ararat 342 625 177 941 123 978 302 682 216 879 163 308 3 118982 2 229 981 2 008 966

Armavir 257 776 206 494 150 550 545 167 561 993 441 548 4216115 4 480 275 2 914 322

Gegharkunik 1 061106 457 590 519 889 3 323111 2050 108 1 689083 587 301 367 297 352 028

Lori 478 747 337 618 362 938 742 677 736 799 524 292 335 777 277 195 180 927

Kotayk 365 837 261 874 279 117 174 244 207 034 132 348 220 788 224 119 186 672

Shirak 1 574629 775 770 1 085710 1179974 933 428 696 224 566 147 490 532 314 291

Syunik 745 390 306 827 314 434 337 515 282 284 189 856 182 181 156 774 96 073

Vayots_Dzor 121 919 34 384 44 106 62 250 44 717 18 531 135 918 114 232 43 993

Tavush 334 073 131 628 106 055 221 882 136 227 99 052 117 488 86 279 72 119

Total: 6217032 3 024713 3 376502 7321018 5 474198 4 150501 9 911545 8 610 022 6 281 591

Vegetable garden Fruits and berries Grapes

2016 2017 2018 2016 2017 2018 2016 2017 2018

Yerevan city 13 500 6 688 3 500 40 000 61 676 41 412 35 000 6 173 3 100

Aragatsotn 72 350 64 555 14 085 475 527 726 712 887 715 51 047 79 994 74 451

Ararat 783 831 573 849 475 973 746 624 1 054 268 928 236 759 342 951 696 703 102

Armavir 1 455769 1 490 384 761 802 560 460 805 392 919 109 836 836 903 076 853 748

Gegharkunik - - - 112 513 133 252 118 582 - - -

Continuation of table 2.

1 2 3 4 5 6 7 8 9 10

Lori 1 590 621 986 15 795 79 199 64 035 1 313 3 237 1 460

Kotayk - - - 116 917 375 191 229 439 2 954 8 175 2 261

Shirak - 200 806 80 950 59 871 50 985 - - -

Syunik 70 - 4 121 067 121 342 58 869 9 244 8 475 4 834

Vayots Dzor 9 820 7 384 3150 49 755 81 001 43 664 19 777 40 652 54 558

Tavush 24 520 14 387 7816 106 412 118 219 92 173 72 005 98 058 99 167

Total: 2 361 450 2 158 068 1268122 2 426020 3 616 123 3 434219 1 787518 2 099536 1 796681

In ore er to promote the proc uction of grain, those who cultivated uncultivated lands in the country

should be given privileges. In 2018, about 70,000 tons of fruits and vegetables were procured by fruit and vegetable processing companies, of which 45,000 tons were vegetables. In the same period last year, 61,000 tons of fruits and vegetables were procured. 110.9 tons of grapes were procured by grape processing companies this year, compared to 109.8 tons of grapes in the same period last year.

Thus, it was proposed to calculate the amount of damage expected for each crop and provided it to insurance companies with the expectation that they will receive a product in the future. This could be achieved by performing only 5 types of calculations. Obviosly, the main suggestion is based on the calculating the quantity of the given crop, the amount of damage and their percentage for several years. As a result, we would get interest rates, the average arithmetic value of which would show the expected damage in the coming year. We could not cite the example of this calculation, as we must had statistical data for a particular crop in terms of yield and damage.

Conclusions. Summing up the work, we can conclude that in 2015-2018, both damage and increase in indicators were registered in the RA agriculture. The agricultural insurance system in Armenia is still in its infancy, and the institutes should create appropriate products and services that will improve the agricultural sector in Armenia, facilitate the activities of farmers, and create opportunities for growth and development. As a result, the villager, in turn, will try to work harder, which will benefit both the villager and the Republic of Armenia.

For this purpose, it was suggested to implement the experience of Belarus, to create and operate agricultural insurance products in Armenia, as a result of which we will achieve the above-mentioned goals. In particular, we present the product offered by us, which is intended for fruit-berry and grape insurance, with steps:

1. Calculate the amount of the expected harvest, which we got by adding the damage and the harvest results registered at the end of the year, expressed in drams.

2. Determine from the received number what part of the damage was that percentage, expressed as a percentage, and calculate the annual index in this way.

3. Determine the average of the percentages expressed for each year, adding these numbers and dividing the result by the number, after which we got the percentage expressed in percentages.

4. We would calculate this percentage from the indicator of the expenditure made by the villager, expressed in drams, and we wouldunderstand the amount of risk.

5. The insurance companies, realizing the amount of the risky part of the expenses incurred by the villager, expressed as a percentage, must calculate the insurance premium for the entire expense. In other words, the insurance company had to reimburse the amount of the entire cost incurred by the farmer, but they didn't consider the entire amount risky, almost considered the fixed amount of the cost as risky.

REFERENCES

1. Avetisyan S., «Ways to implement the agricultural Risk Insurance System in the Republic of Armenia», Yerevan, «Economist» Publishing House, 2017, p. 13. (translated from Armenian)

2. Agriculture, forestry and fishing, Retrieved from: https://www.armstat.am/file/article/sv_12_17a_122.pdf (translated from Armenian)

3. Improvement of living conditions through rural biodiversity protection and use in rural communities of Armenia, "Climate of the Republic of Armenia", Yerevan 2016, pp. 14-21 (translated from Armenian)

4. Statistical Committee of Armenia, Agriculture, p. 323. Retrieved from: https://www.armstat.am/file/doc/99516793.pdf_(translated from Armenian)

5. Hydro-meteorological conditions in July 2019, Yerevan 2019, pp. 136-137. Retrieved from: http://www.mes.am/files/docs/3349.pdf(translated from Armenian)

6. Сельскохозяйственные риски (in Russian) Retrieved from: http://www.risk24.ru/selskoxozriski.htmttp://belasin.by/news.aspx?id=2200&AspxAutoDetectCookieSupport=1

7. Retrieved from: https://agroinsurance.com/ru/5736/