Papua New Guinea Agricultural Insurance Pre-Feasibility Study Volume I Main Report May 2013 The World Bank THE WORLD BANK Table of Contents Executive Summary ......................................................................................................... iii Chapter 1: Introduction and Objectives of the Study ................................................. 11 Importance of Agriculture in Papua New Guinea ......................................................... 11 Exposure of Agriculture to Natural and Climatic Hazards ........................................... 11 Government Policy for Agricultural Development ....................................................... 12 Government Request to the World Bank ...................................................................... 13 Scope and Objectives of the Feasibility Study ............................................................. 13 Report Outline ............................................................................................................... 14 Chapter 2: Agricultural Risk Assessment .................................................................... 15 Framework for Agricultural Risk Assessment and Data Requirements ....................... 15 Agricultural Production Systems in Papua New Guinea .............................................. 18 Overview of Natural and Climatic Risk Exposures to Agriculture in Papua New Guinea ........................................................................................................................... 24 Tropical Cyclone Damage in Plantation Crops – Hurricane Guba ............................... 31 Drought Risk to Food Crop Security in PNG ............................................................... 32 Estimated Value of Losses due to Natural and Climatic Perils .................................... 34 Livestock Risk Assessment........................................................................................... 36 Conclusions on Crop and Livestock Risk Assessment ................................................. 39 Chapter 3: Agricultural Insurance Opportunities and Challenges for Papua New Guinea .............................................................................................................................. 40 Role of Agricultural Insurance and Demand and Supply of Agricultural Insurance in Papua New Guinea ........................................................................................................ 40 Types of Agricultural Crop Insurance Products ........................................................... 44 Opportunities for Named-Peril Windstorm in Plantation Crops (Oil Palm, Rubber, Cocoa) ........................................................................................................................... 47 Opportunities for Individual Farmer Micro-level Tropical Cyclone Insurance for Oil Palm, Rubber and Cocoa............................................................................................... 52 Opportunities for National Macro-Level Food Security Crop Weather Index Insurance Programs ....................................................................................................................... 56 Opportunities for Livestock Insurance in PNG ............................................................ 59 Summary of Key Issues and Challenges for Agricultural Insurance Product Development in PNG .................................................................................................... 62 Chapter 4: Institutional, Operational and Financial Considerations for Agricultural Insurance in PNG ............................................................................................................ 64 The Insurance Market in Papua New Guinea ............................................................... 64 International Experience with Agricultural Insurance .................................................. 65 Institutional Framework for Agricultural Insurance in Papua New Guinea ................. 66 Operational Considerations for Papua New Guinea ..................................................... 70 Financial and Reinsurance Considerations ................................................................... 72 Role of Government ...................................................................................................... 72 Chapter 5: Conclusions and Next Steps ........................................................................ 74 Conclusions ................................................................................................................... 74 Next Steps ..................................................................................................................... 76 Bibliography .................................................................................................................... 78 Annex 1. Pacific Catastrophe Risk Assessment and Financing Initiative ................. 81 Annex 2. List of Meteorological Weather Stations in PNG ........................................ 82 Annex 3. PNG: Crop Production Cultivated Area, Production and Yields (Food Crops and Plantation Tree Crops) ................................................................................ 84 Annex 4. PNG: Rainfall Analysis Port Moresby and Momote Weather Stations .... 89 Annex 5. PNG: Tropical Cyclone Analysis ................................................................... 91 Annex 6. PNG: List of Active Volcanoes ...................................................................... 98 Annex 7. PNG: Summary of Losses due to Natural Disasters 2000 to 2012.............. 99 Annex 8. PNG: Summary of Flood Events 1992-2012 ............................................... 101 Annex 9. Named Peril Windstorm (plus allied perils) Growing Tree Crop Policy Wording (Malaysia) ...................................................................................................... 102 Annex 10. Named Peril Windstorm Policy for Rubber Trees (China) .................... 109 Annex 11. International Experience with Macro-Level Weather Index Insurance for Food Security ................................................................................................................. 111 Annex 12. Government Support to Agricultural Insurance: International Experience ..................................................................................................................... 114 Figures Figure 2.1.Topographical Map of Papua New Guinea ..................................................... 19 Figure 2.2. Administrative Regions and Provinces of PNG ............................................. 19 Figure 2.3. Influence of West Pacific Monsoon, South Pacific Convergence Zone and Intertropical Convergence Zone on PNG’s Rainfall and Temperature ............................ 20 Figure 2.4. Comparison of Mean Monthly Rainfall at Port Moresby and Momote Stations ........................................................................................................................................... 21 Figure 2.5. Comparison of Average Monthly Temperatures at Port Moresby and Solang (Madang Island) Weather Stations.................................................................................... 21 Figure 2.6. Value of Production, Top 20 Crop and livestock commodities (2009) .......... 23 Figure 2.7. Port Moresby: Relationship between Annual Rainfall and Strong El Niño and La Niña years[1] ............................................................................................................... 25 Figure 2.8. Momote: Relationship between Annual Rainfall and Strong El Nino and La Nina years[1] ..................................................................................................................... 25 Figure 2.9. Tropical Cyclone Map showing TCs which have affected PNG ................... 26 Figure 2.10. Number of Tropical Cyclones passing within 200 miles of PNG (1976 to 2010/11) ............................................................................................................................ 27 Figure 2.11. PNG. Wind speed map for PNG.................................................................. 28 Figure 2.12. Track of Tropical Cyclone Guba, 11 to 19 November 2007 ........................ 32 Figure 2.13. Comparison of 2007 Actual Monthly rainfall with long-term average, selected weather stations ................................................................................................... 33 Figure 2.14. Average annual loss due to tropical cyclones and earthquakes (ground shaking and tsunami) and its contribution from the three types of assets ........................ 36 Figure 2.15. Papua New Guinea: Estimated Livestock Numbers 1980 to 2010 .............. 38 Figure 3.1. Mechanisms for Informal and Formal Risk Management in Agriculture ...... 41 Figure 3.2. Optional Indemnity Payout Structure for Tropical Storm and Hurricane Index Insurance ........................................................................................................................... 53 Figure 3.3. Malayan insurance Individual Grower Typhoon Index policy payout structure ........................................................................................................................................... 55 Figure 4.1. PNG Non-Life Market Gross Premiums, 2009 and 2006 .............................. 64 Figure 4.2. Illustrative Institutional Framework for Agricultural Insurance in PNG ....... 67 Figure 4.3.