Make agricultural insurance a pillar of risk management

Dual role of agricultural insurance

The dual role of agricultural insurance is becoming increasingly evident in the development of modern, sustainable agriculture. Le Duc Thinh, Director General of the Department of Cooperatives and Rural Development (MAE), noted that the sector is currently facing a wide array of risks, economic, environmental, and social, particularly the escalating impacts of climate change and epidemics.

At a workshop titled “Agricultural Insurance Linked to Risk Management for Agricultural Value Chains and Viet Nam’s Orientation for 2026-2030,” held on April 7, Thinh emphasized that Viet Nam spends roughly 1-3 percent of its GDP each year responding to climate change, disease, and disasters. In 2025 alone, this figure exceeded VND 104 trillion. These risks are not only persistent but are expected to intensify over the long term, underscoring the urgent need for a more systematic and effective risk management approach.

Within the broader strategy to build a modern agricultural sector, risk management and agricultural insurance play a dual role. On one hand, insurance helps mitigate risks in agricultural production and business operations. On the other, it strengthens governance capacity, improves product quality, promotes value chain linkages, and attracts investment into agriculture.

At the same time, Thịnh pointed to significant challenges in developing agricultural insurance products, particularly the lack of data. Beyond weather and climate data, there is a shortage of information on technical and economic input norms and on sector-specific risk data for key production areas. As a result, many insurance products designed by companies fail to fully reflect local realities and needs.

Looking ahead, Thịnh stressed that agricultural insurance must be recognized as a core component of the national agricultural risk management system, implemented on a synchronized foundation of institutions, data, markets, and broad participation across the ecosystem. With active engagement from regulators, businesses, local authorities, cooperatives, and farmers, alongside support from international development partners, agricultural insurance can gradually become a reliable safety net for farmers and a key driver of modern, sustainable agricultural growth in the face of climate change and disease risks.

Closing the agricultural “financial protection gap” through insurance

According to the Department of Cooperatives and Rural Development, agriculture is inherently a high-risk sector, frequently exposed to natural disasters and epidemics. Rather than relying solely on the state budget, the new policy direction prioritizes building insurance mechanisms to distribute risk and stabilize production.

In practice, the state budget currently covers only about 30 percent of disaster-related losses, while the vulnerability of agricultural production remains substantial. This reveals a significant “financial protection gap” in the sector's safeguarding. Without market-based instruments such as insurance, supply chain disruptions are a real possibility.

A notable shift in thinking under the new approach is that agricultural insurance is no longer viewed merely as a post-disaster safety net. Instead, it is becoming a tool to promote more structured and transparent production practices. Participation in insurance schemes will be tied to compliance with technical standards and traceability requirements, thereby improving product quality and meeting international benchmarks. At the same time, insurance creates incentives for greater transparency across value chains, from production to consumption.

Drawing on practical experience and international lessons, Thinh argued that the development of agricultural insurance in the coming period should focus on three major pillars.

First, policy restructuring is needed to expand participation, particularly among key crops and livestock, while increasing the involvement of cooperatives and enterprises within value chains. This includes raising premium subsidies for value chain actors and simplifying administrative procedures to facilitate participation.

Second, risk management mechanisms must be strengthened. In agriculture, prevention is more effective than response, as post-disaster recovery often has a limited impact. This calls for expanding insurance coverage, especially for climate-related risks, promoting index-based insurance to enable automated claims processing, and establishing multi-layered risk-sharing mechanisms. In this framework, the state should play a stronger role in reinsurance in the event of major disasters.

Third, a comprehensive data and financial ecosystem for agricultural insurance must be developed. This involves building integrated, interoperable databases shared across ministries, sectors, and localities; linking insurance with agricultural credit and production value chains; and positioning insurance as a tool to facilitate access to green finance, thereby supporting sustainable development.

Sonja Esche, Head of the Agriculture Division at the German Agency for International Cooperation (GIZ), reaffirmed the organization’s commitment to supporting Vietnam’s transition toward modern, low-emission, and sustainable agriculture. She highlighted the “Agricultural Climate Risk Financing Initiative” (AgriCRF), jointly implemented by GIZ and the Department of Cooperatives and Rural Development, as an important step in addressing climate-related challenges, particularly in terms of risk management and narrowing the agricultural financial protection gap.

Vietnam remains among the 15 countries most affected by extreme weather. As climate risks intensify, strengthening farmers’ resilience has become an urgent priority, while the agricultural sector is also shifting toward a more sustainable, market-oriented model. In this context, effective risk management, especially through agricultural insurance and appropriate financial instruments, is seen as a critical factor in supporting farmers, cooperatives, and businesses alike.

$ 1 = VND 26,113 - Source: Vietcombank.