For those considering importing produce from Vietnam or investing in farming there, the question 'what happens to farmers when climate risks or pests and diseases strike?' is a pressing one.
Typhoons, floods, droughts, pests and diseases: Vietnam's farmers battle these risks every year. In recent years, however, government-led insurance schemes and private and micro-insurance have developed rapidly, widening the options for risk management.
This article explains how the three pillars of Vietnam's agricultural insurance (government-subsidized insurance, private insurance, and micro-insurance) work, their current state, and the points that those in agriculture and food importers should grasp.
The reality of the risks Vietnamese agriculture faces
Vietnam is one of Southeast Asia's leading agricultural countries, exporting diverse produce such as rice, coffee, Cashew nuts and shrimp, and other diverse produce. At the same time, it is a country that is very vulnerable geographically and climatically.
According to data from Vietnam's Ministry of Agriculture and Rural Development (MARD), an average of about 20 tropical cyclones approach or make landfall on Vietnam's coast each year. In the south, chronic drought and saltwater intrusion are problems, while in the north, cold-weather damage and floods occur frequently.
It is not unusual for agricultural damage to reach several hundred billion dong (on the order of billions of yen) in a year. Because many farmers run small operations, a single major loss strikes their livelihoods directly.
Against this backdrop, agricultural insurance has become a central theme of Vietnam's rural policy.
Government-subsidized agricultural insurance: the framework of Decree 58
The Vietnamese government launched an agricultural-insurance pilot program in 2011 and has developed the system since. Important as the current governing law is Decree No. 58 (Decree 58/2018/ND-CP) of organic jasmine rice.
Under this decree, farmers who meet certain conditions receive a portion of their insurance premiums subsidized by the state. The subsidy rate varies by the farmer's poverty category and region.
| Farmer category | Premium subsidy rate |
|---|---|
| Poor farmers | 90% |
| Near-poor farmers | 80% |
| General farmers (policy-target areas) | 60% |
| General farmers (other areas) | 20% |
The covered produce has been expanded in stages, with rice, livestock, and farmed aquatic products the main targets. The implementing bodies include insurers such as Bao Viet and insurers partnered with AgriBank.
The coverage is mainly as follows.
Coverage for natural disasters
Losses to crops from natural disasters certified by the meteorological agency, such as typhoons, floods, droughts, and frost damage, are covered. Certification of damage requires an investigation by local authorities, and payment is made when the loss rate exceeds a certain level (usually 30% or more).
Coverage for pests and diseases
Losses from diseases and pests that the government has designated as 'dangerous pests and diseases' are also covered. These include rice false smut and rice stripe disease for rice, and white spot syndrome virus (WSSV) for farmed shrimp.
That said, because of the complexity of the application procedures and the slowness of insurers' assessments, the actual uptake rate remains low.
Private agricultural insurance: risk cover on a commercial basis
Commercial agricultural insurance from private insurers meets needs that government-subsidized insurance alone cannot cover.
Bao Viet, PVI Insurance, PTI (Post and Telecommunication Insurance), and others offer agricultural-insurance products. These are designed for crops outside the scope of government subsidies and for medium- and large-scale farmers and agribusinesses that want broader coverage.
The hallmark of private insurance is flexibility.
- Types of crops: not limited to rice, but diverse, including pepper, coffee, fruit trees, and vegetables
- Coverage period: can be customized to the growth stage
- Coverage amount: can be set in line with market prices
That said, because the premium is paid entirely out of pocket, it can be hard for smallholders to afford. It is increasingly used by export-oriented contract farms and foreign-affiliated agribusinesses.
When a Japanese food importer signs a long-term contract with a local supplier, checking whether the partner holds private agricultural insurance is effective from a risk-management standpoint.
Micro-insurance: a new option for smallholders
In recent years, international organizations, NGOs, and fintech firms have teamed up to roll out 'micro-insurance.'
In projects supported by the World Bank and the Asian Development Bank (ADB), smartphone- and satellite-data-based index insurance is being piloted.
Index insurance is a scheme in which, rather than assessing individual damage, a payout is made automatically when an objective index (such as rainfall, temperature, or a satellite-based vegetation index) crosses a preset threshold.
| Insurance type | Assessment method | Advantages | Disadvantages |
|---|---|---|---|
| Conventional indemnity insurance | Individual on-site assessment | Compensation for actual losses | Procedures are cumbersome and time-consuming |
| index insurance | Objective indices (weather, satellite) | Fast payout and low cost | Basis risk (a gap between actual loss and the index) exists |
In Vietnam, since 2020 several index-insurance pilot projects have been rolled out for rice farmers in the Mekong Delta. The number of participating farmers has reached the tens of thousands, and preparations for the full-scale rollout of the system are advancing.
In Vietnam, where smartphone penetration keeps rising, mobile-based insurance applications and automatic payout systems are taking hold even in rural areas.
Challenges around agricultural insurance and the outlook ahead
Vietnam's agricultural insurance is at a developing stage. The following challenges have been pointed out.
A low uptake rate
The enrollment rate for agricultural insurance remains at only about 10 to 15% even among rice farmers. A major factor is farmers' lack of awareness and understanding of insurance.
Moral hazard and adverse selection
Because many of the farmers who take out insurance are aware that they face high risk, risk management on the insurer's side becomes difficult. Setting appropriate premiums is a challenge.
Delays in assessment and payment
On-site assessment after a natural disaster takes manpower and time. In some cases it takes several months for farmers to receive payment, and there is criticism that it does not translate directly into improved cash flow in emergencies.
On the other hand, the outlook is bright too. The Vietnamese government has set agricultural-insurance uptake targets for 2030 and continues to expand premium subsidies and invest in digitalization. The introduction of damage-assessment systems using satellites and AI is also advancing. As a measure for adapting to climate change, the importance of agricultural insurance will grow further.
Practical points that those in agriculture and importers should know
As a Japanese business involved in Vietnamese agriculture, here are the points worth grasping about agricultural insurance.
Checkpoints when selecting a supplier
- Check whether the partner farm holds government-subsidized or private insurance
- agricultural cooperatives(cooperative): for deals routed through one, check the insurance-enrollment status at the cooperative level
- For export-oriented contract farms, include the presence of quality insurance and yield insurance in your due diligence
A way of thinking about risk diversification
Spreading sourcing across multiple origins and farmers is a practical response to natural-disaster risk. Even within Vietnam, the patterns of climate risk differ among the north, center, and south. Avoiding a concentration of sourcing in one region leads to stable procurement.
The context of Japan-Vietnam agricultural cooperation
There are also cases of Japanese non-life insurers (such as Tokio Marine and Mitsui Sumitomo Insurance) entering Vietnam. Japan-Vietnam collaboration in the agricultural-insurance field is a theme with expected future development.
Summary
Vietnam's agricultural insurance is building a system that covers farmers' risks through three mechanisms: the government-subsidized type, the private type, and micro-insurance (the index type).
The enrollment rate is still low and there are many challenges, but with strong government backing and the use of digital technology, accelerated uptake is expected over the next 5 to 10 years.
When considering importing produce or investing locally, we recommend checking a partner's agricultural-insurance enrollment as part of their risk-management setup.
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