Annex 27.

Fact Sheet Croatia

1. Introduction
The market failures of agricultural risk sharing instruments in transition economies like Croatia restrict the potential for efficient risk management and consequently generate a highly uncertain business environment. Apart from hail insurance, other forms of agricultural insurance products and hedging instruments are of limited supply. Additionally, risk and low profitability often constrain external funds inflows resulting in fewer investments and deteriorating the farms income stability and competitiveness. Agricultural insurance is a relatively unimportant (or neglected) risk management tool in Croatian agriculture. According to some data, not more then 3% of agricultural land (or of the production on that land) is insured. About 30% of the area is under industrial crops, (oil rape, soy, sugar beet, sunflower and similar) is insured. It is followed by grain (14%). In permanent crops (taking into account only modern types of orchards) and vineyard insurance, coverage is about 10%. Insurance coverage as the ratio between number of insured animals and statistically recorded shows that in the case of cattle and pigs the ratio is about 13% while in the case of poultry it reaches about 23%. According to the Croatian Financial Services Supervisory Agency (HANFA) data average annual gross premium (period 2000-2004) in crop insurance was 51 million kunas. The average damages were 44 million kunas. Gross premium in livestock production was 21 million kunas while average damages were 19.5 million kunas. Together crop and livestock insurance had a share of only 2% (year 2004) in the group property insurance and about 17% in the sub-group other property insurance. Damages caused by natural disasters by and large mostly affect agricultural productions. The following data also advocates for a greater importance and use of agricultural insurance. Average annual damages (losses) in the last two decades caused by metrological and hydrological occurrence like drought, hail, frost, floods and similar were 254 million US$. About 80% of losses were caused directly while indirect losses were caused by atypical events such as forest fires, glides, plant and animal epidemics and some technical and technological accidents. They are also responsible for the death of fifteen people annually on average (Meteorological and Hydrological Service of Croatia). In order of importance the causes of damage were droughts 38%, storms and hail 20%, earthquakes 12%, frost 8%, floods 7%, fires 7%, other 2% and combinations 6% (period 1998-2000, Meteorological and Hydrological Service of Croatia). In order to enhance farmers participation in the insurance programs, the government subsidizes the insurance premium. It started in the year 2003. Government subsidies caused lower levels of public authority like the county and municipality to subsidize premiums for agricultural insurance. Such measures make agricultural insurance more affordable for farmers and influenced higher participation from their side.

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Besides insurance, reports also discuss some issues of existing disaster ad-hoc aid. Aid is rather inefficient and cannot accomplish its main mission - grants in the case of disasters. On the other hand it - supplies reasons that could be used as grounds for loan repayment delays, tax deductibles, lower reference yields that serve as the base for production subventions, prolongation of the state land rent and similar. Disaster ad-hoc aid inefficiency, recently forced policy-makers to make some changes. The whole process is still undergoing. The hail suppression activities exist in Croatia. Such activities and their efficiency are subject to frequent discussion and dissidences. Material and data used in the study came from different sources.

Surveys were used as the primary source of information. Insurance companies were contacted and asked for their data about agricultural insurance and their short and mid-term strategy toward agricultural insurance. As expected, only a few companies have sent some information. Received information is rather their views and perceptions on agricultural insurance with little or no tangible data. Therefore expert advice and estimation has been an important method.
Secondary data are drawn from the Ministry of Agriculture, Forestry and Water Management and Croatian Financial Services Supervisory Agency. Also, statistic databases, publications, reports, web pages were also used. Currency used throughout the Report is Croatian kuna (kunas, HRK). Average exchange rate for the year 2005 was HRK/EUR= 7.400185 (Croatian National Bank).