Due to several factors, producers can lose their financial incomes once their production can be affected. Such events like economic crises or bad climate events are the reason behind many losses in a productive year. In Portugal, besides these factors, an imperfect competition between farms that results from a small number of companies operating in the market stimulates the demand for new tools to deal with risk management. In order to answer to this demand some tools like: private mutual funds, self-insurance and incomes insurance were suggested. Private mutual funds consists in a model where two price edges are defined: one below and one above the price that is justly established for the product/commodity and it depends on price volatility giving producers the opportunity to make a fund to invest in good production years and to pay debts in bad production years. Self-insurance its a mechanism that boosts producers to save money in profitable periods of time with the purpose of having monetary capital in not profitable production years, like an individual saving account in the bank. Incomes insurance pretend to be an insurance that prevents producers money incomes when the prices in the market fluctuate due to market globalization and volatility.
It's almost impossible for beef cattle producers to guess the future when we talk about climate events or price volatility in the market. In addition to these factors, in Portugal the small number of beef cattle companies with dimension in the market support an imperfect competition between companies which make these tools so valuable for producers in order to give some financial safety to them. Beef cattle producers can benefit with cooperation between other producers and financial institutions, in order to avoid periods without incomes and liquidity. These insurances make this business more profitable because producers' losses decrease by direct or indirect means.
We can identify main challenges and bottlenecks in the implementation process, such as the fact that these mechanisms aren't regulated by law, because there isn't any legal framework associated to these type of insurances. With regard to private mutual funds the big challenge is the moment when losses occur, demanding a good organization between producers, fund manager and financial institutions. The biggest key success factor is liquidity management because it gives the producer better conditions for production and for farm economic planning. Farms that have liquidity, no matter what happens, are more likely to develop even in bad production years and this factor boosts producers confidence.
Two aspects are quite relevant in this procedure:
1- Find an insurance company that makes this type of insurances.
2- Choose the insurance that is more compatible with your own farm.
Source: A Revista do Agricultor, nº255, 2018