Apr 14 - 20, 2008

The insurance industry in Pakistan has performed exceptionally well during the last decade in almost all sectors except agriculture which still remains neglected. The institution of crop insurance has not developed despite some initiative taken in the past. It is despite the fact that agriculture is key to Pakistan's economic progress and provides strategic support to country's industrial growth.

How the insurance business has thrived in Pakistan is clear from a report that despite a high growth of 26 percent in net claims due to the turmoil following the assassination of Banazir Bhutto, the non-life insurance sector's profit grew by 102 percent in 2007 to Rs 27.2 billion against 13.4 billion in 2006

In other developing countries in the region like India, Sir Lanka, Indonesia, Thailand, Philippines and even Bangladesh which came into being much later, crop insurance has been fully introduced and now immensely helping these countries in tiding over the increase of poverty of the poor tillers.

In Pakistan late Z.A. Bhutto first tried to introduce the idea of crop insurance in seventies as a part of his land reforms programme but could not succeed. Banazir also announced crop insurance in 1994 budget but could not make any headway. Former Chief Minister Punjab, Pervez Ilahi introduced crop insurance through Bank of Punjab and three private insurance companies. When contacted one of these three insurance companies, East West united insurance, to know its performance in this field during the year 2007, following comments were told:

"Yes we did receive claims from farmers about damages by flood waters," Most of the claims are from farmers on River Indus belt-Mianwali and Khushab. Insurance officials say that there are no surveyors to assess crop losses and East West insurance Company has been taking services of agro-economists, practicing agriculturists and knowledgeable people. It will take time to develop a workable mechanism."

In this pathetic background it was really heartening to learn that the stage is now being set to launch crop insurance in a significant manner from this Kharif by two big state institutions. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan (NBP) are about to enter into an arrangement probably within 2 weeks-to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks.

"Top NBP executives were reluctant from the beginning to co-ordinate with NICL for getting insurance coverage of their production loans," a well-placed source in the insurance business disclosed. But the NBP changed its mind after the Prime Minister Syed Yusuf Raza Gilani in his first speech in National Assembly put crop insurance as one of the key points on new government's agenda.

Earlier the Governor of State Bank of Pakistan, Dr. Shamshad Akhtar, while chairing the mid-term review meeting of Agricultural Credit Advisory Committee (ACAC) urged for the urgent need of crop insurance to help improve the performance of our agricultural sector. In that meeting, Dr. Shamshad Akhtar emphasized "exploring the possibilities of creating an effective crop insurance mechanism to reduce loss risks in the event of natural calamities."

The value of such a mechanism cannot be over emphasized given the fact that our economy still based on agriculture. The biggest component of the industrial sector, textile industry is too dependent on what goes on in the cotton growing farm lands of Punjab and Sindh, and of course, all essential food items and a number of other commodities are provided by agriculture for local needs and, in some instances, for export purposes as well.

The governor of State Bank of Pakistan touched the nerve center of our economy because agriculture is the main stay of our economic development. Its value is over 1.3 trillion rupees and approximately 23 percent of Gross Direct Product (GDP). Pakistan's resources consist of 79.61 million hectares; out of which 22.17 million hectares is cultivated area. This agro sector is fundamental to overall economic development of Pakistan. It supports the prime industrial sector, which is textile sector, which in turn contributes about 67 percent to annual exports. This is the main reason that government has been enhancing agricultural credit every year. It allocated Rs 130 billion for the year 2005-2006 and during 2006-2007 it soared to Rs 168.3 billion. For the current fiscal year State Bank of Pakistan has set a target of Rs 200 billion, showing an increase of Rs 32 billion. Zarai Taraqiati bank has been given a target of Rs 60 billion for disbursement for the year 2007-2008.

This large allocation of agricultural credit, no doubt, will certainly go a long way in improving the plight of tillers as well as increasing the productivity of crops. But, unfortunately, in the absence of crop insurance, the lion's share of the above credit would go to the feudals instead of to the poor farmers. The large portion of agricultural land is owned by feudal lords and millions of farmers for whom the credit incentive is supposed to benefit, are only mere croppers.

Small farmers have no collaterals to offer to banks and thus the main benefit is availed by influential farmers. The result is that all these concessions do not benefit small farmers, who remain at the mercy of these large land owners.

Whenever a natural calamity strikes, whether rains or drought, locusts or pests, small farmers have no recourse but to approach informal money-lenders or feudals to overcome these difficulties, and which, in turn multiply their miseries.

In these adverse circumstances constant support is required to enable them to re-sow their farms and, thus, free themselves from the clutches of feudals as well as informal Sahukaars. This constant support can only be provided to helpless poor peasants only by crop insurance. While crop insurance is a way of life and established norm in developed countries, it is going through experimentation in the developing countries. In South Asia crop insurance was introduced in India in 1979-80 as a pilot scheme. A Comprehensive Crop Scheme was introduced in 1985. The National Crop Insurance Scheme was introduced in 1999.

"A study comparing yields of 15 crops showed that the risk of loss is as high as 40-60 per cent," a website report observes about crop insurance in India. The report says the crop insurance based on premium rate of one to three per cent is not an effective cover and it estimates the premium as high as 30 per cent. That how far these observations are relevant for Pakistan can be best understood by the insurance business people, farmers and the government.