Apr 14 - 20, 2008

The importance of much talked about "crop insurance" has been recognized by the newly elected setup and one expects the issue gets a center place in the farm economy policy design. Our trade mark national style decrees raising hue and cry on certain issues of national interest in slogan chanting fashion without caring for the required home work. The idea of crop insurance has been at work in this country since the days of Bhuttos albeit in an unorganized manner. India, which had been mulling over the idea since late seventies, came up with its National Crop Insurance Scheme in 1999 after launching a pilot project. The high-crop-loss coverage against a nominal rate of premium is testing the viability of the scheme there. That how we plan to tackle this issue is not known. Moreover, the scheme appears to be a misnomer. What we are planning to implement is simply Crop Credit Insurance and not Crop Insurance. We are basically trying to give protection to the banks and not to the farmers at large as more than 70 per cent of them are non-borrowing lots. This non-borrowing ensues not from their reluctance to borrow but from the denial of the relevant organizations to afford this opportunity to them. Those who will presently benefit from the scheme will be the ones with large land holding who are adept at doing their home work at the right moment and in the right direction. The smaller lot, being illiterate and less connected, will be lost in the rigmarole of the scheme.

Pakistan is assumed to be a predominantly agricultural economy. The economists and the policy makers have been endeavoring hard to shift the focus from an agro based economy to an industrialist economy. They have succeeded in increasing the share of manufacturing sector to the GDP from 12 per cent to 19 per cent during the last 52 years. They have also succeeded in bringing down the share of agriculture sector from 46 per cent to 21 per cent during the same period. This is a travesty of what should have actually been happened. The decrease in one sector should have been matched by the increase in the other allowing for import substitution and lesser dependence on export of food items. The so called shift of focus has resulted in severe scarcity of food items followed by a high level of food prices inflation. The shift of balance has also resulted in lesser credit availability to the agriculture sector due mainly to a narrow borrower base. The 70% non-borrowing farmers have been left unattended leaving the job of proving their eligibility to themselves. They need to be helped out to make them a bona fide agricultural borrower. Without radically broadening the borrower base, we can not expect the scheme to be a real success. The scheme has been operative in Punjab since 2004. The partners to the scheme being the Bank of Punjab, East West Insurance, Adamjee Insurance, Eastern Federal Union Insurance and United Insurance. The good work needs to be expanded through out other provinces as well.

National Insurance Company Limited (NICL) has been a pioneering influence on the partners to the scheme. After reviewing the dormant crop insurance schemes, NICL has recently launched three crop insurance cover schemes namely Agri Loans Insurance (Natural Perils), Agri Loans Insurance (Multi Perils) and Crop Insurance (Selected Farmers). The salient features of the schemes are given in the table to follow.

Schemes & Provisions

Agri Loans Ins. (Natural Perils)

Agri Loans Ins. (Multi Perils)

Crop Insurance (Selected Farmers)


Agri loan borrowers of scheduled banks

Agri loan borrowers of scheduled banks

Selected farmers

Perils covered

Natural perils

Natural perils, Crop related diseases, pest, fire, theft, accidental death of the borrower

Natural perils, Crop related diseases, pest, fire, theft, accidental death of the borrower


All field crops / orchards

All field crops / orchards / livestock

Selected crops

Sum insured

Principal plus mark up

Principal plus mark up

Predetermined, up to a maximum of Rs.2.0 million

Rate of premium

1.25% of sum insured plus levies, per crop

Production loans, 1.5% plus levies, per crop Development loans 1.5% plus levies, per annum Livestock. 2% plus levies per head, per annum

1.5% of sum insured plus levies , per crop


Whole territory of Pakistan, A J & K, Northern Areas

Whole territory of Pakistan, A J & K, Northern Areas

Selected Districts

National Bank of Pakistan (NBP) has been the first to join hands with NICL, albeit after a long deliberation. The other banks should also follow suit without any delay or reservations. Other insurance companies should offer their support to NICL in the capacity of either co-insurers or lead companies.

Besides NICL's pioneering role, the entire banking and insurance sector should come forward to make the scheme a success. Zarai Taraqiati Bank (ZTBL), having easy access to the farmer community should make sure with the cooperation of respective Revenue Boards that each and every farmer gets a pass book to become eligible for bank loans. The premium rate, although on a lower side, when added to the mark up rate is going to make the life of small farmers miserable. The premium should therefore be borne by the banks. After all they have amassed huge wealth during the past four to five years. The insurance companies should gear up to the situation and fast develop their crop loss assessment mechanism.

The newly elected set up should also endeavor to come up with well thought out policies instead of spur-of-the-moment decisions. Its recent decision to increase the wheat support price from Rs.510/- to Rs.625/- is not going to benefit the farmer fraternity at large to the desired degree. The benefit will be hijacked by the middlemen and the farmers with large land holdings. Our farm economy needs to be subsidized as is being done in the United States and western countries, albeit in an equitable manner. We can subsidize our farmers by bringing them all in the crop insurance cover net against a zero cost. We can further subsidize them by allowing loans at a very nominal rate of interest; say 2 to 3 per cent per annum. The recent increase in the wheat support price is reported to have resulted in Rs.4/- per Kg hike in the flour prices for the urban dwellers. This is not a good beginning. Such things are going to create a divide between the poor farmers and the urban middle class which is more dangerous than the general divide between the haves and the have-nots.