PAKISTAN LAGGING BEHIND IN CROP INSURANCE
Sep 19 - 25, 2011
In the absence of a reliable data regarding agriculture production, losses, product prices and market trends, not only growth of Crop Insurance Scheme (CIS) is being hampered in the country but the banks are offering CIS on restricted level due to risk factors.
Agriculture is the main stay of country's economic development. Its value is over 1.3 trillion rupees and approximately 23 percent of Gross Domestic Product (GDP).
Pakistan's resources consists of 79.61 million hectares out of which 22.17 million hectares is cultivated area. A major portion (82 percent) of the cultivated area is irrigated while the rest is rain-fed. Irrigation sources are both canal as well as ground water resources. Indus river system accounts for 60 percent of the total water supply, rainfall accounts for 15 percent and ground water is only 25 percent. This agro sector is fundamental to overall economic development of Pakistan. It engages about 44 percent of country's total labor force. It supports the prime industrial sector, which is textile sector, which is in turn, contributes about 67 percent to annual exports.
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 share 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 that is rains or drought, locusts or pests, small farmers have no recourse but to approach informal money-lenders or feudal to overcome their difficulties, and which, in turn, multiply their miseries. In these adverse circumstances constant support is required to enable them to re-sow their farms. In countries like Pakistan, crop insurance bears the same relationship to agriculture as life insurance does to the human life. Both provide security for the unseen. Development economists all over the world are unanimous in stating that for rural poverty to decrease in a sustained manner, the agricultural growth rate must be more than 4 percent. Pakistan's performance in this vital sector is much below the norm.
Crop insurance is the only solution that can provide a constant support to poor farmers in the event of a natural catastrophe. Whenever crops are damaged by these disasters, crop insurance will compensate the farmers; and, thus, save them from the pressure of banks for recovery of loans as well as protect them from the torture of landlords. Poor farmers' worry to procure seeds, fertiliser and other inputs to till their farms once again would be over. Crop insurance would act as a permanent prop for poor farmers against recurring natural hazards or any other eventuality.
If we compared with rest of the world, Pakistan is lagging behind like other sectors in Crop Insurance. The banks are giving this scheme to those getting agriculture loans. In this way, banks are securing their loans amount.
A public subsidy programme needs to be developed to create incentives for agricultural insurers to expand their services to small farmers. Public support should focus on the development of risk market infrastructure and public goods that would give agricultural insurers incentives to offer affordable and effective insurance to farmers, particularly small ones.
Agriculturists urged the government to develop an appropriate legal and regulatory framework to support agriculture insurance. They recommended that the insurance law is applicable on agriculture insurance, but enabling of different provisions should be made for the agriculture insurance - for this appropriate regulations should be made under the insurance law.
They observed that the government should devise a mechanism to collect and manage reliable data regarding agriculture production, losses, product prices and market trends. The banks and companies dealing in insurance should have easy access to such data for benefit of farmers.
They also suggested that the government along with private banks and insurance companies should chalk out a programme to educate the small farmers about the procedures to avail different crop insurance products to be launched in the future and those existing and the benefits for ensuring their crops.
They said that the federal and provincial governments should take efforts to engage international re-insurers to encourage the local banks and insurance companies to come forward with different crop insurance schemes focused on small farmers. They opined that the role of the federal and provincial governments in the financing of catastrophic risks in agriculture needs to be clarified saying that if the federal government wishes to offer a subsidy to local insurance companies, it should offer free stop loss reinsurance at an agreed proportional level to the provincial government as well as provincial insurance companies.
The government should devise a mechanism for coordination among different existing pilot crop insurance schemes. The successes and failures of these pilots should be evaluated and the schemes should be refurbished accordingly, they said.
They maintained that there are no clear international precedents for a general agricultural insurance law. They said need of the hour is to launch Crop Insurance Policy for small farmers in the country. They added that State Bank has announced the Crop Insurance Policy but it only exists on papers and has not been launched in real sprit. The bankers were reluctant to give crop insurance to rural areas growers and only they are providing agriculture crop insurance loans to a few big landowners who have sugar mills, not small farmers, they said, adding: "Crop Insurance is a complex issue that is still not resolved."
Moreover, National Bank of Pakistan (NBP) has disbursed agricultural credit of Rs.42 billion which was the highest allocations to the farming community among the financial institutions in the country.
Highlighting the achievements of NBP, a spokesman of the NBP said that the bank under its agri credit scheme during June 2009 to June 2010 has disbursed Rs35.29 billion while during the year June 30, 2010-11 the target of disbursement was Rs.38 billion but not only we achieved the target but additional agricultural credit of Rs3 billion was disbursed to the farming community in the country. "Agricultural loans of more than Rs.7 billion upto June 30, 2011 of same period of previous year," the spokesman added.
The spokesman said that the bank's deposits have also increased to Rs.14 billion besides increasing the National and International branches of the bank to 1200 and installation of a network of 500 Auto Teller Machines (ATM) across the country. During the last financial year the shareholders of the bank were given 75 percent share besides paying them 25 percent profit from the stock market. "The Bank has also actively participated in social sectors specially played its prominent role in providing relief assistance to the floods victims besides promoting the sport sector activities in the country."