Sep 19 - 25, 20

Crop Insurance Scheme (CIS) is in the interest of farmers, as farming is vulnerable to unpredictability of nature while the impact of natural disasters and other risks to farmers cannot be taken lightly. In case of natural calamities, farmers bear the loss of their produce/crop and face debt defaults. Hence, the interests and investments of farmers can be safeguarded by availing crop insurance scheme. In countries like Pakistan crop insurance scheme is necessary to protect their rights.

In Pakistan, the Crop Insurance Scheme was first launched in Punjab over three years back. Under this scheme farmers with 1-50 acres of land are compensated 50 to 70 percent of the crop value in the eventuality of crop loss caused by natural calamity while their entire loan would be covered. Under the scheme, if any natural calamities like flood, drought, hit a district, it would be declared a 'disaster area' and 50-70-per cent payment along with relief in agricultural credit and exemption from the provincial taxes is provided to especially small farmers. However, currently, the situation is not as good as was expected as multiple factors have scared the farmers community or they are unwilling to avail this option anticipating that they would not get anything positive out of this scheme in case of any damage to their crop.

Lack of awareness on the part of farmers could be one major factor in this regard. Federal and provincial governments need to make efforts for engaging international re-insurers to encourage the local banks and insurance companies to come forward with different crop insurance schemes focused for small farmers.

A mechanism to collect and manage reliable data regarding agriculture production, losses, product prices and market trends could be a viable option to evolve an effective crop insurance scheme.

It has been revealed that banks are providing agriculture crop insurance loans only to selected landowners. This trend is enough to turn the CIS to trash. Success of this scheme hinges on the introduction of a public subsidy programme to create incentives for agricultural insurers to expand their services to small farmers.

Experts told PAGE that both multiple perils and index-based crop insurance are feasible in the country. The government learning from different crop insurance models should facilitate the banks and insurance companies to design products that can sustain in Pakistani context.

Insurance is a risk transfer mechanism where a common pool is established to compensate the effected policy holder. In Pakistan insurance industry was restricted to life insurance and property insurance till 2003. In 2003 private insurance companies introduced crop insurance to protect the growers' financially in natural calamities.

With the announcement of crop insurance scheme National Insurance Company Limited (NICL) started offering Insurance cover to farmers-borrowers of NBP and ZTBL for Kharif crops this year from 7th March 2008. Initially crop insurance scheme is being offered to selected farmers to cover a maximum amount of Rs2 million against natural perils, like diseases, pest infestations, fire, theft and the accidental death of the borrower whom insurance cover was given.

Farmers can claim their losses in the event of drought, rainfalls, floods, fire, theft, viral diseases and other natural disasters. Wheat, Cotton, Sugarcane, Potato, Tobacco, Tomato, Mustard, Banana, Pea, Soybean, Chilies, Maize & Sorghum much affected by viral diseases last year. Now initially wheat, cotton, sugarcane and chickpea are covered under this scheme.

In this crop insurance scheme three products are offered to the grower the first crop insurance product which is being backed up by Swiss Re, an AA security that would cover natural and atmospheric perils and will be available to farmers through loaning bank at 1.25 per cent. The second product is more comprehensive in nature and will cover crops and livestock. Premium rates are between 1.5-1.75 per cent and provide coverage against pests, locusts, and other viral diseases. This scheme is supported by Lloyds syndicate. The third product is much more comprehensive and is being offered from NICL's own resources. Farmers of selected districts of four provinces will be offered this scheme.

Pakistan has initialized this insurance cover in 2008, the neighboring countries has accomplished many milestones as crop insurance in Bangladesh is 0.89 percent India 1.06 percent, China 2.01 percent, France 3.99 percent, Russia 4.09 percent, Italy 5.69 percent, America 9.23 percent (mostly rely on imports) and UK 13.81 percent. All these countries are on initial phase of this insurance cover. In India, the governments allows 50 per cent subsidy in premium to small and marginal farmers.

Experts are of the view that crop insurance is a powerful tool in promoting and adopting modern techniques in agriculture especially by small farmers. However, despite exhaustive exercises, economic and agricultural experts in Pakistan are still looking for a model crop insurance scheme, while India and Sri Lanka have been insuring crops for decades. India experimentally launched crop insurance in 1979 and formally introduced it in 1985.

To mitigate the risk of losses to agricultural borrowers affected by natural calamities and risks of defaults to banks, the State Bank of Pakistan had set up a task force on Crop Loan Insurance Framework in July 2006 comprising all stakeholders for developing operational modalities for crop insurance. Incidentally, the Bank of Punjab and Askari Bank Ltd were already providing crop loan insurance to their borrowers in collaboration with the East-West and United Insurance companies respectively. This scheme was introduced in Punjab in 2004 by the provincial government but it remained confined to seven to eight districts of central Punjab where, according to insurance business sources, the rate of farmers' literacy was the highest and the farmers were far more progressive, and enjoyed the benefits of social networking.

The major banks and insurance companies have developed their crop insurance programme/products based on the framework developed by the task force and some of these products have come to the market. The banks were free to negotiate their terms, conditions and operational modalities including rate of premium, making the scheme/crop insurance mandatory for their borrowers etc. with any insurance company as per bank's policy and applicable rules and regulations.

Documentation is a prerequisite for insurance cover. Insurance people observe that when a big part of urban economy is undocumented how it would be possible to bring agriculture under documentation and provide benefits of insurance business. Thus especially majority of small farmers would remain outside insurance cover if any time the banks agree to coordinate with insurance companies for getting a cover. Apart from this, the fear of risk in doing business with landed gentry also inhibits private insurance companies to go in a big way for crop insurance.