1. Editorial: Insuring the farm

Editorial: Insuring the farm

Getting the crop insurance model right is critical

By: | Published: August 29, 2015 3:24 AM

While it is good that the agriculture ministry is moving a Cabinet note on a new crop insurance scheme, it is important not to repeat the mistakes of the existing insurance models. India offers crop insurance even today, but the schemes haven’t really taken off for a variety of reasons. For one, with the premiums quite high, farmers aren’t too keen on insurance. It doesn’t help that the repayment experience of farmers has been poor since the amounts of insurance payouts are very small—they cover the cost of cultivation, not the farmers’ likely income—and also take far too long. FE columnist Ashok Gulati has been campaigning vigorously for crop insurance and his solution involves a healthy dose of both government subsidies as well as extensive use of technology which has become relatively low-cost today. According to Gulati, if 100 million hectares—that’s around 70% of India’s total farm area—is insured, the central government can get insurance companies to charge a bulk rate of around 5%. Since a farmer in a typical wheat farm in irrigated areas can get 3-3.5 tonnes per hectare, that’s a potential earning of R51,000 per hectare; it will be around half that in unirrigated areas, taking the average to around R38,000. That works out to an annual premium of R19,000 crore—the exact number could be lower, or higher, depending on the crop grown, how much of the amount is being insured, and so on.

What’s important in this model is that the premium be affordable and that payouts be timely. If the central government agrees to defray 70% of the costs, and say another 15% is paid for by the state governments, the farmers’ obligations can be kept to a minimum—wherever crop insurance has worked in the world, the premiums are mostly paid by the government. Gulati suggests a cess on the export of water-guzzling crops like rice and sugar to pay for part of this—a 2% cess on last year’s rice exports of R47,000 crore would alone fetch R940 crore. A cess on sales of farm equipment could also be levied. As for payouts being timely, the Syngenta Foundation has successfully tried out an experiment in Chittorgarh in Rajasthan using a series of weather stations to provide instant information of rainfall in the area. While Syngenta rented weather stations owned by National Collateral Management Services, the costs of setting up an all-India network may not be too much. At around R50,000 per station and another R10,000 for rainfall loggers, the total cost is estimated at around R350 crore and setting it up won’t take more than six months. Extreme weather events are now occurring with greater frequency—after a delayed and erratic monsoon in 2012, there was another delayed and deficient monsoon in 2014 and, after unseasonal rains in March this year hit the crops, there is the possibility of another deficient monsoon this year. Given this, and the sharp fluctuations in global farm prices, India needs a comprehensive crop insurance scheme at the earliest.

  1. No Comments.

Go to Top