At a recent conference on agricultural insurance organised byFicci, representatives of government, non-profit organisations and private enterprises highlighted the challenges of increasing farm insurance cover rapidly in the country, including inadequate infrastructure such as automatic weather stations and data to manage timely payouts.
In an interaction with FE’s Chanpreet Khurana, Basel-based Syngenta Foundation for Sustainable Agriculture executive director Marco Ferroni talks about why the uptake on multi-peril crop insurance has been relatively low, and why weather-indexed insurance may work in the Indian scenario. Excerpts:
What according to Syngenta Foundation are some of the main hurdles in translating potential demand for agricultural insurance in India into actual demand?
The demand for agricultural insurance tends to be low among smallholder farmers because their incomes are low and they typically don?t know very much about insurance. If anything, they distrust insurance. To turn latent demand for agricultural insurance into actual demand, farmers must be trained, trust must be built, and relevant products must be offered at an affordable price.
How does this compare with the international scenario?
The situation is similar everywhere in ?developing? and ?emerging market? countries. The majority of farmers are small, resource-poor operators, strapped for cash and without access to credit on reasonable terms. This necessarily makes them very risk-averse. Investment, farmer adoption of technology and welfare are, therefore, all lower than they could be. Agricultural insurance can afford protection against risks such as severe weather events, thus enabling investment and the intensification of farm operations. But coming up with products that are relevant and work is not straightforward.
Your views on whether crop-based, weather-indexed or hybrid complex products are best suited to farmers seeking agri-insurance in developing countries such as India?
Products have to be affordable and easy to understand and bring to market. General ?multi-peril? crop insurance has rarely worked for small farmers, and is not possible without extensive subsidies. Weather-indexed products are promising because they make it possible to overcome what insurers refer to as ?moral hazard? problems and ?adverse selection?, where only high-risk operators buy insurance. Weather-indexed products are relatively cheap to administer because they do not require farm visits to check out losses: Insurance payouts are triggered by the index. But the products require reliable data from a relatively fine grid of weather stations to keep basis risk low. In addition to current data, one needs reasonably complete series of historical data to be able to price the product right. There are no weather-indexed products without weather data. Investing in these data and modernising weather monitoring, as India is doing, are priorities if one is interested in helping farmers cope with risk.
Tell us about Syngenta Foundation’s Kilimo Salama project in Kenya?
Kilimo Salama (?safe agriculture? in Swahili) is the brand name of an index insurance product now in the market in Kenya on a prototype basis. Instead of crops, the product insures the cost of purchased inputs such as seed, fertilizer and crop protection products. Kilimo Salama has been developed by the Syngenta Foundation for Sustainable Agriculture in partnership with the UAP Insurance Company and Safaricom, a mobile operator. A key feature is that the product is intended to be commercially viable and affordable for farmers without public subsidies. Among other aspects, this is achieved through cost-saving measures and a mobile platform that enables a totally paperless process.
It is possible (to replicate the project in other developing nations), but it won?t happen overnight. Factors underpinning the relative success of Kilimo Salama so far include dedicated marketing and farmer training to build up financial literacy and trust. This takes time.
The lesson that appears to be emerging from Kenya is that when farmers learn to trust insurance, an insurance culture can develop and demand then follows.
Your recommendations for the Indian agri-insurance sector, both public and privately owned enterprises?
Product development in the Indian agri-insurance sector is very advanced. An aspect worth looking into in my view is how the public and the private sector can work together to deepen coverage through commercial options that work for farmers.