How long will we continue to have a primitive form of crop insurance?

My daughter, studying in the US, recently shifted to a new flat in the suburbs of Los Angeles.  I went to Google maps on the internet, and after a few minutes of tracking, was able to locate her house on the map. The picture of the building where the flat was located was in front of me. Looking at the locality, the surroundings and the landscape around, I became confident that she’s living in a decent and safe locality.

Why I am narrating this is to explain how technology has made it possible for us to even spot a house thousands of miles away and also counts the number of trees. Forest cover is being determined by satellite images. Crop estimates are being prepared using remote sensing data. But when it comes to assessing crop losses that farmers suffer from weather anomalies, the insurance companies backtrack. If a farmer’s crop is completely destroyed, the crop damage that the insurance companies offer to compensate him is the average loss in 70 per cent of the block.

This primitive insurance system prevails at a time when unseasonal rains, hailstorm and strong winds have caused extensive damage to the standing crops. With crop damage extending to over 11 million hectares in 14 States, crop losses have already dealt a severe blow to farmers. With rains continuing to dampen farmer hopes, and with nearly 200 farmers committing suicide, many of them dying from shock, an effective crop insurance scheme could have minimized the blow.

If your car gets a hit, you can claim the damage. If your house is burnt down the insurance company will pay compensation irrespective of whether other houses in the colonies suffered or not. Why then an average in a block is taken as a measure for crop losses suffered by a farmer in a village is something I have never been able to understand. It is simply the failure of the government to make it obligatory for the insurance companies to provide per unit coverage to farmers that has left the farming community hapless. Insurance companies will obviously resist, but the government must ensure that they are made to deliver. Crop loss assessment must shift per unit basis, insuring each and every farmer.

But for nearly three decades, I have watched with dismay the reluctance on the part of successive governments to provide for any meaningful crop insurance plan for farmers. The comprehensive crop insurance scheme that the Ministry of Agriculture has now prepared – called, the National Crop Income Insurance Scheme (NCIIS) – and expected to be soon piloted in 50 districts across the country, is unlikely to provide any succor to the beleaguered farming community facing crop losses. What shocks me is that even after three decades, all that the government has managed to come up with is a shoddy proposal, a rehash of an earlier failed Farm Income Insurance Scheme introduced in 2003, and withdrawn in 2004.

As the name suggests, the scheme is designed to provide insurance against fall in prices as well as drop in crop yields. In case of yield losses from natural calamities, a disease attack or otherwise, it still follows the primitive methodology of basing the compensation on 70 per cent of the average loss in a district. This only shows that the planners haven’t learnt anything from the technological improvements.  The NCIIS draft does illustrate 4 probable scenarios and the compensation that a farmer will get in each of these. For instance, if a farmer’s yield is 4 tonnes/hect and indemnity being 70 per cent, the compensation would be worked out based on 2.8 tonnes only.

The guaranteed income that the farmers will get under the new insurance scheme would be to a maximum of 20 per cent of the price fall (against the Minimum Support Price) that a farmer suffers. It is based on a threshold yield, the average yield for past 7 years in a district. In other words, if the wheat MSP is Rs 1450 per quintal, and the farmer gets only Rs 900 by selling it openly in the market, the assured price that the farmer will get is Rs 900 plus 20 per cent of the gap between market price and MSP. Against Rs 1450, a farmer under the new insurance scheme can expect a maximum of Rs 1110 per quintal. This is distress price. If a distress price is all that the government assures it will provide to farmers, I think the message is clearly on the wall. Farmers must quit agriculture. 

The only good news on this front that I can share is Madhya Pradesh chief minister’s promise of setting up a State Crop Insurance scheme wherein farmers will be insured on per unit basis, and not on block averages. I hope more and more chief ministers understand the need for a crop insurance that is effective and meaningful. 

Govt lets down farmers yet again. Hindustan Times, Chandigarh.

April 20, 2015. 

Making some sense of crop insurance

Crop damage from unseasonal rains, hailstorm and strong winds has been quite widespread in India, Mar 2015. -- ANI photo

Unseasonal rains, hailstorm and strong winds that appeared in three phases beginning the end of February have already done an extensive damage to the standing crops. With crop damage extending to over 181 lakh hectares in 14 States, crop losses have already dealt a severe blow to farmers. But with more rains expected in the next few days just before the wheat harvesting normally begins, more trouble awaits farmers.

According to preliminary estimates of the Ministry of Agriculture, Uttar Pradesh and Rajasthan have taken the maximum brunt, followed by Haryana, Madhya Pradesh, Maharashtra, Jammu & Kashmir, Punjab and Himachal Pradesh. Crop losses have also been reported from West Bengal, Andhra Pradesh, Telengana and Uttarakhand.

Public memory is very short. While it is being said that the present spell of unseasonal rains is the worst in the last 25 years, the fact is that unseasonal rains accompanied by hailstorm had also done extensive damage to standing crops in 24 lakh hectares in Madhya Pradesh and 18 lakh hectares in Maharashtra a year earlier, in March 2014.

While 43 farmers had committed suicide in the Bundelkhand region of Madhya Pradesh (and adjoining Uttar Pradesh) and another 40 in Marathwada region of Maharashtra last year, the death toll this year from the unseasonal rains in March has exceed 67 in Uttar Pradesh alone. More deaths have been reported from Rajasthan, MP and Maharashtra. But the loss to human lives is no indicator of the severity and extent of the crop damage the country has witnessed. It is the extensive damage to standing wheat, oilseeds, and pulses and in addition the damage to fruits and vegetables from hailstorm that has aggravated the agrarian crisis.   

Although Prime Minister Narendra Modi did assure farmers of immediate help and relief when he spoke to them in his radio programme Mann ki Baat on Mar 22, I am reminded of an insensitive remark made last year by the former Agriculture Minister Sharad Pawar when he said unusual rains and hailstorms are not uncommon and, therefore, appealed to farmers to show courage. But Pawar was quick to assess the damage accruing to sugar mills from a reduced sugarcane harvest even before the expert teams had visited the affected regions and assessed the crop losses.  

What has made the difference this year is that besides the media repeatedly highlighting the extensive damage to standing crops, the NDA is keen to ward off the anti-farmer tag it has earned especially after its failure to provide 50 per cent profit in the minimum support price (MSP) that it had promised before the elections. With the government already under flak for pushing in an anti-farmer land acquisition bill, it swung into action to salvage its popular image of being farmer unfriendly. Aerial surveys were conducted; top ministers travelled to the affected areas; chief ministers were quick to announce a series of measures including deferring interest payments on crop loans, waiver of electricity bills, immediate assessment of crop losses, and came up with promises of a higher compensation package. We will have to wait and watch to know how much of it actually translates for farmers once the weather returns to normal. 

In the past we have seen farmers receiving relief cheques of Rs 8, Rs 10, Rs 215, Rs 1305 and so on. Year after year we have read news reports of how farmers who have seen their crops affected by inclement weather had been poorly compensated by indifferent State governments. After months of waiting, when a farmer gets cheque that is not even worth presenting before a bank, it only shows the contempt and cruelty by which the farming class is treated. It is therefore heartening to see this year a lot more seriousness to help the affected farming families. Already, many States have announced a higher relief than what is spelled out under the provisions of the State Disaster Relief Fund.  

Earlier, I have watched with dismay the reluctance on the part of successive governments to provide for any meaningful crop insurance plan for farmers. While in urban areas, Insurance companies have appropriate plans to provide cover for every individual, house and automobile, for farmers the crop losses are assessed only at the block level. A farmer at best can get compensation for an average crop loss suffered in a block even if his own loss in his crop field is several times higher. Furthermore, not many farmers actually know that they have been insured, and not many Insurance companies know what the farmer is cultivating. They just pick up the premium from the banks, and disappear to return later at the time of collecting the next premier. This is primarily the reason why farmers have never been enthused to take to crop insurance.

Insurance companies say that it is practically impossible to ascertain the loss per farm. I don’t agree. This is just an apology to avoid adding on to the operational costs. In an age when it is easy to track the movement of every truck carrying foodgrains, I don’t see why the same technology cannot be used for mapping each and every farm in the country. At a time when remote sensing is being used to count the number of trees, it should not be difficult to measure the crop losses in each and every farm or a cluster of farms to begin with. Therefore I have two suggestions to make crop insurance meaningful:  

* IFFCO-Tokio General Insurance Company has launched a Barish Bima Yojna in collaboration with Karnataka government. It provides crop insurance coverage to a minimum group of 25 farmers having 100 acres of cultivable land. Although insurance amount was awarded on the basis of the amount of rainfall received, there is a need to improve it further to add yield losses suffered by farmers. A little more effort can succeed in turning this into a comprehensive crop risk insurance model for farmers. And subsequently, using the latest technology, it should be possible to come down to calculate the losses that each individual farmer suffers.

* Dhan Foundation in Tamil Nadu has come up with the concept of Micro-Insurance. Borrowed from the Netherlands where Micro-Insurance has worked very well. Let me illustrate. Mutual crop insurance was done for a major pest called red hairy caterpillar. Farmers were advised to take preventive measures, go in for crop rotation, and at the same time the yield loss was compensated. The premium was roughly 30 per cent of the sum assured. Similarly, ground nut was insured against weather fluctuation. A Mutual Insurance Committee is formed among the villagers, which decides on actual premium and also ascertains crop losses. The committee takes care to ensure proper claim settlement, which has often been completed in one month.

Two prerequisites are absolutely necessary. The first is the need to set up rainfall gauges in each and every village. The second is to enhance the budgetary provision for crop insurance from the existing Rs 3,000-crore. Not providing enough financial support for strengthening crop insurance only shows how low it stands in national priority. #

Neither giving farmers an economic price nor taking care of crop losses.

In the midst of the widespread damage to standing crops from unseasonal rains, a National Crop Income Insurance Scheme has been introduced on a pilot basis. What is being perceived as a long-term solution to the prevailing agrarian crisis, and is being pushed as an insurance against weather-related disasters as well as provide an assurance against any income shocks will only end up acerbating the crisis.

The cure being suggested is worse than the disease itself.

For nearly 25 years, I have watched with dismay the reluctance on the part of successive governments to provide for any meaningful crop insurance plan for farmers. While in urban areas, Insurance companies have appropriate plans to provide cover for every individual, house and automobile, for farmers the crop losses are assessed only at the block level. A farmer at best can get compensation for an average crop loss suffered in a block even if his own loss in his crop field is several times higher. This is primarily the reason why farmers have never been enthused to take a crop insurance package.

If your car gets a hit, you can claim the damage. If your house is burnt down, the insurance company will pay a compensation irrespective of whether other houses in the colonies suffered or not. Why then an average in a block or a taluka is taken as a measure for crop losses suffered by a farmer in a village is something I have never been able to understand. It is simply the failure of the government to make it obligatory for the insurance companies to provide per unit coverage to farmers that has left the farming community helpless.

So when I first learnt about a new income and crop insurance scheme being introduced, my curiosity was obvious. This scheme – called the National Crop Income Insurance Scheme (NCIIS) – has been launched on a pilot basis in one district in each of the States. As the name suggests, the scheme is designed to provide income security as well as insurance against crop losses suffered from any eventuality. Killing two birds with one stone, isn’t it?

Let’s first look at the insurance against price fluctuation. The scheme is basically an alternative to the Minimum Support Price (MSP) system that prevails, and which the government wants to dismantle. The Economic Survey 2015 makes it explicitly clear that already fruits and vegetables have been withdrawn from the APMC mandis and the next target is to take out wheat and rice from its purview. Fixation of MSP for 24 crops will continue under the new system but the government will withdraw from procurement. For the time being, this scheme is for those areas that don’t get the benefit of MSP.

The guaranteed income at a time of fluctuating prices that the farmers will get under the new insurance scheme would be to a maximum of 20 per cent of the loss a farmer suffers. To work out the guaranteed yield or a threshold yield, the average yield for past 7 years in a district is calculated. In other words, if the wheat MSP is Rs 1450 per quintal, and the farmer gets only Rs 900 by selling it openly in the market, the assured price that the farmer will get is Rs 900 plus 20% of the gap between market price and MSP. Against Rs 1450, a farmer under the new insurance scheme can expect a maximum of Rs 1110 per quintal. The price that a farmer gets would be still lower considering the way a threshold price is calculated.

In case of yield losses from natural calamities, compensation would be based on 70 per cent of the average loss in a district. If a farmer’s yield is 4 tonnes/hectare, and indemnity being 70 per cent, the compensation would be worked out based on 2.8 tonnes only. If the MSP for wheat is Rs 1450, and the average yield is calculated as 2.8 tonnes/hectare, the compensation that a farmer gets will automatically be less than his actual loss. In other words, crop insurance too does not meet farmers per unit losses. If after 25 years of indecision, this is what the government has come up with, only gods can save farmers. #

Source: New Crop Income Insurance Scheme -- a cure worse than the disease.

ABPLive. Mar 31, 2015. goo.gl/stlcaX

Unseasonal rains: Let's insure each acre of farmers crop

Unseasonal rains and strong winds that lashed the entire north-western region have done immense damage to the standing crops. Ministry of Agriculture has estimated damage to standing crops in 50 lakh hectares in Punjab, Haryana, Uttar Pradesh, Jammu & Kashmir, Himachal Pradesh, Madhya Pradesh, Rajasthan and Maharashtra. Coming after an extended season of dry monsoon, the freak weather has played havoc with farm fortunes.

Reports of at least seven farmers committing suicide, and one farmer who suffered an instant heart attack on seeing his flattened wheat crop, have come from Uttar Pradesh.

In Punjab, Haryana and as far as Vidharbha in Maharashtra the situation is no better. Especially coming at a time when the standing crops gave an impression that the rabi season would perhaps offset the losses suffered on account of a shortfall in monsoon rains in the kharif season. According to the Directorate of Wheat Research in Karnal about 20 per cent of the standing wheat cop and 30 per cent of mustard crop has been damaged. That is why agriculture continues to be unpredictable and a highly risky proposition.

Punjab Chief Minister Prakash Singh Badal has sought a relief of Rs 700-crore for the damaged crop in at least 7 lakh hectares. He has also demanded the upper cap on the compensation limit of Rs 3,600 per acre to be increased to Rs 10,000 per acre. “Current amount does not even justify the money spent by a farmer on the seeds he sows per acre, let alone other input costs,” he wrote to the Minister of Agriculture. This certainly is an unfair compensation regime given the soaring input prices over the years.

And that brings me to an issue that continues to be discussed for over three decades now, but for all practical purposes remains a non-starter. I am talking of the need for effective crop insurance scheme for farmers. Successive governments have failed to work out a crop insurance model for farmers, especially small and marginal farmers who cannot pay the monthly premium, to save them from the tyranny of a hostile weather. I have always wondered why the governments have failed over the years to implement a fool-proof system of insuring every acre of cultivable land. The answer is simple: it lacks political will to bailout farmers in distress.

As far as I know there are a number of schemes introduced on crop insurance, including for weather-related crop insurance. But all these suffer from the basic fault – the insurance is done on an area basis where the average of a village or a taluka is what determines the losses suffered. If 10 acres of a village is lashed by hail and the crop is completely damaged, the farmer will still not be able to get adequately compensated for his loss. The reason is simple: the average of the village does not reflect the severe damage few farmers were inflicted with.

The insurance schemes have been prepared keeping drought in mind. But crop weather insurance goes beyond drought, and farmers need to be adequately covered to offset any as well as all damage.

This is the reason why Punjab has rejected the draft crop insurance scheme that the Ministry of Agriculture has come up with. The latest draft suggests an indemnity of 70 per cent for the sake of insurance compensation. Considering that the natural disasters do not operate on the basis of a village, and there are times when one portion of a village lands gets affected while the rest remains undamaged, the new insurance policy will be no different than what was existing all these years. Moreover, a premium of 10 per cent of the total crop value is too high. It needs to be replaced with a fixed premium on per acre basis depending on the agri-ecological regions the farm is located. For instance, the premium will be different for rainfed areas and the irrigated areas. . 

I have never understood why every farmer cannot be insured individually. At a time when technology is being used to determine and evaluate crop sowing and crop harvest, why can't the same technology be used for measuring the losses each farm household suffers? After all, if you are living in a city and your house catches fire, the insurance company is not going to determine the loss based on the average of the colony. It is always the individual loss that is insured for, and not an average of the colony or ward in a municipality.

Insurance companies have been reluctant to do so for the simple reason that it is too much work. They don't want to add on to their operational costs. And knowing that farmers are unorganised and are nowhere on the economic radar screen of the country, they have so far managed to stay out. This is grossly unfair. If only the government had made it obligatory for the private insurance company to at least devote 40 per cent of their turnover to agriculture, ensuring that the policy is farmer-centric, many farmers who took to the suicide route could have survived.

I have a suggestion. Since Narendra Modi's government has opened up for 49 per cent FDI in insurance why not make it mandatory for those companies entering the insurance sector in India to provide at least 40 per cent coverage to the farming sector on a household basis. Unless the government demonstrate that it means business and makes it mandatory for the insurance companies to work out an insurance plan for each farmer I don't think any foreign company would be interested in going rural. But if they are keen to have a chunk of the vast Indian market, it is also time to make the foreign companies deliver on the social needs of the country. There is no need to allow them into India unless they commit to provide crop insurance to farmers. They will initially hesitate and blackmail, but that has been the usual strategy.

What use is FDI in insurance if it fails to reach out to the largest section of India’s population – 600 million people engaged in farming? #