A good harvest is not only dependent on the effort and enterprise of the farmer, but crucially on weather, which can bless or blow it. In early 2015 farmers suffered extensive crop damage particularly to the wheat crop in North India because of hailstorms and untimely rain. Elsewhere potato farmers were put to loss because of a price slump caused by excess production and lack of cold storage space. Insurance can protect farmers but has not caught on.
Ever since the insurance industry was thrown open to competition in 2000, the consumers are spoilt for choice. There are 28 general insurance companies and 24 offering life insurance.
The premium collected by life insurance companies has increased from Rs 35,000 crore to Rs 3.14 lakh crore over the 14 years to 2013-14. On the other hand premium of non-life insurers has increased from Rs 10,500 crore to Rs 80,000 crore during the same period.
People insure their cars, homes, valuables, lives, health and also against the possibility of an accident rendering them unable to earn. Insurance companies do not wait for consumers to turn up at their doors; they are aggressive in soliciting business from them even as insurance it the subject matter of solicitation.
But when it comes to insuring risks in one of the riskiest economic activities, that is agriculture, they are quite coy.
“There is a lot of advertising on TV. Car insurance gets advertising. Similarly crop insurance should be advertised so that the message reaches farmers and they remain safe. By the time we sow, we incur 50% of the cost. If in the first stage your crop is destroyed either due to heavy rain or crop disease then the 50% investment is lost,” says Ajit Singh Mann, a farmer as Bheen village in Nawanshahar, Punjab.
Ajit Singh Mann lost much of his potato crop earlier in 2015 to rains at the time of harvesting. He cultivates a variety of crops as a hedging strategy on own and leased land. He is also a contract grower of seed potatoes for PepsiCo which arranged a loan through Karur Vysya Bank, which in turn bought insurance for him.
Mann paid a premium of Rs 15,000 for 10 acres of the potato crop but the bank does not seem to have done what was best for him. He says, “Because of prolonged rains, I lost 50% of the crop. So I told the bank about my loss and told it to get me my claim. They said your insurance was for three months while your crop was in the field for five months. So you are not entitled to compensation.”
In Uttar Pradesh’s Mathura district farmers suffered extensive damage to the wheat crop in April 2015. Agriculture in western Uttar Pradesh is a low risk activity because of assured irrigation. But the weather has been acting up of late. In 2014, the rains failed. In April 2015, misery one again dropped from the skies.
More Pal of Ajnokh village in Mathura says, “Almost one-one kg, 800 grams hail stones fell. It knocked down the crop and the wind that followed flattened it. When it rained subsequently, the gains rotted. Because of that there has been cent percent loss.”
Another farmer Dharamvir Sharma of Unchhagaon village in Mathura says, “On the day it rained hail stones I was in the fields. I had gone to see the wheat crop. My turban was flying. When I saw big hail stones falling as big as half a kg, I had no place to hide. So I took bhusa (hay) and placed it on my head and tried to protect it.
Bucolic scenes like women moving around the villages and children playing mask the risk that pervades the lives of small farmers. Random fluctuations in weather can provide a bumper crop one season and a dismal crop the next. Income can wane or wax with unexpected swings in prices of both farm inputs and output. An intense spell of heat, a hailstorm or harvest time rain can make smallholders sell productive assets like cattle or cause children to be withdrawn from school, in the absence of savings, credit or insurance. Current distress can linger on into the future.
Maya of Ajnokh village in Mathura says, “I am in great difficulty. How do I take care of my children? What do I feed them? I do not have money, nothing.”
Ash Mohammed of Gawana village in Aligarh says, “I used to get 40 maunds but last time I got 10 maunds. I do mazdoori and feed my children.”
A massive 80% of the winter crop in Mathura is wheat and the damage officially was assessed at more than 50%. The Centre relaxed the norms for calamity relief and the state government pitched in with its share. The district administration sent a compensation demand of Rs 471 crore at the enhanced rate of 13,500 per hectare. The relief cheques were welcome but they were as iffy as the weather.
Radhey Shyam of Gazipur village in Mathura says, “I got the cheques payment as compensation for one part of my land holding (which is in three places). I got Rs 9,000 and my entitlement is Rs 18,000. The patwari told me to return it so they could pay me according to my holding. So I returned it.”Devdutt of Konkera village in Mathura says, “What is Rs 12000? I have 3.5 hectares and I got Rs 12,000.”
“In the nearby villages government has given compensation but not here so far. Nor has any govern” says Satyendra Kumar of Ajnokh.
Crop insurance has been on the country’s radar since independence. When Rajendra Prasad was food and agriculture minister, Parliament debated a scheme in 1947 and a study was made that year. A compulsory crop insurance bill was introduced in 1965 but not wanting to pay, states did not support it.
In 1972, General Insurance Corporation started with insuring H-4 cotton and later groundnut, wheat and potato. It was wound up in 1979 because of huge losses. In 1985, countrywide crop insurance was introduced for the first time and it has gone through three mutations with a view to refine them. Currently, two types are on offer: one which compensates for weather-induced yield losses, in slabs below the average yield for that block or village cluster. In another claims are triggered when crop sensitive weather parameters like rainfall, temperature, wind or humidity deviate from the historical standard for that area. Despite thirty years of crop insurance more farmers are left out than covered.
“We did an analysis this time after this crop damage, and the alarming issue that comes to the fore is, in which the press and media in my view should play and important role, the coverage of crop insurance is very less. If you look at the data, in Kharif only 18,811 farmers were covered, while we have four lakh farmers. This needs to be expanded. In Rabi, we find the same around 18,000. We need to widen the coverage,” says Rajesh Kumar, District Collector, Mathura.
Yet India’s has the largest crop insurance scheme in the world, covering 35 million, or 22% of rural households. That still leaves out 78% of them. The subsidy payments by the government are substantial ranging from 60 percent to 75 percent of the premium. The two current insurance programmes have made small profits while the previous two made losses.Even when farmers get compensated, it is not enough to repair their losses.
“Sir my passbook is witness. I can show it to you in two minutes. According to the bank manager, those who took loan for Kharif crop in June, July and August and whose paddy got wasted because of the drought, and this area was declared drought affected, I am saying I have got it. It got Rs 1700 or so,” says Sugad Singh, Village Ajnokh, Mathura.
Mathura District Collector Rajesh Kumar says, “This time we find that farmer’s premium from Mathura was Rs 9.69 crore for kharif and the after the loss the farmer got Rs 9.5 crore. That is almost equivalent or slightly less. Farmer pays 10 to 15% of the share the rest is that to the central government.
Only when the uncertainty is taken out of agricultural insurance can it spread. Those who have insured their crops must get claims, that truly compensate, paid in time when a loss is triggered without exposing insurers to fraud. Technology, weather stations, smart phones, satellite pixels and data analytics will have to be deployed to ensure this.
Insurers have to walk the tightrope between the affordability of poor farmers and high administrative costs arising from numerous small holdings. The costs pile up because insurers must ensure that the crops insured are actually sown over the area declared, They must monitor that policy holders are not neglecting the crops because of the assurance of insurance. Losses, when they occur, have to be estimated based on crop cutting samples, which if not done diligently and honestly, will inflict losses on insurers or policy holders. And because loss estimates are based on averages, some policy holders will not get their losses fully compensated.
Pramod Kumar Aggarwal, insurance modeller, IWMI, says, “Three major issues that farmers face today. One is insurance literacy that they do not understand insurance products so well. The second is product design that it does not pay when it needs to be and that is the administration of the product, often it takes a long time for compensation to be paid.”
The first weather-based insurance contract was written by ICICI Lombard in 2003. Since 2007, it is being offered in public private partnership more. It tries to reduce human intervention with statistical models of crop losses that arise from deviations in weather. Their accuracy depends on the number of weather stations and how well the weather data is correlated to crop yields. India’s Met department has over five thousands weather stations, and private companies are adding more. Ideally, there should be weather station in every village, or a fifty- fold increase in number but that would add tremendously to the cost.
Baisakhi is Punjab’s harvest festival and this year agricultural economist Ashok Gulati wanted a gift from the government for them. In an opinion piece, the well known agricultural policy wonk said this year’s compensation of Rs 13,500 per irrigated hectare of crop damage, covered just half the cost of cultivation, despite being 50 per more. To be meaningful, insurance must be universal, he said. It must cover 100 million of India’s 140 million sown hectares, and the sum assured must be around Rs 30,000 a hectare. He estimated the annual premium at Rs 15,000 crore, which was beyond the means of most farmers, unless government picked up two-thirds of the tab.
“If you want to put it on a sustainable institutional basis you must develop a proper insurance system. But in ag if you want to do that the premium will be very high, which small holders cannot high. Therefore, our tentative answer almost 70% has to be borne by the state,” says Gulati.
This draws inspiration from the United States which in 2014 ended fixed subsides of $4.7 billion a year for its 1.7 million farmers. Instead it offered them a choice of insurance that would protect against production risks or crop losses and another that would guard against market or price risk. Together these could cost $3.5 billion.India also subsidizes insurance to the same extent in percentage terms except that the amount is quite low. But there is no guarantee that generous insurance would not have adverse consequences.
Pramod Kumar Aggarwal adds, “Right now insurance is linked to cost of cultivation. Suppose you want to link it to total income, there is the big risk of moral hazard that what sort of incentives farmers would have.”
Too much comfort would be a disincentive against effort and enterprise. Opinion on the way forward differs. One view is that handouts are much better till such time as insurance can be put on sound foundations. Those who are hands on believe insurance works, despiteflaws, and needs to be refined.
Ramesh Chand says, “I would say that all that money which govt is spending in subsidising insurance premium bearing the losses, I think till we come with some workable mechanism in insurance it is better for govt to strengthen and enhance the compensation mechanism.”
Pramod Kumar Aggarwal says, “What we are proposing is a double trigger product in which part of the payment initially is made in weather based and the final settlement is done based on yield index.”
For the longer term, India needs to make our agriculture as weather proof as possible. This means investing in irrigation, in seeds that are drought tolerant, and issuing timely advisories to farmers. Insurance is not a long term solution, but is a critical device to relive short term distress.
(To know more, watch 'Smart Agriculture' presented by Monsanto, every Saturday & Sunday at 4:30 PM and Monday at 5:30 PM on CNN-IBN and every Saturday & Sunday at 4:30 PM on CNBC-Awaaz.)
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