Agriculture insurance

Agriculture needs to insurance in a country which is agriculturally rich as India. Agriculture remains the dominant sector in a large number of developing countries. It accounts for a major share of the gross national product and is still the primary source of employment. Agricultural products are also an important export item for many countries. Productivity gains in agriculture are necessary for self-sustaining economic development in most developing countries. Despite the importance of agriculture, the various initiatives taken for its development have often failed to deliver full benefits. Low levels of income, low capital-labor ratios and the general precariousness of agricultural production characterize this sector in developing economies. There is often a dichotomy between the urban and rural sectors of the economy, not only in terms of technology but more importantly, in terms of access to services like transportation, medical/educational facilities, credit/insurance services. Agriculture has always been a risky business. Unlike the Industrial sector it is subject to the vagaries of the nature. Uncertainty of crop yield is thus one of the basic risks, which every farmer has to face, more or less, in all the developing countries. In most of these countries the overwhelming majorities of farmers is poor and have extremely limited means and resources and are, therefore, unable to bear the risks of crop failure. It is true that much of the present uncertainty of crop production in these countries could be removed by technical measures - assured irrigation, judicious use of land, crop rotation/mixed cropping and by improvements in marketing and institutional set-up. The co-variability of risks however reduces the efficacy of traditional measures. The modern insurance sector can play a major role here, and considerably strengthen the financial security of farmers. In many countries the state provides aid or relief to the agricultural sector in the event of a natural catastrophe as a matter of Public Policy. In some countries this is done on adios basis while in others there are formal arrangements and even legislation for this purpose. Agricultural Insurance is a more efficient instrument and an effective institutionalized mechanism for dealing with the problem. It helps to streamline the relief efforts and reduces the direct and indirect costs on the national economy

In case of Loaned farmers under Compulsory Component, the Sum Insured would be at least equal to the amount of crop loan sanctioned/advanced, which may extend up to the value of the threshold yield of the insured crop at the option of insured farmer. Where value of the threshold yield is lower than the loan amount per unit area, the higher of the two is the Sum Insured. Multiplying the Notional Threshold Yield (district Ugrian/state level) with the Minimum Support Price (MSP) of the current year arrives at the value of Threshold Yield. Wherever Current year's MSP is not available, MSP of previous year shall be adopted. The crops for which, MSP is not declared, farm gate price established by the marketing department / board shall be adopted. Further, in case of Loaned farmers, the Insurance Charges payable by the farmers shall be financed by loan disbursing office of the Bank, and will be treated as additional component to the Scale of Finance for the purpose of obtaining loan. For farmers covered on voluntary basis the sum-insured is up to the value of Threshold yield of the insured crop. lf the farmer so desire he may be provided with higher level of risk coverage. Sum insured up to 100% of throes hold/average yield of notified area with normal premium subsidy but sum insured above 100% and up to 150% of the value of average yield without premium subsidy. Before the start of each crop season, insurance companies shall work out actuarial premium as well as net premium rates (premium rates actually payable by farmers after premium subsidy) for each notified crop through standard actuarial methodology approved by the Govt. of India. Premium structure would be worked out with a discount provision on the premium in respect of a unit area where all farmers have adopted better water conservation and sustainable farming practices for better risk mitigation. Of the total Premium, only a part shall be payable by the insured cultivator as explained in the preceding table and the balance shall be borne by the Central Government and State Government on 50:50 basis and paid up-front to insurers as Premium Subsidy.