Initiating crop insurance in flood-hit areas   
 
CROP production is susceptible to catastrophes of nature and the impact of such disasters and other risks are hardly affordable by the farming community.

Growers cannot bear the output losses that, more often than not, lead to debt defaults. The loans need to be secured by crop insurance for which support is usually provided by governments to farmers in the shape subsidies on premium,
underwriting and also reinsurance.

The crop insurance mode varies from country to country and operates under the central or local governments or under a partnership between government and private insurance companies. Usually, the government subsidies premium to small
farmers. Even WTO regulations support subsidy on crop insurance premiums and these are often heavily funded from tax revenue.
 

Recent floods and torrential rains have ruined cotton, sugarcane and other crops on millions of acres and washed away thousands of tons of wheat stocks, particularly in Punjab. Crop insurance is a powerful tool to mitigate losses to growers
caused by natural calamities and helps promote adoption of modern techniques in agriculture mainly by small farmers. However, despite exhaustive exercises of nearly three decades, a model crop insurance scheme is yet to be introduced.

Crop insurance was launched during Kharif 2008 with an agreement between the National Insurance Company Ltd (NICL) and the National Bank to provide cover to farmers against crop losses from natural calamities and exposure to bank loan
risks. According to an estimate, the sum of Rs3-4 billion allocated for insurance coverage was hardly two per cent of the total agricultural loaning facility and only about 100,000 farmers benefited from the scheme.

On the other hand, the Zarae Taraqiati Bank Limited, the largest lender to the agricultural sector, showed reluctance to join the scheme due to some technical flaws.
 

At present, the number of borrowers of agricultural loans is hardly half a million and about 70 per cent of them do not enjoy access to bank loans, discloses the Committee on Rural Finance. The small farmers do not have collaterals to offer as
provincial boards of revenue have not issued them passbooks. And, therefore, they cannot enjoy loan facilities, as documentation is a prerequisite for insurance coverage.

A majority of small farmers would remain outside the insurance umbrella even if at any time, the banks agree to coordinate with insurance companies for a cover. Besides, the fear of risk in doing business with landed gentry also inhibits private
insurance firms to go in a big way for crop insurance. Success of crop insurance depends on reforms and improvements in the whole system and cannot be achieved in isolation.

The government has also approved a subsidy of Rs2 billion and paid Rs77 million to farmers so far to cover their losses in different areas of the country but still a majority of them is unaware of this scheme.

There is a need to create awareness among growers about the National Crop Insurance Scheme and the State Bank should re-evaluate the scheme and take provinces on board to make it sustainable and socially and economically viable. The
bank networks and insurance companies should develop time-bound action plan to introduce their products in the market. The taskforce to launch the crop loan insurance should start its programme from this Rabi season.

The aftermath of the floods and losses incurred by the farmers call for immediate steps to extend insurance cover to the poor farmers against crop damages.