Agriculture Bytes | VOL. 9, ISSUE 56, September-October 2009 |

Climate Change: Crop Insurance

The frequency and severity of risks in agriculture particularly in last few decades have increased with climate variability and change. Rising temperatures, erratic rainfall, increase in the severity of droughts, floods and cyclones have caused huge losses in agricultural production and livestock population. The recent Planning Commission Report, titled ‘Risk Management in Agriculture’ has made recommendations to develop response mechanisms for primary (crop failures) and to some extent secondary (livestock deaths) consequences of climate variability. The prime crop insurance scheme in the country is currently the credit-linked National Agricultural Insurance Scheme (NAIS). While it has proven its worth as a crucial risk intervention mechanism, it suffers from several limitations such as guaranteed yields which do not reflect farmer aspirations, low indemnity levels, delays in claim settlement, no coverage for horticultural crops, poor servicing and awareness levels and inadequate loss coverage. On the other hand, large insurance unit sizes, high premium to claims ratios, high costs of distribution and adverse selection are amongst the difficulties articulated by the insurers. A complex set of modifications are recommended to meet these challenges with possible additional financial implications for the government. Few of the modifications include reduction of the insurance unit to the Gram Panchayat level; a longer time yield series be used in fixing guaranteed yield; coverage to prevented sowing and planting in adverse condition be selectively extended; post harvest loss coverage be provided on an ‘individual’ basis; partial on-account settlement of claims be implemented, without waiting for yield data in case of major disasters; individual assessment of losses in the case of localised risks, like hailstorm, landslide etc., be extended to all areas; uniform seasonality discipline (cut off dates for buying insurance) be employed for participation for all farmers; a target of 40 per cent crop insurance penetration by 2012; the extension of perennial coverage of horticultural crops and vegetable crops; reintroduction of seed crop insurance, etc. Livestock related economic activities contribute 20 per cent to the agricultural GDP. Some segments of livestock economy are significantly larger than traditional agricultures, e.g., value of milk output is Rs 1,10,000 crores as compared to paddy which is Rs 78,200 crores. However, penetration of livestock insurance is very low and stands barely at 6.58 per cent of the insurable livestock population. A large number of private insurance companies have been operating in the Indian insurance market since 2000 and have done pioneering work in agricultural insurance chiefly by way of introduction of weather insurance products. However, a tertiary mechanism which goes beyond resource transfer to resource generation, through climate forecasting, climate information generation and dissemination, early warning system, mapping of agricultural losses through remote sensing technology and a pre and post climate change response system need to be put in place on a decentralised basis involving at-risk communities.

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