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Agricultural production and farm incomes in Pakistan are frequently affected by natural disasters such as droughts, floods, cyclones, storms, landslides and the earthquakes. Destruction to agriculture is often combined by the outbreak of epidemics and man-made disasters such as fire, sale of unauthentic seeds, fertilizers and pesticides, etc.
Farmers across the country had suffered losses of billions of rupees due to floods of 2010 and rains of 2011. Agricultural insurance is one of the most important method by which farmers can steadily increase farm income and investment and guard against fatal consequences of losses due to natural calamities or low market prices. Crop insurance not only braces the farm income but also helps the farmers to start production activity after a worst agricultural year. It helps farmers make more investments in agriculture.
Crop insurance was introduced in all liberal countries including the US, Germany and India. It is the need of the hour that government should immediately launch an aggressive crop insurance policy for small farmers in the country.
Bankers are somewhat unwilling to give crop insurance to rural areas growers and only they are providing agriculture crop insurance loans to small big land owners.
Oxfam-GB and the European Commission, agriculture experts and participants have sincerely urged the government that a public subsidy program should be developed to create incentives for agricultural insurers to expand their services to small farmers.
Experts are of the view that the public support should stress on the development of risk market infrastructure and public goods that would offer low-cost and effective insurance to farmers, and specifically small farmers.
Forming of regulatory framework
The federal government should develop a suitable and forceful legal and regulatory framework to support agriculture insurance. The government along with private banks and insurance companies should sketch a program to educate the small farmers about the procedures to avail different crop insurance products to be launched in future and those existing.
The government should prepare a mechanism for coordination among different existing pilot crop insurance schemes. The successes and failures of these pilots should be assessed and the schemes should be freshened up accordingly.
In countries having a number of risk insurance schemes, government`s interference or its support to agricultural insurance operations has been regarded justifiable and necessary due to market unsuccessful operations.
Such backing has been rendered in the pattern of subsidies on premium to farmers, operational subsidies to private insurers to cover some of the high administrative costs linked with agricultural insurance contract, underwriting and subsidized reinsurance.
The method of treatment also varies from country to country. For example in Canada, Japan and Philippines the insurance schemes are operating under a central government or local government body, while in the United States, Spain and Mexico, they are operated under a relationship between government and private insurance companies with the state taking the role of re-insurer.
In India, the governments permits 50 percent subsidy on premium to small and fragile farmers. Crop insurance is purchased by agricultural producers, including farmers, and others, to protect themselves against either the loss of their crops due to natural calamities , such as hail, drought, cyclone and floods, or the loss of revenue due to declines in the prices of agricultural commodities.
WTO`s regulations also support subsidization of crop insurance premiums by the governments. However, generally the government holds up programs are often financially botheration.
Experts see crop insurance as a powerful tool in promoting and adopting modern techniques in agriculture especially by small farmers. However, despite through exercises crossing about thirty years economic and agricultural experts in Pakistan are still looking for a model crop insurance scheme, while India and Sri Lanka have been insuring crops for decades. India experimentally launched crop insurance in 1979 and officially introduced it in 1985.
Crop loan schemes
By the way the Bank of Punjab and Askari Bank Ltd was already providing crop loan insurance to their borrowers in cooperation with the East-West and United Insurance companies respectively.
This scheme was brought in Punjab in 2004 by the provincial government but it stayed limited to seven to eight districts of central Punjab where the rate of farmers` literacy was the highest and the farmers were far more liberal and enjoyed
Success of crop insurance scheme cannot be achieved in a state of separation; it depends on the reforms and improvements in the whole system. Crop insurance was launched in a meaningful manner from Kharif 2008. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan agreed to enter into an agreement to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks. Earlier the NICL had informed the NBP that its partners, the international reinsurance companies, had given a final notice of quitting support arrangement.
Different companies are providing insurance policies for specific crops in particular areas. Many companies are offering insurance for seasonal crops which only covers for certain season and crops. Preferably it is best to get a crop insurance policy on annual basis which will provide insurance cover for all the crops during a year.
Pakistan Poverty Alleviation Fund (PPAF) has launched the first-ever indexed and hybrid weather micro-insurance products to facilitate and compensate small farmers in Pakistan.
The Ministry of Textile Industry has proposed introduction of ‘crop insurance policy’ with the objective to boost agricultural sector. Farmers taking loans from banks on short-term, their crops were also insured, but those who didn’t take loans were not provided with the same facility.
CIS scheme has been launched through the Bank of Punjab and two insurance companies of the national level but it is hoped that with the passage of time, other banks and insurance companies will also join it. It will compensate the farming community from loss of their crops caused by unfavorable weather conditions and natural calamities.
Under the scheme, if any natural calamities like flood, drought, etc hit a district, it would be declared a ‘disaster area’ and 50-70 percent payment along with relief in agricultural credit and exemption from the provincial taxes would be provided to the farmers.
Crop insurance schemes for Pakistan’s farmers will be able to get life insurance as well as crop insurance under the new agriculture insurance scheme launched by the Bank of Punjab.
Under this scheme farmers with 1-50 acres of land would be compensated 50 to 70 percent of the crop value in the eventuality of crop loss caused by natural calamity while their entire loan would be covered. Moreover, the scheme also include life insurance for one-year with the claim of Rs500,000.
The insurance products have been designed by PPAF, with the support of IFAD through a strategic partnership with SECP. These products have been developed in collaboration with the Meteorological Department and Livestock Research Institute and are based on needs of low income farmers. PPAF has launched these products as a pilot project in collaboration with insurance companies in the districts of Khushab and Chakwal.
Micro insurance plan
Easypaisa Pakistan is planning to launch micro insurance program, covering only calamity-hit crops from next year (middle 2016). The micro insurance would be a pilot project on satellite based information and would cover only natural disaster hit crops. Easypaisa is the first and largest mobile financial service in Pakistan with serving 16 million active subscribers with network of 70,000 Easypaisa shops.
Throughput of the services remained at Rs500 billion approximately 2 percent of the country’s GDP in 2014, while a target of Rs700 billion for 2015. The service is not only facilitating customers as deep social service but also bringing handsome revenue to the government kitty in terms of taxes. It is providing 70,000 direct jobs to retailers, besides 0.2 million indirect jobs.
The service is targeting 50 million mobile accounts in next five years as it has great potential. It is the only industry of the country registering 30 percent growth. Easypaisa has obtained the license for international home remittances along with door step delivery; however due to lack attention it was not utilized fully. It is being planned to review the service from next year.
Easypaisa was launched in 2009 as a joint venture between Telenor Pakistan and Tameer Bank. Only 15 percent of people had access to financial services, while 70 percent plus had mobile phones. Easypaisa’s long term vision is to eradicate poverty and to empower society through financial services.
