In this article we will discuss about:- 1. Introduction to Crop Insurance 2. Need of Crop Insurance 3. Nature 4. Advantages 5. New Scheme 6. Future Scope and Problems.
Introduction to Crop Insurance:
Practically every year in one part of the country or the other, food crops are affected by weather hazards. Even though such natural hazards have been familiar to Indian agriculture; the widespread droughts, floods, fire, windstorms, hails or frosts and diseases of plants in the past have dealt a severe blow to the economy, in spite of various institutional and organizational measures, undertaken during the last 15 years.
Crop yield instability is the normal condition and agriculture continues still to be “a gamble in rains”. The magnitude of risks and the uncertainties to which the farmers, fortunes are exposed, is very large. In fact, good years and bad years, wet weather and drought or floods, cold waves and frost, low yields and bumper crops are to be expected in mixed succession.
The total loss due to natural calamities (like flood, drought and plant diseases) is estimated as high as Rs. 1,000 crores every year. The man behind the plough has to be assured that he will be compensated for such loss in crops. Otherwise, he cannot be drawn into the campaign to increase productivity of land under his plough.
Need of Crop Insurance:
The need for protecting the farmer from natural calamities arises for the following reasons:
(i) In India, Mother Nature has always been moody and temperamental. She is unpredictably generous to one State and disconcertingly bad-tempered to another. This fickleness of weather conditions, in different parts of the country upsets the whole agricultural economy, and makes one part bountiful, while the other starves.
(ii) Besides droughts and floods, locusts, hailstorms, frosts, fires, plagues and plant diseases have always been a serious enemy to agricultural industry by destroying standing crops and thereby reducing the producers’ income.
(iii) Majority of the holdings are small, from which the cultivators get marginal surplus in good years and incur heavy deficits in bad ones.
(iv) Farming is more hazardous than any other form of enterprise. The weather can make all the difference between success and failure. Consequently, many farmers, particularly the small ones, fight shy of adopting new techniques. The fear of loss is so overwhelming that even when convinced of the gain accruing from the application of science and technology, they prefer to go along the beaten track of low productivity. Once freed from fear by crop insurance they can quicken the pace to high productivity.
The Fourth Five Year Plan observed, “Severe distress is caused to the farmers by crop failure resulting from drought, floods and other natural calamities. This risk is likely to get accentuated under conditions of large investments in fertilizers, pesticides, improved seed and other inputs which are proposed to be used on a large scale during the Fourth Plan. One of the important means of alleviating distress arising out of natural calamities could be the organisation of crop insurance”.
Nature of Crop Insurance:
Crop Insurance indemnifies loss or damage to growing crops resulting from a variety of causes such as hail or drought, frost, flood, fire and disease. The farmers pay a premium and protection is given to them on the same basis as in other insurance. When the production from an insured acreage falls below the insured coverage, the farmer is entitled to an indemnity.
Coverage and premium rates are settled on the basis of productivity and susceptibility to risk, of the lands under cultivation in the same area. Besides in all-risk crop insurance, there are three other main types of insurance to cover the risk from fire, hail and flood.
Government of India introduced an experimental Crop Insurance Scheme during rabi 1997-98 season. It covered non-loanee small end marginal farmers growing specified crops in selected districts. The scheme could be implemented only in 14 districts of 5 states. The premium was totally subsidised. The scheme has been discontinued from kharif 1998 season. However, an expanded crop insurance scheme that will cover all farmers and more crops is under active consideration of the Central Government.
Crop Insurance in Foreign Countries:
The practice of insuring crops against a combination of hazards is in vogue in different parts of the world. Comprehensive insurance against damage to growing crops is available in USSR, Ceylon, USA, Japan etc.
One of the most extensive programmes of crop insurance was begun by the Soviet Union before World War II. In addition to a specific risk insurance extended to many crops, an all risk insurance was provided for a limited number of crops mainly industrial crops including cotton, tobacco and soya bean. This insurance did not cover low yield resulting from poor germination of seed and exhaustion of soil. With a few exceptions, quantitative losses only and not impairment of quality, are insurable in the USSR.
Rural fire insurance has been introduced in USA and, to a lesser extent, in the countries of continental Europe. Hail insurance for growing crops originated in Germany and Scotland in the second half of the 18th century and later spread to most of the countries in Europe and to America. The first known attempt to provide insurance against flood was made in Austria in 1846. The all-risk crop insurance aims at protecting farmers against the vagaries of weather like drought, excessive moisture, storm, hail, frost, flood, earthquake and landside, and against plant and animal diseases.
In the United States, the Federal Crop insurance Act, 1938 provided for the creation of a Corporation under the Department of Agriculture with a capital reserve of $ 2,00,00,000. The administration and management of the Corporation rest on a Board of Directors, consisting of five members drawn from the Government departments and private sector. Field administration and supervision are delegated to State and Country Committees of the Agricultural Adjustment Agency.
In Japan the all-risk crop insurance programme provides for a subsidy on premium. Recently, it has risen about 75 per cent. The intention of the Government in subsidising the crop insurance programme is to encourage the farmers to keep some marginal lands under cultivation and maintain a rate of premium which will be within the paying capacity of even the poor farmers. The subsidy in effect, means that all the tax payers in the country share the burden of risk inherent in crop production which primarily affects the cultivators.
The idea of crop insurance in India was mooted about three decades ago, when a Sub-Committee on “Land Policy, Agriculture Labour and Insurance”, inter alia, had recommended a national scheme of cattle and crop insurance with agriculturist, the village or the district and the nation collectively contributing to its successful operation.
The first experiment in crop insurance was attempted in M.P., in 1943 in Dawas Junior with a view to provide benefits to the farmer in case of crop failures, if he had paid premium which was based on the actual land revenue assessment. The scheme was compulsory and administered by a Corporation.
In 1946, a “Crop Insurance Scheme” was proposed by Dr. Narayanswami Naidu, for Madras to help stabilize farm incomes—in respect of rice and other major cereals.
He suggested that:
(i) A crop insurance premium of one anna per acre of land under cereal crop may be collected with land revenue in all the districts except in dry areas susceptible to famine where a higher rate of premium may be charged;
(ii) The scheme should be on cash basis;
(iii) The protection should be given thus; complete failure of crop may be compensated with the value of eight anna crop (or less may be covered upto 50 per cent of the crop) where only less than four-anna crop has been harvested, the yield should be brought upto the level of eight anna crop.
The co-operative Planning Committee, 1946, also recommended that “experimental scheme of crop and cattle insurance should be organised under State initiative”.
Later on, the preparatory Asian Regional Conference (1947) held in Delhi recommended that “with a view to affording a large measure of income security to cultivators, governments should consider the possibility of organising crop and cattle insurance schemes, either for the country as a whole or for those parts in which it may be possible to take immediate action”.
The crop concrete step towards introduction of the scheme was taken by the Government in 1948, when a special officer Shri G.S. Priolker was appointed to investigate a systematic and scientific basis for formulating an experimental pilot scheme. Dr. Priolker in his Report, 1949, recommended a pilot scheme covering four crops (rice, wheat, cotton and sugarcane).
Madras (rice and cotton), Bombay (cotton), M.P. (cotton, wheat and rice) and U.P. (wheat, rice and sugarcane) were suggested for experimentation. The financial responsibility of the State Governments was to the extent of paying- (a) entire expenses of administration, (b) direct subsidy, and, (c) operating deficits.
Shri Priolker recommended that:
(i) The scheme should be compulsory with government in over-all charge and it should subsidise it;
(ii) The procedure to be adopted in determining premium and insurance coverage was to be dealt with after taking into account the average yields, soil factors, availability and type of irrigation facilities, variety of crops etc.;
(iii) The rates of premium were not to exceed 4 per cent of the average yield and were to vary according to the amount of insurance desired.
This scheme was examined by an expert committee, which suggested the introduction of the scheme at 12 centres. In 1952, the four States of Bombay, Uttar Pradesh, Tamil Nadu and Madhya Pradesh were asked whether they would be able to implement the scheme by sharing 50 per cent cost on State level organisation. While Madhya Pradesh was willing to try the scheme if the entire cost were borne by the Centre, the other States were unwilling to undertake it.
The scheme was later examined by the FAO Working Party on Crop and Cattle Insurance meeting at Bangkok in 1956. Experts in insurance and agriculture also considered it suitable for implementation. On account of financial stringencies, however, the Government of India decided to defer the introduction of the Scheme.
Incidentally, it may be mentioned that in 1948-49, almost simultaneously with the Priolker Scheme, Dr. B. Natarajan prepared a scheme of Crop Insurance for the State. He asserted that the scheme could be distant fiscal success, bringing to the treasury a net revenue of Rs. 1 crore per annum. To begin with, the scheme was to be limited to paddy. A suitable agency for the administration of the scheme was also suggested.
The need for crop insurance is well recognised today. A credit linked pilot crop insurance scheme was taken up by three States of West Bengal, Gujarat and Tamil Nadu in 1979. By the end of the Sixth Plan period the scheme was in operation in 12 States and the scheme had benefited 6.2 Lakh farmers covering an area of 6.9 Lakh hectares.
It has been planned to take up comprehensive crop insurance scheme during the Seventh Plan Period beginning from kharif 1985. All crop loans given to the farmers by Cooperative, Commercial and Regional Rural Banks would be covered by the scheme and then would be built-in crop insurance cover in all crop loans as part of service to the farmers. To start with, wheat, paddy millets, pulses and oilseeds would be covered under the scheme.
The rate of subsidy on premium payable by the small and marginal farmers would be 66.66 per cent of equally shared by the Central and State Governments. The scheme would be run with the help of Central Crop Insurance Fund which would be set up and administered by General Insurance Company and State Crop Insurance, fund to be set up by the various State Governments.
Advantages of Crop Insurance:
The advantages of crop insurance are recognised on all hands such as:
(i) It provides protection to farmers against losses caused by crop failure and thereby ensures stability in farm income- increases their credit worthiness from the point of view of institutional credit, and relieves them from the clutches of the moneylenders.
(ii) In high-risk areas, because of crop insurance, cultivators may be induced to cultivate land which otherwise they would not have cultivated. By protecting the economic interest of the farmers against possible risk of loss, it accelerates the adoption of improved agricultural techniques.
(iii) Economic stability of the farmers improves the farming productivity. According to Dr. P.K. Ray, “Insurance gives farmers greater confidence in venturing upon the adoption of new arid improved farming practices and in making greater investment in agriculture for improving crop yields and increasing agricultural production”.
(iv) Crop losses are spread over space and time. Losses suffered by farmers in certain localities are borne by many scattered over wide areas. The burden of loss, therefore, does not fall upon the poor cultivators alone.
(v) It reduces to a great extent, government expenditure relief measures extended to meet the havoc caused by natural calamities.
(vi) It strengthens the position of cooperatives and other credit institutions that finance agriculture to the extent it enables the farmer members to repay their loans in years of crop failure.
(vii) The payment of premium in time encourages a habit of thrift and self-help among the farmers.
Observes Dr. Ray, “The chief merits of insurance as compared to relief and concessions, are that insured farmers in cases of losses can claim indemnities as a matter of right. Second, what is of greater significance, the losses are shared wholly or partly (where the Governmental undertakes to pay of losses) by the farmers themselves”.
Speaking of the many advantages flowing from the crop insurance, an official of the U.S. Federal Crop Insurance Corporation said that it is fundamentally for the purpose of creating catastrophic insurance and is intended to ensure a minimum return to the farmer which enables him to stay in business in case of severe loss……….. The justification for the Government insurance is not alone the need of protection of the individual farmer and his continued income and buying power. This affects vitally labour, industry, trade, banking and the entire community of which the farmer is a part.
In the words of Shri S.F. Patil, “Crop insurance is the Magna Carta of the Indian agriculturists. It will mitigate rural poverty and will change the psychology of the Indian farmers in a radical manner”.
New Scheme of Crop Insurance:
A scheme has now been drawn which envisages compulsory insurance in areas in which it is to be introduced.
The important features of this scheme are:
(i) Crops and areas are to be specified by the State Government over which the scheme is to be implemented on a compulsory basis;
(ii) The area covered will be divided into homogeneous sub-areas and for each sub-area insurance value for each unit (crop plot) will be based on normal yield valued at the average market price of the commodity during the preceding three years;
(iii) The calamities to be covered are drought, flood, hailstorm, cyclone, frost, and locust attack;
(iv) Premiums are to be fixed with due regard to probabilities of damage and will not ordinarily exceed 50 per cent on insurable value;
(v) Indemnity will be paid if the yield falls below 75 per cent of the normal, due to natural calamities, in sub-area and will be two-thirds of the value of the difference between the estimated yield;
(vi) The valuation will be done with reference to coverage of price in the three succeeding years.
(vii) The maximum indemnity per acre will be half the value of the normal payable in case of total crop failure.
(viii) In order to get indemnity against the loss, the farmers will be required to give notice of damage, which will be paid on the basis of loss as assessed by officers appointed under the Scheme; and
(ix) The scheme is intended to become self-sufficient in course of time though initially administrative expenditure of the scheme would have to be met from government funds.
National Agricultural Insurance Scheme:
Comprehensive Crop insurance Scheme was in operation in India since 1985. The scheme was replaced by National Agricultural Insurance Scheme (NAIS) from the Rabi season of 1999-2000. The NAIS is being implemented by General Insurance Corporation on behalf of the Ministry of Agriculture. The main objective of NAIS is to protect the farmers against losses suffered by them due to crop failure on account of natural calamities such as drought, flood, hailstorm, cyclone, fire, pest and diseases.
The scheme is available to all the farmers regardless of their land holdings. It covers almost all the foodgrain crops and some horticultural and commercial crops. The scheme operates on the basis of an area approach. National Agricultural Insurance Scheme is a useful device especially for farmers growing relatively risky crops. Despite state’s support for coverage of National Agricultural Insurance Scheme the progress is slow.
Future Scope and Problems of Crop Insurance:
Although there is much scope for the introduction of agricultural insurance in India, yet a large number of problems stand in its way, such as:
(i) Indian agriculture is beset with uneconomic size of holdings, distinctive tenure condition, uncertain weather conditions, inadequate and costly non-institutional credit facilities; non-availability of inputs and adequate technical knowledge and experience.
(ii) Inadequacy of essential and reliable long period data on crop yields and losses, occurrence of pests and diseases upon which to base an actually sound insurance programme.
(iii) Variety of agricultural practices, which differ widely not only from crop to crop in different regions but also for the same crop even in single region. These affect crop yields and, hence, construction of premium rates creates difficulty and complexity.
(iv) Limited resources at the disposal of the farmers render the levy of premium rates unrealistic.
(v) Ignorance and poverty of the farmers not only makes it difficult for them to understand the real meaning and significance of insurance but also prevents them from paying insurance premium regularly, even if it is a small margin left out of the low income.
(vi) The dearth of sufficiently trained personnel to supervise and execute insurance claims particularly at the field level.
(vii) Complicated land tenure system, incomplete and unreliable records, and absence of proper registration of tillers render it difficult to determine the insurable interests.
In spite of these hurdles, the necessity of crops insurance cannot be over-emphasised. The basic condition is that necessary inputs to be made available to the farmers, and their economic condition should be improved by improving agricultural practices. Insurance protection which spans crops failure gap, may then prove an essential part of a well-rounded agricultural programme designed to provide security to the farmer.
This will need that:
(i) Cheap and safe insurance schemes to be introduced in selects areas;
(ii) The scheme should covers all risks and losses due to natural calamities which are beyond the capacity of the individual farmers.
(iii) The premium rates should be reasonable and vary according to the nature of crop insured and other natural conditions of the area involved;
(iv) The scheme should be a compulsory one; and therefore the areas should be selected with caution.