CROP INSURANCE IN INDIA CROP INSURANCE

1.1INTRODUCTION
Agricultural production depends much on uncontrollable weather conditions, which often threatens farmers' livelihoods. Weather risks are especially important for farmers in developing countries where they are still cultivating with conventional methods and less well developed irrigation and drainage systems and equipment. Moreover, seasonality and cyclicality hinder growth of agricultural sectors and make farm households' incomes unstable. Two measures for dealing with such problems in the agricultural sector include 1) Governmental price intervention and the expansion of farming bases, and 2) The establishment of governmentally run agricultural disaster insurance. As stated later, even though government plays a major role in an agricultural insurance program in most developing countries through the subsidization of premiums for insurance, there is still little difference in the basic principles of insurance between developed and undeveloped countries. Generally speaking, conditions for farming in Korea are never very good. Due to monsoons and continental climate Korea often is in the range of typhoons with heavy rains during summertime but with very dry weather in the springtime, which adversely affects paddy-crop farming. A crop insurance program for the purpose of stabilizing farm income fluctuation is discussed, along with the obstacles, in chapter VII. These obstacles have repeatedly blocked the idea of introducing crop insurance programs for the agricultural sector. This paper is the result of my strong desire to establish agricultural insurance programs in the rural area of Korea to
Page 1

CROP INSURANCE IN INDIA

help farmers enjoy more stable lives and contribute to agricultural production. Even though agriculture is decreasing in Korea as a proportion of the national economy, about ten million people still depend on the success of agriculture. Korean agriculture is still producing more then fifteen percent of the national GNP. I will specialize on crop insurance for rice which is Korea's major crop and probably the leading candidate for the introduction of crop insurance programs into Korean agriculture.

1.2 DEFINE
A contract of indemnity by which, for a specified premium, one party promises to compensate another for the financial loss incurred by the destruction of agricultural products from the forces of nature, such as rain, hail, frost, or insect infestation. The federal government, acting through the Federal Crop Insurance Corporation, an agency of the DEPARTMENT OF AGRICULTURE, sponsors such insurance. By improving the economic stability of agriculture, crop insurance promotes the welfare of the nation.

1.3HISTORY OF CROP INSURANCE IN INDIA

A crop insurance scheme linking institutional credit (crop loan based on area approach) was suggested by Prof.Dandekar in 1976 & this scheme called as CCIS1 was implemented from kharif 1985 on all-India level. The objectives of the scheme were: Financial support to farmers in the event of crop failure - as a result of drought, floods. Credit eligibility of farmers after a crop failure for the next crop season.
Page 2

CROP INSURANCE IN INDIA

All natural risks were covered excluding nuclear and war risks. Premium as well as the indemnity rate for notified crop were uniform for all insured farmers irrespective of their actual yield. Indemnities were paid to all insured farmers when average output of a given area fell below the normal output. The CCIS was in operation until Rabi 1999. On June 23,1999 the Prime Minister launched a new crop insurance scheme called Rashtriya Krishi Bima Yojana (RKBY) under the National Agricultural Insurance Scheme(NAIS). Participation in RKBY was compulsory for farmers growing notified crops and availing crop loans from formal credit Institutions. In case of loanee farmers, the Sum insured was equal to the amount of crop loan advanced. The farmer had the option to insure the amount equivalent to the value of threshold yield of the insured crop. A farmer may also insure his cropbeyond the value of threshold yield level upto 150% of average yield of notified area on payment of premium at commercial rates In our country crop production has been subjected to the vagaries of the climate. Some of the other problems that the Indian agriculture is constantly tackling with are the large-scale damages that are caused as a result of the attack of pests and diseases. It is in a scenario such as this in India that the issue of crop insurance assumes a vital role in the stable growth of the agricultural sector. Tracing the Crop Insurance History in India we see that it was started with the introduction of the All-Risk Comprehensive Crop Insurance Scheme (CCIS) that covered the major crops. This scheme was introduced in 1985. In fact this period of introduction also coincided with the introduction of the Seventh-Five-year plan. This initial scheme was of course later substituted and replaced by the National Agricultural Insurance Scheme. This substitution came into effect from 1999.
Page 3

CROP INSURANCE IN INDIA

These Schemes that have been introduced throughout the crop insurance history have been preceded by years of preparation, studies, planning, experiments and trials on a pilot basis. In the crop insurance history, the question of introducing a crop insurance scheme was taken up for examination soon after the Indian independence. The first aspect that was examined related to the modalities of crop insurance. The issue under consideration was about whether the crop insurance should be offered under an Individual approach or on Homogenous area approach.

The Individual approach of the scheme indemnifies the farmer to the full extent of the losses. Also the premium that is to be paid by him is determined with reference to his own past yield and loss experience. The Individual approach for these schemes necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period, for fixation of premium on actuarially sound basis.

The Homogenous area approach on the other hand was aimed at envisaging a homogeneous area from the point of view of crop production and similarity of annual variability of crop production. The homogenous area approach was found to be more favorable. This is because it would facilitate the provision of a single unit treatment to various agro-climatically homogenous areas and the individual farmers and allow them to pay the same rate of premium and receive the same benefits, irrespective of their individual fortunes.

Page 4

CROP INSURANCE IN INDIA 1.4 CROP INSURANCE RISKS COVERED

The Crop insurance schemes aim at providing comprehensive risk insurance which cover the yield losses that occur to the agricultural output of small and marginal farmers due to non preventable risks. The crop insurance risks covered under the non-preventable category are listed below: a. b. c. d. e. Natural Fire and Lightning Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc. Flood, Inundation and Landslide Drought, Dry spells Pests/ Diseases etc.

The crops insurance risks does not cover any of the losses that arise out of war and nuclear risks, malicious damage and other risks which are preventable risks. The sum insured under the crop insurance risks covered usually extends to the value of the threshold yield of the insured crop. This is usually subject to the option of the insured farmers. Nevertheless, a farmer may also choose to insure his crop beyond value of the threshold yield level up to 150% of average yield of the notified area on payment of premium at commercial rates.

Apart from the risks covered in the crop insurance scheme, what is important is the sum insured. In case of Loanee farmers the sum insured would be at least equal to the amount of crop loan advanced. Further, in the case of the

Page 5

CROP INSURANCE IN INDIA

Loanee farmers, the insurance charges that will be levied will be additional to the Scale of Finance for the purpose of obtaining loan.

Apart from the above mentioned issues, the matters of Crop Loan disbursement procedures, which have been outlined by the RBI / NABARD are binding. The insurance premium issues still stand at an undecided state as the transition to the actuarial regime in case of cereals, millets, pulses & oilseeds is expected to be made in a period of five years.

Page 6

CROP INSURANCE IN INDIA 2.1CROP INSURANCE SCHEMES IN INDIA

In order to provide a boost to the agriculture in India, a number of experimental crop insurance schemes have been introduced in the country. The first ones of the experimental crop insurance schemes has been a Pilot Crop Insurance scheme. This was introduced by GIC from the year1979. Some of the important features of the scheme were that the scheme was based on "Area Approach". This scheme covered crops such as Cereals, Millets, Oilseeds, Cotton, Potato and Gram. The scheme was confined to loanee farmers only and on voluntary basis. The risk was shared between General Insurance Corporation of India and State Governments in the ratio of 2:1. The maximum sum that could be insured under the scheme was 100% of the crop loan, which was later increased to 150%. Under this scheme, 50% of the subsidy was provided for insurance charges which was payable to the small / marginal farmers by the State Government & the Government of India on 50:50 basis. Among the earlier crop insurance schemes that were introduced was a comprehensive Crop Insurance Scheme. The Government of India introduced the Comprehensive Crop Insurance Scheme with effect from 1st April 1985. This scheme was introduced with the active participation of State Governments. The Scheme was optional for the State Governments.

This Scheme was linked to the short-term crop credit that was extended to the farmers and was implemented using the Homogeneous Area approach. The number of states that were covered under the scheme were 15 States and the number of
Page 7

CROP INSURANCE IN INDIA

UTs that were included were 2. This Scheme was implemented until Kharif 1999. Some of the important features of this scheme allowed a cover to the farmers availing crop loans from Financial Institutions for growing food crops & oilseeds on compulsory basis. The coverage under this scheme was restricted to 100% of crop loan subject to a maximum of Rs. 10,000/- per farmer. The premium rates for Cereals and Millets were 2% and for Pulses and Oil seeds 5%. The premium and risk claims were shared in a ratio of 2:1 by the central and state Government. The Scheme was optional to State Governments.

2.2 REGULATION OF INDIAN CROP INSURANCE

The World Trade Organization (WTO), which was established in 1995 as a successor to the General Agreement on Tariffs and Trade-1947 (GATT 1947), is the principal international organization governing multilateral trade among Members. The WTO administers the implementation of a set of agreements, which include the General Agreement on Tariffs and Trade, other agreements in the goods sector and in addition, agreements in two other areas, viz., trade in services, and Trade Related Intellectual Property Rights (TRIPs). The objective of the Agriculture on Agreement (AOA) is to reform trade in the sector and to make policies more market-oriented. This article is intended to bring out the meaning of Agreement on Agriculture and its component and the details of the Recent Developments in Negotiations of Agricultural Tariff, various types of tariff estimation techniques, and finally would discuss in brief the possible impact of it on India.

Page 8

CROP INSURANCE IN INDIA 2.3 WTO AND TRADE IN AGRICULTUREORIGIN,

DEVELOPMENTS AND ISSUES

The World Trade Organization succeeded its predecessor GATT in 1995. There were many agreements that were signed under the aegis of this new organization. The Agreement on Agriculture (AOA) as it is commonly known was among the various other agreements that were signed. The other agreements were related to Investments, Trade in Goods, Trade in Services, Trade Related Intellectual Property Rights etc. As mentioned above, the original GATT did have some agreements related to trade in agriculture, but it contained many loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas subsidies etc as a measure to protect the agriculture. Therefore, the Agricultural trade became highly distorted and the developed countries used these loopholes to massively protect their agriculture. The Uruguay Round produced the first multilateral agreement dedicated to agriculture. These agreements served as a basis for the following agreements on this sector. However, there was no consensus on the agreements at any point of time. The objective of the Agriculture on Agreement (AoA) is to reform trade in the sector and to make policies more market-oriented. This was expected to improve predictability and security for importing and exporting countries alike.

Page 9

CROP INSURANCE IN INDIA

The new rules and commitments apply to: Market Access various trade restrictions confronting imports of

agricultural products. Domestic Support subsidies and other programmes of providing direct

and indirect support to the agricultural activities of the country, including those that raise or guarantee farm gate prices and farmers' incomes Export Subsidies and other methods used to make exports artificially

competitive.

The WTO maintains that the agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. It also allows some flexibility in the way commitments are implemented. It is believed that the developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least-developed countries don't have to do this at all. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the concerns of least-developed economies. However, the developing countries do not agree to the above view at all. Trade in Agriculture: Some Statistics Agricultural products have always been an important part of the world trade. The value of trade in agricultural products is a whooping 674bn dollar. The share of this sector is more than 1/3rd of the total exports in the primary products as can be seen in the Table .

Page 10

CROP INSURANCE IN INDIA

Table 1 World trade in agricultural products, 2003 Value $bn 674 Annual change % 1980-85 1985-90 1990-95 -2 09 07

1995-2000 -1 2001 2002 2003 00 06 15

Share in world merchandise trade % 9.2 Share in world exports of primary products % 41.2

Reference: WTO International Trade Statistics 2004, table IV.3, includes trade between EU members

Page 11

CROP INSURANCE IN INDIA

Though the developing countries are considered as the agro oriented economies, the share of US and EU (developed nations), is top among the list of the countries who are major exporters and Importers of Agro products. The developing countries as a group also appear dwarfs in front of these major giants. Reference: WTO International Trade Statistics 2004, table IV.8. "EU members" includes trade between EU members a Includes WTO Secretariat estimates. b 2002 instead of 2003, c Imports are valued F.O.B The huge share of developed countries in the agricultural trade is believed to be so because of their competitiveness in the international market, which is created by the massive spend of the government and the blanket support provided to the agricultural fraternity in these countries. The spend of these countries on their agriculture under various heads is given in Table

Table 3

How much do they spend? Notified domestic support, 1999, and export subsidies, 1998. Reference: member governments' notifications to WTO

Page 12

CROP INSURANCE IN INDIA

The above statistical analysis shows the importance of the agriculture for the developed economies. Therefore, it is observed in the WTO negotiations that the developed economies resist the reduction in the tariff and want the developing economies to open more and more markets (Market access) through higher reduction in tariffs for the agricultural products from developed countries.

Page 13

CROP INSURANCE IN INDIA 3.1RECENT DEVELOPMENTS IN NEGOTIATIONS OF

AGRICULTURAL TARIFF:
Agricultural issues have always been a sensitive issue for discussion and negotiation in the WTO. There is always a deadlock or lack of unanimity among the member nations on the various agreements drafted for negotiation. This section tries to highlight some recent developments in negotiation in agricultural tariff. There has always been a debate not only on the extent of support that domestic agriculture should get, but also on which method should be adopted by member countries to reduce their tariffs. In the on-going multilateral trade negotiations at the World Trade Organization (WTO), it has been decided by all participating countries to use the Swiss formula for reducing import tariffs on industrial goods. After a long-standing debate on the number of reduction coefficients to be used in the formula, a unanimous decision was recently taken that there would be two sets of coefficients one for developed countries and another for developing countries. A decision on the value of the coefficient is yet to be taken. There are many methods of tariff reduction available and a brief of each would be helpful in determining why developing countries especially India prefers certain methods as compared to the others.

Page 14

CROP INSURANCE IN INDIA 3.2 DIFFERENT METHODS OF TARIFF REDUCTION

Here's a brief account of the different tariff reduction structures that any country could follow to achieve a balance of tariff with other participating members of the organization. Single rate: Tariffs are cut to a single rate for all products. Theoretically, this is the simplest outcome. In practice it is mainly used in regional free trade agreements where the final tariff rate is zero, or a low tariff, for trade within the group. Flat-rate percentage reductions: the same percentage reduction for all products, no matter whether the starting tariff is high or low. For example, all tariffs cut by 25% in equal steps over five years. Uruguay Round approach: The 1986-94 Uruguay Round negotiations in agriculture produced an agreement for developed countries to cut tariffs on agricultural products by an average of 36% over six years (6% per year) with a minimum of 15% on each product for the period. Harmonizing reductions: These are designed principally to make steeper cuts on higher tariffs, bringing the final tariffs closer together.

Different percentages for different tariff bands. For example, no cuts for

tariffs between 0 and 10%, 25% cuts for tariffs between 11% and 50%, 50% cuts for tariffs above that, etc. A variation could include scrapping all tariffs below 5% which are sometimes seen as a nuisance with little benefit. These could be simple or average reductions within each band.

Page 15

CROP INSURANCE IN INDIA

Mathematical formulas designed to make steeper cuts (i.e. higher percentage

cuts) on higher tariffs. One example is the so-called Swiss formula (more below). Other methods: There are a number of possibilities Different rates for different categories of products. For example steeper cuts

on processed products than on raw materials. This is an attempt to deal with "tariff escalation", where countries protect their processing industries by making imported raw materials cheap and imported processed products expensive. Combinations of any of these.

3.3UNDERSTANDING THE SWISS FORMULA

The "Swiss formula" is a special kind of harmonizing method. It uses a single mathematical formula to produce: A narrow range of final tariff rates from a wide set of initial tariffs A maximum final rate, no matter how high the original tariff was.

Usually the required cuts are then divided into equal annual steps. The formula was proposed by Switzerland in the 197379 Tokyo Round negotiations. Z = AX/ (A+X)

Page 16

CROP INSURANCE IN INDIA

Where, X = initial tariff rate A = coefficient and maximum final tariff rate Z= resulting lower tariff rate (end of period) The significance and special feature of this formula is that, a higher reduction coefficient could lead to lower reduction commitment and vice versa. Arguments: for and against It is contended that Swiss formula favored by the developed countries would impact disproportionately on the tariff structures of developed and developing country members. Given the higher bound tariffs of most developing countries and the lower tariff rates of developed countries, and the simple Swiss formula that would cut higher tariffs more dramatically than lower ones, no matter which coefficient is used, developing countries would end up making more significant cuts than the developed countries. In an illustration, developed countries with an average tariff of 4% will make an average cut of 60%, whereas developing countries with an average tariff of 29% will make an average cut of 89%, under a simple Swiss formula with a coefficient of 5. Therefore, ''the simple Swiss formula reverses the principle of less than full reciprocity by reducing the tariffs of developing countries more, and does not take into consideration each country's development needs4''.

Page 17

CROP INSURANCE IN INDIA

Thus, a flexible 'Swiss type' formula which uses the average bound tariff of each individual as part of the coefficient would be more appropriate. This will result in ''concessions commensurate with each Member's tariff profiles.'' In this, developing countries with a higher bound tariff average of 29% will make a reduction of 35%, and developing countries with a lower bound average tariff of 10.5% will make a cut of 39%, when a coefficient of 2 is used in the flexible Swiss formula. The developed countries on the other hand argue that Swiss formula is more effective and simple 'because it contains only one element, the coefficient, to be applied to each Member's tariff schedule.

3.4 IMPLICATION FOR INDIA:

India's average tariffs are much higher than those existing in the developed countries. If a linear formula for tariff reduction was used, then its reduction burden would have been proportional to that of developed countries. However, using a Swiss formula could lead to India taking on a greater reduction commitment than its developed counterparts with lower initial tariffs, therefore, India did not agree to following the Swiss formula.India was opposing the adoption of Swiss formula and pushing for the more gentle Uruguay Round cuts of around 24 per cent for developing countries.The US proposal which favors Swiss formula, in contrast, would cut all tariffs to below 25 per cent. However, with the recent development of having a dual tariff coefficient, for both developed and developing countries, the coefficient of reduction would be different, thus enabling the developing countries for lower reduction obligations as compared to the developed countries.

Page 18

CROP INSURANCE IN INDIA

But, the developing countries argued that there should be a sufficiently wide gap between the coefficients for developed and developing members, otherwise the developing countries would be required to undertake significantly higher cuts (in percentage terms) in bound tariffs than the developed countries, because of their different current tariff profiles. India has proposed that a difference between the coefficients should be at least 25 points to ensure that the reduction burden on developing countries is not higher than that on developed countries. Conclusions: In general, the measures under AOA namely import liberalization; reduction of domestic support and export subsidies is believed to have serious implications especially on the developing economies which have agriculture as their major economic activity and millions of farmers thrive on this for their livelihood. The reduction of domestic subsidies, reducing the tariff barrier without a rational and proportionate reciprocity by the developed world and the removal of non-tariff controls on agricultural products will expose the farmers of these economies to global competition and also put their position on a weaker stage. Under the WTO rules, India has to reduce all import barriers on over 27,000 items, of which over 800 are agricultural items including milk, milk products, wheat, rice, pulses, livestock, agricultural chemicals, tea, rubber and others. Over 700 items have gone off all quantitative restrictions in 2000. This has already created a crisis in the tea and rubber industry where millions of workers are unemployed as the plantations could not withstand the competition from cheaper imports5.

Page 19

CROP INSURANCE IN INDIA

To conclude, as suggested by experts, India along with other developing countries should look for such negotiations which will not only open our markets partially and only in the areas where we have a competitive advantage over others, such that imports don't have a serious impact on our farmers income, and also look for those areas where more meaningful expansion in the developed country markets can be made so that it enhances market access for products that are of interest to India.

Page 20

CROP INSURANCE IN INDIA 4.1 COVERAGE OPTIONS

Options - I: Seasonal Rainfall Insurance Coverage is against negative deviation of 20% and beyond in Actual Rainfall (in mm) from Normal Rainfall (in mm) for the entire season. Actual Rainfall is the monthly cumulative rainfall from June to November (with June to September or October for short & medium duration crops). The pay-out structure is designed in such a way that the yield is correlated to various ranges of adverse deviation in rainfall. The sum insured per hectare is the maximum pay-out corresponding to the maximum potential loss. The claim pay-out shall be on a graded scale (in slabs), corresponding to different degrees of adverse deviation in Actual Rainfall. Option-2:Normal rainfall insurance Coverage is against adverse deviation of 20% and beyond in Actual Rainfall Index from Normal Rainfall Index for the entire season. The index is constructed to maximize the correlation, for weekly rainfall within the season. The indices vary from IMD station to station and crop to crop. The sum insured per hectare is the maximum pay-out corresponding to the maximum potential loss. The claim payout shall be on a graded scale (in slabs), corresponding to different degrees of adverse deviation in Actual Rainfall Index.

Page 21

CROP INSURANCE IN INDIA

Options - III: Sowing Failure Coverage is against adverse deviation in Actual Rainfall (in mm) from Normal Rainfall (in mm) beyond 40% between 15th June and 15th August. The sum insured per hectare is the maximum input cost incurred by the cultivator till the end of the sowing period, and is pre-specified. The claim pay-out shall be on a graded scale, corresponding to different degrees of rainfall deviation. The maximum payout of 100% of sum insured is available at deviations of 80% & above.

Sum Insured: Sum Insured is pre-specified and normally is between cost of production and value of production. Incase of Sowing Failure option, it is the maximum input cost incurred by the cultivator till the end of the sowing period, which again is pre-specified.

Page 22

CROP INSURANCE IN INDIA 4.2 PREMIUM:

Premium may vary from option to option and crop to crop. The premium rates have been optimized vis-a-vis benefits, and starts from 1%.

Time Schedule and Procedure of Claim Payment: The procedure for working out Claims is automated i.e., there shall be no necessity for submission of loss information or Claims intimation by insured cultivator. Normally Claims are paid on the basis of Actual Rainfall data within a month from end of Indemnity period.

4.3 PRINCIPLES OF CROP INSURANCE SCHEMES

1. 2. 3.

SEB BIMA YOJANA (APPLE INSURANCE). Bio Fuel/Tree Plant Insurance. Coconut Palm & Yield Insurance.

4. Crop and Livestock Insurance 5. 6. 7. 8. Draksha Bima/Grapes Insurance. Mango Weather Insurance. Poppy Insurance Potato Crop Insurance
Page 23

CROP INSURANCE IN INDIA

9. Protecting the Farmer Crop Insurance

10. Pulpwood Tree Insurance 11. RABI WEATHER INSURANCE 12. Rainfall Insurance Scheme for Coffee Growers (RISC)_Features 13. Rubber Plantation Insurance 14. Wheat Insurance Policy The basic principle involving crop insurance is that loss incurred by a few is shared by many in the area .Also losses incurred in bad compensated by resources accumulated in the good years.

In general the principle of crop insurance can be explained as follows:

1. The uncertainty faced by the individual farmers is transferred to the insurer

through their participation in large numbers, for which benefit, the insured farmers pay a risk premium. 2. Total loss is shared by participating farmers over a wide area, i.e. horizontal

spreading of risks over a wide area and vertical spreading of risks over many years. 3. The risk premium reflects the group risk assumed by the insurer an indemnity

is liable to be paid to the farmer when the loss is incurred due to causes beyond his control, as long as he maintain the insurance contract valid by paying the premium without default .

Page 24

CROP INSURANCE IN INDIA 5.1 CROP INSURANCE SCHEMES IN INDIA:

In order to provide a boost to the agriculture in India, a number of experimental crop insurance schemes have been introduced in the country. Pilot Crop Insurance scheme: This was introduced by GIC from the year 1979. This scheme was based on "Area Approach". This scheme covered crops such as Cereals, Millets, Oilseeds, Cotton, Potato and Gram. The scheme was confined to loanee farmers only and on voluntary basis. The risk was shared between General Insurance Corporation of India and State Governments in the ratio of 2:1. The maximum sum that could be insured under the scheme was 100% of the crop loan, which was later increased to 150%. Under this scheme, 50% of the subsidy was provided for insurance charges which was payable to the small / marginal farmers by the State Government & the Government of India on 50:50 basis.

Comprehensive Crop Insurance Scheme: The Government of India had introduced the Comprehensive Crop Insurance Scheme with effect from 1st April 1985. This scheme was introduced with the active participation of State Governments. The Scheme was optional for the State Governments. 1. This Scheme was linked to the short-term crop credit that was extended to the farmers and was implemented using the Homogeneous Area approach. The numbers of states that were covered under the scheme were 15 States.

Page 25

CROP INSURANCE IN INDIA

2. This Scheme was implemented until Kharif 1999. Some of the important features of this scheme allowed a cover to the farmers availing crop loans from Financial Institutions for growing food crops & oilseeds on compulsory basis. The coverage under this scheme was restricted to 100% of crop loan subject to a maximum of Rs. 10,000/- per farmer. The premium rates for Cereals and Millets were 2% and for Pulses and Oil seeds 5%. The premium and risk claims were shared in a ratio of 2:1 by the central and state Government. The Scheme was optional to State Government.

5.2 CROP INSURANCE COMPANIES IN INDIA:

Agriculture Insurance Company of India Ltd. (AICI)

Promoted by:
1. 2. General Insurance Company (GIC) National Bank for Agriculture and Rural Development (NABARD)

Four other Insurance Subsidiaries are: 1) 2) 3) 4) National Insurance Company Ltd. New India Assurance Company Ltd. Oriental Insurance Company Ltd United India Insurance Company Ltd.

ICICI Lombard in collaboration with BASIX provided first ever Weather Insurance. Iffco Tokyo has recently entered into the weather insurance business.
Page 26

CROP INSURANCE IN INDIA 5.3NATIONAL AGRICULTURAL INSURANCE SCHEME

The

National Agricultural Insurance Scheme (NAIS) was introduced by the

Government of India in the country from Rabi 1999 2000. In our state this scheme has been introduced from Kharif 2000 season onwards with involvement of Agriculture Department, Agricultural Insurance Company (Implementing Agency) and Directorate of Economics & Statistics.

This scheme is being implemented in the state with the active participation and involvement of District Cooperative Central Banks, Rural Banks, Commercial Banks and Primary Agricultural Cooperative Societies.

OBJECTIVES:1. To provide a measure of financial support to the farmers in the event of crop

failure as a result of drought, cyclone and incidence of pest & diseases etc. 2. To restore the credit eligibility of a farmer after a crop failure for the next

season. 3. To encourage the farmers to adopt progressive farming practices, high value

in-puts and higher technology in Agriculture. 4. To help stabilize farm incomes, particularly in disaster years.

Page 27

CROP INSURANCE IN INDIA CROPS COVERED:During Kharif 2008; Twenty crops will be covered viz., 1. Rice 2. Jowar 3. Bajra 4. Maize 5. Black gram 6. Green gram 7. Red gram 8. Soya bean 9. Groundnut (I) 10. Groundnut (UI) 11. Sunflower 12. Castor 13. Sugarcane (P) 14. Sugarcane (R) 15. Cotton (I) 16. Cotton (UI) 17. Chilies (I)
Page 28

CROP INSURANCE IN INDIA

18. Chilies(UI) 19. Banana, 20. Turmeric. During Rabi 2007-08; Eleven crops were covered viz., 1. Rice 2. Jowar (UI) 3. Maize 4. Green gram 5. Black gram 6. Groundnut 7. Sunflower 8. Chilies 9. Onion 10. Mango 11. Bengal gram.

Page 29

CROP INSURANCE IN INDIA 5.4 NEED FOR CROP INSURANCE

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance. Crop-yield insurance: There are two main classes of crop-yield insurance: Crop-hail insurance is generally available from private insurers (in countries

with private sectors) because hail is a narrow peril that occurs in a limited place and its accumulated losses tend not to overwhelm the capital reserves of private insurers. The earliest crop-hail programs were begun by farmers cooperatives in France and Germany in the 1820s. Multi-peril crop insurance (MPCI): covers the broad perils of drought, flood,

insects, disease, etc., which may affect many insureds at the same time and present the insurer with excessive losses. To make this class of insurance, the perils are often bundled together in a single policy, called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually offered by a government insurer and premiums are usually partially subsidized by the government. The earliest MPCI program was first implemented by the Federal Crop Insurance Corporation (FCIC), an agency of the U.S. Department of Agriculture, in 1938. The FCIC program has been managed by the Risk Management Agency (RMA), also a U.S. Department of Agriculture agency, since 1996.

Page 30

CROP INSURANCE IN INDIA

Crop-revenue insurance: is a combination of crop-yield insurance and price

insurance. For example, RMA establishes crop-revenue insurance guarantees on corn by multiplying each farmer's corn-yield guarantee, which is based on the farmer's own production history, times the harvest-time futures price discovered at a commodity exchange before the policy is sold and the crop planted. There is a single guarantee for a certain number of dollars. The policy pays an indemnity if the combination of the actual yield and the cash settlement price in the futures market is less than the guarantee. In the United States, the program is called Crop Revenue Coverage. Crop-revenue insurance covers the decline in price that occurs during the crop's growing season. It does not cover declines that may occur from one growing season to another. Contents 1 Specialty crops 2 Federal crop insurance

Specialty crops A farmer or grower may desire to grow a crop associated with a particular defined attribute that potentially qualifies for a premium over similar commodity crops, agricultural products, or derivatives thereof. The particular attribute may be associated with the genetic composition of the crop, certain management practices of the grower, or both. However, many standard crop insurance policies do not differentiate between commodity crops and crops associated with particular attributes. Accordingly, farmers have a need for crop insurance to cover the risk of growing crops associated with particular attributes
Page 31

CROP INSURANCE IN INDIA

Federal crop insurance

In the United States, a subsidized multi-peril federal insurance program, administered by the Risk Management Agency, is available to most farmers. The program is authorized by the Federal Crop Insurance Act (which is actually title V of the Agricultural Adjustment Act of 1938, P.L. 75-430), as amended. Federal crop insurance is available for more than 100 different crops, although not all insurable crops are covered in every county. With the amendments to the Federal Crop Insurance Act made by the Federal Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the Agriculture Risk Protection Act of 2000 (P.L. 106-224), USDA is authorized to offer basically free catastrophic (CAT) coverage to producers who grow an insurable crop. For a premium, farmers can buy additional coverage beyond the CAT level. Crops for which insurance is not available are protected under the Noninsured Assistance Program (NAP). Federal crop insurance is sold and serviced through private insurance companies. A portion of the premium, as well as the administrative and operating expenses of the private companies, is subsidized by the federal government. The Federal Crop Insurance Corporation reinsures the companies by absorbing some of the losses of the program when indemnities exceed total premiums. Several revenue insurance products are available on major crops as a form of additional coverage. In India a multiperil crop insurance going by the name National Agriculture Insurance Scheme (NAIS) is being implemented. This scheme is being implemented by Agriculture Insurance Company of India, an Indian government owned company. The scheme is compulsory for all farmers who take agricultural loans from any financial institution. It is voluntary for all other farmers. The premium is subsidized for farmers who own less than two hectares of land. This
Page 32

CROP INSURANCE IN INDIA

insurance follows the area approach. This means that instead of individual farmers, a specific area is insured. The area may vary from gram panchayat (an administrative unit containing 8-10 villages) or block or district from crop to crop or state to state. The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated.

Page 33

CROP INSURANCE IN INDIA 6.1Type of crop insurance

CROP INSURANCE is a type of insurance coverage that is purchased by crop farmers in order to insure against losses. There are several different types of crop insurance that a farmer can purchase. Here are some of the different types of crop insurance that is available.

1. MPCI MPCI stands for multiple peril crop insurance. This is a type of crop insurance that is designed to cover the crops against several different types of loss. This type of coverage will protect the farmer against any weather-related losses, such as a tornado or a hail storm. In addition, this policy covers things like low yields, late planting, prevented planting and replanting costs. 2. APH This term stands for actual production history. This type of insurance is based on the production history of a farm, over a certain number of years. In most cases, a policy will base the actual production history on a period of somewhere between four and 10 years. The average production will be calculated over that time period, and then a certain percentage of the yield will be paid if a loss occurs. This type of policy provides coverage for a wide variety of perils. For example, the farmer could file a claim due to drought, wind damage, hail, frost, insects, disease or excessive moisture. If the yield of a crop is less than the predetermined covered amount, the farmer will receive a check for the difference between the two percentages. This is the most common type of crop insurance that is available in the market today. It has been used in the farming industry for many years.
Page 34

CROP INSURANCE IN INDIA

3. GRP GRP stands for group risk plan. This is a type of crop insurance that is based on the yield of a group of farmers from a particular county. This is not a type of policy that is based on an individual farmers yield, like APH. With this type of policy, you could be paid for an insurance settlement regardless of the actual yield of your farm. Your farm could do fine, but if the average yield of the entire county decreased below a certain amount, you could still receive a payment. This type of coverage allows you to choose the yield level that you want to be covered against, when calculated with the average of all of the farms in the county. 4. CRC CRC is a term that stands for crop revenue coverage. Instead of being based only on the yield of the farm, this coverage is based on the total amount of revenue that is generated from a crop. With this type of coverage, you will also get protection against drops in prices for the crop instead of just protection against losses. This is a comprehensive type of coverage that is designed to look at the bottom line instead of only looking at how much you were able to harvest from a particular farm for the year.

Page 35

CROP INSURANCE IN INDIA 6.2 CROP POLICIES

Buying a crop insurance policy is a risk management tool available to agricultural producers. Producers should consider how a policy will work in conjunction with their other risk management strategies to insure the best possible outcome each crop year. Crop insurance agents and other agri-business specialists can assist producers in developing a good management plan. RMA provides policies for more than 100 crops. Policies typically consist of general crop insurance provisions, specific crop provisions, policy endorsements and special provisions. See RMA's county crop program listings for information about crop policies available in specific counties and states. Policies are available for most commodities; however, some policies are being tested as pilots or have not been expanded nationwide so are not available in all areas.

6.3 BENEFITS OF CROP INSURANCE

Following concerns that a deficient monsoon would hurt farm production, more farmers are opting for crop insurance in the ongoing kharif (summer crop) season, said a senior official of Agriculture Insurance Co. of India Ltd, or AIC. Contingency plan: The Met department has downgraded its estimate of rainfall by 3 percentage points, the bleakest forecast in a decade. PTI The kharif season is one of the two agricultural seasons in India (rabi, or spring harvest, is the other) and coincides with the onset of the monsoon. More farmers are buying crop insurance because they fear that low rainfall may lead to a drop in their yield, said K.N. Rao, chief manager with AIC. Farmers
Page 36

CROP INSURANCE IN INDIA

mostly get insured when they go for bank loans but now even those who do not have any loans want to get insured, voluntarily. Currently, state-owned AIC, with a market share of at least 90%, provides insurance to 20 million farmers in India, out of which one-third are without loans or those who take insurance on a voluntary basis. AIC offers the National Agriculture Insurance Scheme, or NAIS, a weather-based crop insurance scheme, or WBCIS, and a few of its own crop insurance products to farmers. In 2007, the government also permitted two private insurers, ICICI Lombard General Insurance Co. Ltd and IFFCO-Tokio General Insurance Co. Ltd, to offer weather-based crop insurance. While NAIS specifically indemnifies a farmer against any shortfall in crop yield, weather-based insurance uses weather parameters as a proxy for crop yields in compensating a farmer. The weather-based package works by identifying insurable parameters such as average rainfall, temperature and frost for each block of villages. If any one of the insured parameter falls outside a band fixed in the policy, claims for the entire district are automatically triggered. Currently, NAIS accounts for 95% of total premium collected by AIC and the rest is shared between WBCIS and other schemes. The countrys meteorological department in June downgraded its estimate of monsoon rainfall by 3 percentage pointsthe most bleak monsoon forecast in at least a decade. One basis point is one-hundredth of a percentage point. The India Meteorological Department said rainfall between July and September is likely to be below normal at 93% of the long period average, or LPA (a 50 -year
Page 37

CROP INSURANCE IN INDIA

average that pegs Indias normal rainfall at 89cm). Crucially, rainfall in July considered the most important monsoon monthis also expected to be below normal, at only 93% of its LPA (29cm). Uncertain monsoon and a larger customer base, however, can spell trouble for insurance companies. We can get a hit this year in claims with uncertain monsoon conditions predicted, said, N.K. Kedia, director, marketing, IFFCO Tokio. The company provides Barish Bima Yojana, in which claims are paid based on data available for the last 50 years. He said that though awareness has increased for crop insurance, impact in terms of sales is still to be seen. Under various schemes farmers are signing up to get insurance protection, said another official of AIC. The larger base can mean more claims if the monsoon (is) going to be below normal. But we have designed our products keeping in mind all such conditions, said the official, on condition of anonymity. In the last kharif season, out of 13 million farmers covered under NAIS, around 4.1 million claimed benefits. These claims were estimated to be around Rs3,100 crore. he would make sure the benefits of crop insurance schemes reached cultivators.It is unfortunate that farmers have to commit suicide. Whatever be the reason, this should not happen, Chouhan said after returning from Delhi where he met Prime Minister Manmohan Singh. I will ensure that farmers get the benefits of crop i nsurance schemes, which is not happening properly, said the chief minister. Six farmers, four of them in Damoh district alone, have committed suicide in Madhya Pradesh since Dec 15, with damage to crops due to the intense cold being cited as the main reason.
Page 38

CROP INSURANCE IN INDIA

Agriculture Minister Ramkrishna Kusmaria, whose district Damoh has reported the maximum suicides and also two attempted suicides, said: The damage to crops is taking place because of our old sins. Regular use of chemicals in fields has weakened the health and resistance and crops are getting damaged. The minister suggested that farmers turn to organic farming.

6.4 RISK COVERED UNDER CROP INSURANCE

Today, most insurers manage risk data within each discipline without a cohesive view of the exposure throughout the business. Upcoming regulatory changes, such as Solvency II (EU), SAM (S. Africa), and Principles-based approach (US), will require that insurers integrate risk operations and implement an enterprise level of governance and control for processes and data management that is fully transparent and auditable. This will require the implementation of a comprehensive ERM framework that enables sound risk decisions. Works ERM helps actuaries and executives align risk-based decisions with business goals by enabling a 360 view of risk data, powered by advanced analytics, to promote improved risk management through greater visibility, transparency, and control. Effective ERM also requires people, organization, and processes. iWorks ERM helps insurers realize the benefits of a cohesive risk management organization by supporting improved collaboration and

communication throughout the insurance enterprise. The Risk Management Agency Crop Insurance programs offer several options that are particularly useful for vegetable growers. These include crop-specific policies

Page 39

CROP INSURANCE IN INDIA

in fresh market sweet corn and in potatoes, the organic policy, as well as the Adjusted Gross Revenue (AGR), and AGR-Lite policy. Several changes are on the horizon that we think will make FCIC products more attractive to you, and there are some existing options that might make good sense if you fully understand them: AGR, Organic coverage and the option to purchase non-listed crops insurance under a written agreement: These are worth a good look. We encourage you to review the following information , check out the RMA website, http://www.rma.usda.gov/ and to make an inquiry to one of the agencies listed on the website. To find agents on websites, click on agent locator at the left hand side of the screen. CI Agents, who are not actually directly related to RMA or FCIC, are the ones with on-the-ground experience on what works and what doesnt in your particular situation. Part of the effort to improve service in New England includes increased communications with well informed agents. Your unique scenarios will help this to happen, whether or not you actually buy coverage. A list of crop insurance agents licensed in Massachusetts is below. CI products can be a very good value if the coverage fits your needs. Due to significant ongoing subsidies from the Federal Government and some even more advantageous special programs farmers are not expected to pay for the full cost of coverage. In addition, we see a trend away from funding the regionally common disaster based programs that have sometimes provided free insurance in areas where losses are catastrophic. Congress now appears to be under increasing pressure to share the insurance management of risk with the farmer. Those with losses covered by disaster payments one year are now requited to buy CI the next year. Lenders
Page 40

CROP INSURANCE IN INDIA

also see crop insurance as a means to reduce their exposure (and increase your eligibility for better terms). The sooner you at least look into purchasing farmspecific CI, the more likely it is that you will be ready when having this type of coverage is the primary protector, even in a disaster situation. Due to the lead time on many policies, we encourage you to find out more on your own as soon as possible. If coverage makes sense for you in the next growing season, many applications must be completed in the late summer or early fall of the previous year.

6.5 EXCLUSION UNDER THE POLICIES

It may make sense to look at a Revenue Protection crop insurance policy, what with high corn prices and a lot of price uncertainty, says David Moll, University of Wisconsin grain marketing outreach specialist. Moll tells growers that even though the fundamentals in the market suggest a bullish price outlook, using a Revenue Protection policy will at least provide a revenue guarantee for your operation. Market volatility is here to stay. One of the changes in crop insurance for 2011 is switching farm-level coverages Actual Production History (APH) and Crop Revenue Coverage (CRC)to the Combo Policy (Yield Protection and Revenue Protection), notes Moll.

The Combo Policies assess the soybean and corn prices based on the November/December futures prices observed during a 19-day period in February. If prices do indeed start to slip back over the next couple of weeks, a producer will
Page 41

CROP INSURANCE IN INDIA

have a unique opportunity to look back and decide if the market has changed direction and determine if the prices captured during the 19-day window are favorable, says Moll. Paul Mitchell, UW-Madison state specialist in cropping systems economics, says with current futures prices for new-crop corn and beans, many Wisconsin growers are looking at 2011 as a year to make good returns on crops. Mitchell r eminds them that crop insurance is a powerful tool to protect high prices from possible weather disasters. Further, the SURE federal disaster aid program requires crop insurance for eligibility. Eighty-eight percent of Wisconsin corn acres were insured last year.

Mitchell also highlights the roll out this year of the Combo Policy, which replaces the APH (yield insurance) and CRC (revenue insurance)the main-stay crop insurance policies for many farmers, he notes. Given high prices, this new Combo Policy and the SURE program, this is the year for farmers to update their coverage, Mitchell maintains Harvest Price Exclusion under a Combo Policy is a new option for Revenue Protection not previously available in Wisconsin. At planti ng, the base crop price was set under CRC to calculate revenue guarantees, and then at harvest, if the crop increased above this base price, the price and revenue guarantee were increased, Mitchell explains. The Harvest Price Exclusion does not include t his update of the price guarantee to the new harvest price - the price signed up for in March is the price at harvest.

Page 42

CROP INSURANCE IN INDIA

The Harvest Price Exclusion is cheaper but a risky way to cut premium costs, he warns. If harvest prices are high and farm yields are low, this option will pay the smallest indemnity among Revenue Protection and Yield Protection because the guarantee remains the same, but it uses the actual price to calculate actual revenue.

Mitchell says growers who purchased crop insurance in the previous year will automatically have their policy converted over to either Yield Protection or Revenue Protection. However, GRP and GRIP crop insurance policies have not changed, so farmers buying these policies will see no changes, expect for premiums based on current crop prices.

Mitchell has some suggestions for integrating crop insurance with overall risk management. He says the ACRE and SURE programs provide extra revenue insurance to qualifying farmers. ACRE gives coverage similar to GRIP, but uses state yields and prices, and farmers give up 20 percent of direct payments, all counter-cyclical payments, and 30 percent of loan deficiency payments. He thinks ACRE is a lot like the counter-cyclical payments program that it replaces. It is not really worth greatly changing production and insurance plans as a result of participation in ACRE, he notes.

If crop prices fall and/or state yields are low, Wisconsin farmers will receive ACRE payments, but because the triggers are state yields and USDA marketing

Page 43

CROP INSURANCE IN INDIA

year average prices, ACRE is generally not a good substitute for crop insurance, Mitchell warns.

Mitchell says SURE adds up all crop insurance guarantees, then increases it by 15 percent for a whole-farm revenue guarantee as a free disaster program. Its as though the farm receives a higher coverage level for free, but at the whole-farm level, he points out. As a result, reducing crop insurance coverage to save premium costs may make sense for some farmers participating in SURE, as program payments are triggered by farm level revenue losses. However, the free coverage is at the whole-farm level, not the crop level, so some farmers may want to keep higher coverage for specific crops (i.e. corn). Because crop prices are higher, premiums will also be higher, he mentions. For growers who are more price-sensitive when it comes to crop insurance, cutting the coverage level and letting SURE pick up the slack may make sense, says Mitchell.

But farmers wanting to lock in current high revenues for crops such as corn or soybeans may still want a high coverage level for these crops, he adds. With growers facing high-priced diesel and other increased input costs this spring; Mitchell also suggests ways to reduce premium costs.Premiums will b e higher this year because crop prices are higher. Farmers are insuring greater value per acre, so the premiums increase, he says. Also, when crop prices are higher, price volatilities tend to be higher, which further increases prices for revenue policie s. To reduce their premium costs, he suggests growers look at moving from crop and field-specific coverage to whole-farm coverageto protecting
Page 44

CROP INSURANCE IN INDIA

revenue at the crop or farm level, rather than at the level of specific units.One way to reduce premiums based on this method is to sign up for SURE and reduce coverage levels. Let the free SURE government program substitute for paid insurance. A second way is to switch from optional units to whole-farm or enterprise or basic units. SURE coverage creates a revenue guarantee at the whole-farm level 15 percent greater than the sum of all insurance guarantees. If farm revenues are below this guarantee after insurance indemnities are paid, the farm receives SURE payments, Mitchell reports. The additional guarantee is at the whole-farm level, not the crop or unit level, so farmers lose some of the crop and unit specific coverage by using SURE and reducing coverage levels, but for many farms, whole-farm coverage is what matters. By switching to whole-farm or enterprise units, farmers can make the same switch themselves and pay lower premiums.

Page 45

CROP INSURANCE IN INDIA 6.5 Claims for crop insurance

How To File a Crop Insurance Claim What to do. What not to do. How do I initiate a claim?

Call your crop insurance agent and follow up in writing (keep a copy for your records). Your crop insurance company will arrange for a loss adjuster to inspect your crop. It is your responsibility to call your crop insurance agent and initiate this process.

How do I know when to file a claim? Any time you have crop damage that will adversely affect your yield, or the value of your crop, you may be eligible to file a claim. The loss adjuster will determine whether your yield falls below the yield guarantee stated in your crop insurance policy. This applies to revenue guarantee policies, like Crop Revenue Coverage (CRC), as well as to traditional yield protection policies. (Adjusted Gross Revenue and AGRLite policies are adjusted based on your agricultural revenue as reported in your tax return (Schedule F) and do not fall under these provisions) Most policies state that you (the insured) should notify your agent within 72 hours of discovery of crop damage. As a practical matter, you should always contact your agent immediately when you discover crop damage. In some cases, you may discover a loss while you are harvesting (a row crop for instance). Stop harvesting and contact your agent right away. In the event of losses, you must file notice
Page 46

CROP INSURANCE IN INDIA

immediately after each unit is harvested (within 15 days) and before the end of the insurance period. For sweet corn and corn cut for silage, you must file notice at least 15 days before harvest begins. How soon should I expect an adjuster? In practice, there are different levels of urgency for crop inspectors. If you are still within the window of opportunity to replant your crop, or switch to another crop, contact your crop insurance agent immediately. The insurance company should make every effort to get an adjuster out right away. If, later in the growing season, your crop is wiped out by a hurricane, for example, or if a severe drought has damaged your crop, you still need to contact your agent but the urgency for an inspection depends on your intentions. If you want to destroy the crop (perhaps to plant a cover crop), then an adjuster needs to come out first before you do anything. If, on the other hand, you intend to continue to care for the crop and harvest what you can, there is less urgency for the adjuster to make the inspection immediately. Even so, an assessment of damage should be done as soon as practical. While you wait for the adjuster, remember these rules: Do not destroy any of your crop. Do not disk. Do not plow. Do not replant. Do nothing to destroy your crop until you have permission from a claims adjuster or an insurance company representative. Remember: Dont destroy the evidence. What should I expect from the adjuster? The adjuster should contact you to schedule an inspection. He or she will expect and welcome your presence and help during the inspection. The adjuster will be interested in what you have to say. You can expect the adjuster to be familiar with
Page 47

CROP INSURANCE IN INDIA

your policy and to explain your options. You should have your Farm Service Agency (FSA) documents ready to show the number of acres and locations of your insured crops. The adjuster should have copies of your crop insurance policy documents and your Actual Production History (APH). How is my crop yield calculated? For some crops, counting plants within a sample area at various locations in the field is a part of the process. For other crops, determining the weight of ears of corn per bucket or numbers of soybeans in a beaker is part of the process. Adjusters may take pictures of your fields. They may check with your neighbors on the condition of their crops and they may check with the local elevator operator for average yields in the area. They may even consult local weather data. Calculating crop yield is not guesswork. It is a disciplined process. Your adjuster has extensive classroom and field training and is constantly studying to maintain his or her certification.

Your responsibilities
Report crop damage promptly: Before replanting (many policies have replanting payments), Within 72 hours of discovery of damage, 15 days before harvest begins (if loss is possible), Within 15 days after harvesting is completed (by insurance unit) or the end of the Insurance period.

Page 48

CROP INSURANCE IN INDIA

Caution: Do not destroy evidence that is needed to support your claim without clear direction from the insurance company, preferably in writing

All over the world agriculture is synonymous with risk and uncertainty. Agriculture contributes to 24% of the GDP and any change has a multiplier effect on the economy as a whole. Economic growth and agricultural growth are inextricably linked to each other. Crop insurance helps in stabilization of farm production and income of the farming community. It helps in optimal allocation of resources in the production process.1 Indian Government has been concerned about the risk and uncertainty prevalent in agriculture. As all of us are aware about the unfortunate deaths of farmers in Maharashtra who got caught in a debt trap and the devastating effect it had on their families. In this article, we try to trace the genesis of the crop insurance scheme and its effectiveness. We have attempted a comparison of the Indian scenario vis--vis the scenario in Western nations.

6.6 Discount on premium rates

Premium discounts and surcharges Premium discounts and surcharges acknowledge risk differences between customers, reducing premiums for customers without a history of repeated claims. Experience discounts and surcharges are calculated using an individuals history of losses as compared to area losses. SCIC calculates premium discounts and surcharges by comparing the individual claim to the total premium (including [net] experience discount) paid by the producer and governments. When an increase in

Page 49

CROP INSURANCE IN INDIA

the number or size of losses is experienced, the discount is reduced and may even result in a surcharge. New for 2011 is an amendment to discount calculations for young farmers taking over the family farm. Now they can use experience obtained from the family farm for their own contract. Discounts or surcharges may be transferred directly to the new farmer with at least three years of experience on a previous contract. For young farmers without that experience, the transfer of earned credit would be implemented using partial credits with a three year progression to the full credits of the original contract. The following crops and programs are excluded from all experience discount and surcharge calculations: camelina, caraway, coriander, dryland dry beans, honey, khorasan wheat, soybeans, vegetables, wild rice, timothy hay, the Forage Diversification Option, Forage Rainfall Insurance Program, Corn Heat Unit Program, Establishment Benefit, Unseeded Acreage and Gopher Damage claims.

How your individual claim history affects discount/surcharge: Your Indemnity No claim Your Discount/Surcharge

1.0 credit earned

Indemnity less than or equal to 20% of total net annual premium-0.5 credit earned Indemnity greater than 20% but less than or equal to 100% of total net annual premium -No change

Indemnity greater than 100% but less than or equal to 200% of total net annual premium-1.0 debit earned
Page 50

CROP INSURANCE IN INDIA

Indemnity greater than 200% of total net annual premium-2.0 debits earned Cumulative premium paid by the producer and governments. These are additional credits and debits applied based on area comparisons. This is how the area claim history is used: Comparison to Area Highest risk customers: relative to premium among claimants 1.0 debit earned High risk customers: paid relative to premium among claimant 0.5 debit earned amongst the next highest 10% of indemnity Your Discount/Surcharge amongst the highest 10% of indemnity paid

Average risk customers

No change

Low risk customers: customers have received

have no claim in a risk area where 60% of

Indemnity 1.0 credit earned Lowest risk customers: customers have received Indemnity 2.0 credits earned have no claim in a risk area where 70% of

Page 51

CROP INSURANCE IN INDIA

The number of credits or debits earned will be added to your previous balance. Partial credits are rounded down. Accumulated credits or debits must achieve a complete step before the discount or surcharge is adjusted. Accumulated Credits 9 10 to 16 5 6 8 11 15 20 26 33 40 50 0 1 2 3 4 5 6 7 8

Discount % 0

Accumulated Debits -9 -10 to -16 5

-1

-2

-3

-4

-5

-6

-7

-8

Surcharge %0

11

15

20

26

33

40

50

The maximum number of both debits and credits a customer can accumulate is 16. Customers with 16 credits cannot lose their 50 per cent discount based on one or two years indemnity. There is a one-year lag in the calculation; the indemnities received in 2009 will impact a customers discount/surcharge in 2011. New contract holders will remain at zero following their first year of coverage due to this lag.

Page 52

CROP INSURANCE IN INDIA

Page 53

CROP INSURANCE IN INDIA ANNEXTURE

Page 54

CROP INSURANCE IN INDIA CONCLUSION

Crop insurance was conceived as an instrument of risk management in agriculture and as a measure to provide relief to farmers whose crops were damaged by one or the other means. With increased commercialization of agriculture, price fluctuation have become highly significant in affecting farmers income.

Page 55

CROP INSURANCE IN INDIA REFERENCES BIBILOGRAPHY 1. DATA WAREHOUSING/ DATA MINING CROP INSURANCE APPLICATION 2. NATIONAL CROP INSURANCE POLICIES WEBILOGRAPHY 1. WWW.CROP POLICIES.COM 2. WWW.INSURANCE ON CROP .COM 3. WWW. CLAIMING ON POLCIES.COM

Page 56