Gokul Ghimire, a resident of Banepa-2 rears four cows and all of the cattle he owns are insured. Ghimire, who is into commercial dairy production, is also engaged in the cultivation of potatoes and other vegetables, which he has been doing for decades. He cultivates potatoes on ten ropanis of land but has not availed of any agriculture insurance facilities. He says he has heard of crop insurance but is not aware of the benefits it offers. Many farmers in the area don't have any idea such insurance policies even exist though insurance in animal husbandry is well established in this area of Banepa.
Due to the lack of awareness on crop insurance, farmers like Ghimire do not have access to the crop insurance programme. Through the replacement budget, the government has increased insurance subsidies to 80 percent on agriculture insurance premiums from 75 percent. But talking to farmers of Banepa-2, which is some 28 kilometres away from the capital Kathmandu, it becomes clear that only a very few have shown interest in the scheme. For the insurance premium of Rs 100,000, farmers are required to pay 20 percent of the amount and the remaining is borne by the government.
Mukunda KC, head of Banepa Agriculture Department informs that crop insurance has failed to entice farmers in the area despite massive awareness programmes while livestock insurance has taken off extensively. "Farmers are well informed about the subsidy programmes yet they have shown no interest in getting their crops insured. One of the reasons behind the disinterest of farmers towards crop insurance is that the interval between vegetables cultivated is short, less than three months, but policies require to be enrolled for a yearly contract," he said. According to the Agriculture and Livestock Directive 2077, insurance policies can be issued for a short period but come without subsidy benefits.
According to the Insurance Board, the insurance sector regulator, non-life insurance companies collected Rs 151 million in agriculture insurance in the fiscal year 2020/21 compared to Rs 82.92 million in FY2019/20. A total of 3,811 crop insurance policies were sold in FY2019/20 which increased to 5,619 in FY2020/21, an increase of 35 percent. However, the rise is not something to be satisfied with despite the subsidy extended by the government in agriculture insurance.
Meanwhile, sales of livestock insurance policies are noticeably higher than crop insurance policies. A total of 182,168 livestock policies were sold in FY2020/21 against 125,190 in FY2019/20. Premium collection through sales of livestock insurance policies amounted to Rs 1.75 billion in 2020/21 compared to Rs 1.09 billion in the fiscal year 2019/20.
Insurers say massive awareness programmes are needed to foster the growth of crop insurance. “We are doing our part to inform farmers about crop insurance policies. Each local body has agriculture and livestock unit and they should be shouldering responsibilities of raising awareness about these insurance products,” said Noor Prakash Pradhan, CEO of Lumbini General Insurance Company Limited.
Back in 2013 the government for the first time announced an agricultural insurance programme. During the initial years, input-based crop insurance was the predominant type of agricultural insurance. But this kind of policy failed to attract farmers. "In the recent years, we have shifted to production-based policy. Still, there are issues concerning determining total sum insured, cost of the product at different stages, lack of timely loss assessment and loss at the time of claims settlement making crop insurance policies less popular," said Prakash Kumar Sanjel, spokesperson at Ministry of Agriculture and Livestock Development (MoALD).
According to Raju Raman Poudel, executive director at the Insurance Board, farmers are not aware that their agricultural produce could be insured at a very minimal cost with support from the government and those informed were not interested in participating in input cost-based schemes. Input cost refers to expenses made on various issues like harvest labour, irrigation, fertilizers, pesticides, seeds, agricultural equipment from plantation to harvest. Production costs include all kinds of costs associated with the cultivation of crops till the end of the harvest. Sanjel informed that MoALD is preparing to introduce output-based policies in all kinds of agricultural produce to expand insurance coverage penetration.
Insurance offers security for any damage that could arise from natural calamities and unforeseen events. All of the agriculture policies offered by non-life insurance companies provide compensation for damage caused by nature-induced disasters like floods, landslides, hailstorms, earthquakes, and for the loss caused by pests and parasites.
In Nepal, the agriculture sector contributes 27 percent to the country's GDP and employs 66 percent of the population. In recent years, the risks to this sector have grown particularly due to climate change. In mid-October this year, different parts of the country were flooded by torrential rain which submerged thousands of hectares of fields including this year's paddy harvest at an estimated loss of Rs 7.2 billion. According to the Insurance Board, seven non-life insurance companies had issued paddy insurance policies worth Rs 28 million between October 2020 to November 2021, of which Rs 2.4 million has been claimed. Had there been a high adoption of crop insurance, farmers would have been able to receive compensation for the losses incurred.
Due to the low coverage of crop insurance, the Insurance board has made it mandatory for non-life insurance companies to sell at least 5 percent in agro-insurance policies of their total policies in a year. The board has also assigned districts to each non-life insurer to promote microinsurance. “This mandatory provision has led to a gradual increase in the penetration of crop insurance policies, but the major constraint is lack of awareness about agriculture insurance and subsidy provisions. So, we are coordinating with local representatives and bodies to ramp up the awareness activities,” said Poudel.
Challenges Facing Agriculture Insurance
“Farmers in general lack confidence in crop insurance schemes. Their concern is rooted in experiences with livestock schemes where claims have been delayed for months and benefits promised beforehand were not provided,” said Ghimire. But Pradhan says there have been incidents where farmers have claimed for single damage with at least three insurers. Along with fake claims, insurers are experiencing other problems of delayed payment from the government, poor evaluation of crops on the part of technicians. Delays in releasing subsidies from the government have delayed payouts to the farmers making the scheme less ineffective," Pradhan added. According to him, infrastructural constraints like lack of irrigation facilities, quality seeds, timely availability of fertilizers are holding back insurance companies from extending insurance coverage.
Sanjel argues crop insurance is fundamentally a risky business with low profitability for insurance companies and that is why the government is extending subsidies for the policies. “There has been a delay in releasing the subsidies to the insurance companies due to the delay on the part of the insurance companies. If the companies record the details of farmers digitally it would expedite the process for both parties. But companies send paper copies of the policies which makes the assessment process time-consuming,” said Sanjel.
In contrast to livestock insurance, insurers are short on crop technicians who also work as farm insurance agents. Technicians are required to assess the quality of products and the health of livestock to be insured. “Lack of agriculture technicians and awareness on insurance policies is deterring the growth of crop insurance. Similarly, it is not as easy as livestock to determine the cost of crops to be insured. Most of the farm products are still insured based on input cost,” said Dipak Pokharel, Senior Manager at Ajod Insurance Limited.
The Way Forward
MoALD has aimed to mechanise agriculture insurance and introduce weather-based insurance in the future. To increase the uptake of agriculture insurance, the ministry is planning to conduct orientation programmes for farmers, and training programmes for insurance agents and technicians. In the last fiscal year, 1000 agents were trained by the Prime Minister's Agriculture Modernization Project. Poudel shares the board has asked the local bodies in the designated districts to recommend at least two agriculture agents from the concerned area who will be offered training by the board at the local level. Pokharel is also of the view that farm policies need to reach the needy farmers while local authorities need to facilitate in this matter.
Meanwhile, the Banepa Agriculture Department is planning to conduct a few other interactive programmes inviting microfinance institutions, banks and farmers to discuss options such as using banking channels to offer farm insurance, according to the department's head KC.
