The introduction of a crop insurance scheme has been discussed in the country for a long time due to its immense benefits to the agriculture sector and the farming community but its implementation has failed to make a steady progress with the result that the country has not been able to utilise its potential. Knowing the background of the subject in detail, Finance Minister Ishaq Dar allocated an amount of Rs 2.5 billion for the development of a proper plan of action to take full advantage of this product (scheme).

However, as reported in this newspaper on 25th June, 2014, farmers and experts are not very much convinced and remain sceptical about proper implementation of the scheme. Pointing out flaws in the scheme, Kisan Board Chairman Sarfraz Khan said that "such schemes are designed solely to get political mileage" and are useless as the government had no strategy to reach the subsistence-level farmers. Farmers who get a loan from Zarai Taraqiati Bank are charged two percent extra interest for insurance but their grievances are hardly addressed. They cannot benefit from the scheme until their area is declared as "calamity hit".

In the budget speech, the scope of crop insurance premium reimbursement was enhanced from 12.5 acres to 25 acres of land though around 91 percent of farmers in Pakistan have a land holding of up to 25 acres and they should be looked after in a better way by the government. "If the government wants to make the insurance scheme a success story, then it should introduce it on yield basis instead of damage to the crops," Khan suggested further.

Pervaiz Amir, a former chief of Prime Minister's Task Force on Climate Change, was of the view that insurance schemes had also been announced in the past but remained unimplementable. It is difficult for small farmers to pay premiums and the scheme has always been abused by government officials as there was no specific mechanism to settle the claims. "There is also an element of religious beliefs in the insurance scheme," he added. A Senior Vice President of ZTBL told Business Recorder that it is true that the farmers do not get full claim for their insured crops but the ZTBL cannot improve the system on its own as the bank serves only as a liaison between the SBP and the insurance companies.

Pakistan's agriculture sector contributes about 24 percent to the country's overall GDP and employs 43.7 percent of the labour force but has failed to make the needed progress and transform the lives of ordinary people. Over the last seven years, this sector, for instance, has grown between only 0.2 percent and 3.6 percent per annum and been generally a drag on the growth rate. The productivity in the sector is much lower than other countries due to a host of factors including water shortage, absence of new technologies and innovations like the implementation of a proper crop insurance scheme which could give the agriculturists much-needed confidence to grow various crops by providing them cover against vagaries of weather and unforeseen calamities.

In fact, the overall insurance industry in Pakistan is relatively small compared to other developing and regional countries and the share of non-life insurance sector in the industry including three general Takaful operators is hardly significant. Although, the subject of crop insurance has been in the limelight for a long time, it is only now that the SECP is striving to develop comprehensive guidelines for the crop insurance industry to cater to the demand in the market and pilot projects launched by the Pakistan Poverty Alleviation Fund and the SBP are being executed under SECP's supervisory advice to provide effective learning outcomes for developing guidelines in the field.

However, while most of the initiatives of the government, including an allocation of Rs 2.5 billion in the budget, to set the ball rolling are welcome, the main features of the scheme still need to be thought through very carefully with a view to taking all the stakeholders on board and making the project a success story. First of all, a specific evaluation criteria needs to be developed to ensure that both small and bigger/progressive farmers could benefit from the scheme.

Unfortunately, however, experience in Pakistan suggests that schemes like subsidised credit geared mainly towards benefiting small farmers generally ends up benefiting bigger farmers. Secondly, the argument of the Kisan Board Chairman that farmers cannot benefit from the scheme seems justified. Obviously, the criteria should be the loss suffered by a farmer and not whether or not his area was declared as calamity hit. However, his advice that the government should introduce the scheme on a yield basis instead of damage to crops is likely to be a huge bone of contention as there would always be a difference in the yield estimates between the farmer and the insurer at the time of settlement of a claim.

And finally, it is of paramount importance to ensure that the scheme is self-sustaining and managed without a subsidy or an allocation of funds from country's annual budget on a long-term basis. This is probably the only way to keep the scheme in a healthy state, open it up to all categories of farmers, involve private insurers and lessen its dependence on government's estimates of income and expenditure for a period of one year. This may mean somewhat higher premiums; but it would provide a self-sustaining and an all-encompassing basis to expand the coverage of the scheme in a significant manner.

Source - http://www.brecorder.com/