Agricultural insurance needs to expand, says the Financial Stability Report of the Reserve Bank of India. Coverage remains low, it notes. Crop insurance is inherently riskier and costlier than other segments, as incidence of failure is not randomly or independently distributed. Weather-related events affect an entire area and population at the same time.
In yet another bout of unexplained weather conditions, rain and hailstorms over the past two days across rural Maharashtra have left the farm sector dreading a bitter summer ahead. Maharashtra government officials pointed out that the state is spending about Rs 10,000 crore on a slew of schemes for the crisis-ridden farm sector — Rs 4,200 crore on a drought relief package.
In India, when monsoons are delayed and crops fail as a result, farmers often don’t know how to pay back the debts they have taken on to purchase seeds. More than 15,000 commit suicide every year. These fates are a shocking reminder of a global problem caused by global warming. Farming has always been a gamble, but the growing number of “unusual weather events”, as experts call them, make seeding and harvesting an even riskier business.
1. Weather based insurance (WBI) is better suited to cope with asymmetric information problems. 2.Launch of first WBI pilots in India and Morocco in the early 2000s. 3. Most of WBI contracts are designed to provide coverage against risk of drought. 4. Rationale: to promote adoption of higher income but riskier technologies. 5. Low participation […]
In India, agricultural risks are exacerbated by a variety of factors, ranging from climate variability and change, frequent natural disasters, uncertainties in yields and prices, weak rural infrastructure, imperfect markets and lack of financial services including limited span and design of risk mitigation instruments such as credit and insurance.
With the ushering of globalization era promoting investments in agricultural trade, the study of agricultural risk management has its immense value at present. Its usefulness lies in strengthening national food security and stabilizing farmer’s income under uncertain events ranging from production risks as well as market risks of agricultural commodities.
New Zealand almost doubled its apple exports to India last season while it gained access to the Australian market in August. Outgoing Pipfruit New Zealand CEO says both these destination markets are set to grow in 2012, but his country’s production is likely to be down. He tells that all Southern Hemisphere growers will need to be careful about how they send volumes to Europe when exports kicks off in February, with the market posing challenges.
Indian production is highly dependent upon Monsoon rainfall. Only 40% of cultivated area has access to irrigation infrastructure although only 20% of this land is effectively irrigated. About 80% of the agricultural land depend on rainfall. Since 2004, 36 facultative reinsurance contracts were closed reinsuring 272590 policies. Estimated market growth in 2007 (comparing with 2006) is about 200%.
As the third largest producer of potatoes in the world, India grows approximately 25 million tons of potatoes annually, or about 8 per cent of total worldwide production. To secure its supply of processing potatoes, used for potato chips, PepsiCo started a contract farming programme for potatoes in India in 1995. In 2008, it contracted with approximately 10,000 potato farmers across the country in Punjab, Uttar Pradesh, Bihar, West Bengal, Himachal Pradesh, Maharashtra, Tamil Nadu and Karnataka. PepsiCo planned to increase the total number of potato contract farmers to 12,000-15,000 by the end of 2009.
Index-based insurance is an innovative financial product, which has been introduced in recent years in countries as diverse as India, Mongolia, Malawi and Thailand. It allows individual smallholder farmers to hedge against agricultural production risk, such as drought or flood. The product pays out in events that are triggered by a publicly observable index, such as rainfall recorded on a local rain gauge. Advocates argue that index insurance is transparent and inexpensive to administer, enables quick payouts, and minimizes moral hazard and adverse selection problems associated with other risk-coping mechanisms and traditional insurance programs.
The Indian peasantry, the largest surviving body of small farmers in the world, is currently facing an epidemic of suicide. For thousands of years farmers have depended on the Earth to sustain their families. Now, in the twenty-first century, their livelihood, prosperity, and the well-being of their families for generations to come are being threatened by globalisation and the shift in the linkage of agriculture from the Earth to a few profit-driven multinational corporations. Although India has been a frontline crusader in the global battle to protect the livelihoods of small farmers.
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