Agriculture Insurance in Nepal: Case of Banana and Livestock Insurance

Transcription

1 NARC Publication Serial No /2015/16 Agriculture Insurance in Nepal: Case of Banana and Livestock Insurance Dr. Yuga N. Ghimire Dr. Krishna P. Timsina Mr. Ghanashyam Kandel Mr. Dinesh B. Thapa Magar Mr. Sudeep Gautam Ms. Bimala Sharma Government of Nepal Nepal Agricultural Research Council Socioeconomics and Agricultural Research Policy Division (PPCR/BRCH/AMIS Project) Khumaltar, Lalitpur 2016

2 Socioeconomics & Agricultural Research Policy Division, NARC, Khumaltar, The contents in the document are the responsibility of the authors and do not necessarily reflect the views of any organizations. Socioeconomics & Agricultural Research Policy Division Nepal Agricultural Research Council (NARC) Khumaltar, Lalitpur, Nepal P.O. Box : 5459, Kathmandu Nepal Telephone : apord.narc@gmail.com URL :

3 Table of Contents Background 1 Methodology 2 Features of banana insurance in Nepal 3 Constraints for implementation 3 Indigenous risk reduction strategies 4 Risk management 5 Sources of information 6 Suggestion for improving the agricultural insurance 6 Features of livestock insurance in Nepal 7 Constraints for implementation 7 Indigenous risk reduction strategies 8 Types of risk 8 Risk reduction strategies in livestock farming 8 Reason for not going for livestock insurance 9 Suggestion for improving the livestock insurance 10 Conclusion 10 Acknowledgement 11 References 11

4

5 Background Agricultural systems are highly dependent on suitable climatic conditions making it vulnerable to any change in climate in Nepal (GoN, 2004). Agriculture has always been a risky business in the country as agricultural production are frequently affected by natural disasters such as droughts, floods, storms, landslides, weed, erratic rainfall, and many other problems which are beyond the control of the farmers. Given the low development of the country with subsistence based, rain-fed dominant farming system, complex topography, and higher vulnerability to climate change, managing agricultural risk associated with climate change and climate change adaptation has become a major challenge and priority for the country (Singh, 2011; MoE, 2010; World Bank, 2009). Agricultural insurance is widely recognized as one of the key options to manage such climate and other risks to farm level production, infrastructure and income (Smit and Skinner, 2002; Warner et. al., 2013). Agricultural insurance schemes help to reduce the risks and vulnerabilities of poor rural smallholders and open their access to a range of financial services for improving their livelihoods. Agriculture and livestock insurance have gained higher importance in recent years in Nepal due to evident abrupt changes in climatic conditions resulting in large scale damage to the production system. The Ministry of Agricultural Development introduced a subsidy on the premium paid for crop and livestock insurance in June The government provides a 50 percent subsidy on insurance premiums paid by individual farmers, farmers groups and farmer cooperatives for crops and livestock. Since the year 2014, Government of Nepal has increased subsidy premium from 50 percent to 75 percent to attract farmers in insuring their agricultural commodities. Furthermore, Government of Nepal has also a provision to provide additional 15% subsidy on premium if a cooperative insures its agribusiness. The major agricultural commodities prioritized for insurance schemes are paddy, vegetables, fruits, potato, livestock and poultry. The Government of Nepal (through the Insurance Board) in January 2013 introduced crop and livestock insurance directives to encourage insurance companies to develop commercial agricultural insurance. The directive introduces the obligation for non-life insurance companies to offer agricultural insurance, and also the guidelines for the insurance policies that insurance companies can use. Insurance companies are also free to 1

6 submit their own schemes for approval by the Insurance Board. 17 out of 19 non-life insurance companies have offered agricultural insurance, and insurance coverage is particularly higher for livestock than the crop sector. Apart from this, Cooperative organization of farmers and farmers' groups and Credit Security program of the Agricultural Development Bank have also been implementing agricultural insurance schemes in the country which are separate from the insurance companies subsidy scheme and is not scheduled to stop anytime soon. Prior to these recent initiatives on agricultural insurance, insurance schemes particularly in livestock were also in operation as pilot projects in Nepal through the Small Farmer Cooperative Limited (SFCL) scheme and the Community Livestock Development Programme (CLDP), and Cooperatives, under the technical and financial assistance of international development agencies. This study was conducted to assess the existing crop and livestock insurance implementation practices in Nepal taking the cases of banana farming and livestock keeping and providing suggestions for its further improvement. This paper focus on the differences between crop and livestock insurance implemented in the country in term of constraints for implementing, types of risk associated, Indigenous risk reduction strategies, sources of information to farmers about insurance process. These issues have been discussed here taking the cases of banana farming and livestock keeping. Methodology The study employed combination of different tools/methods which includes the Desk Review, Focus Group Discussion (FGD), Household Survey and Stakeholder s Panel Workshop with expert relevant to agricultural insurance program in Nepal. The stakeholder interaction workshop was carried out with the participation of researchers, extension officials, insurance companies, cooperatives and seed company representatives and farmers engaged in insurance schemes as well as farmers who were not engaged in agricultural insurance from Nawalparasi and Chitwan districts. The main aim of stakeholder s workshop was to elicit expert knowledge and experiences of different stakeholders on implementation of agricultural insurance and update research findings. Two FGDs, one focusing on banana insurance at Chitwan and other focusing on the dairy at Nawalparasi were carried out. A total of 12 banana farmers (8 insurers and 4 non insurers) and 13 livestock farmers 2

7 (8 insurers and 5 non insurers) were participated in the discussion with the help of a checklist prepared. Two Household level surveys were conducted to study about the various issues, farmer's indigenous risk minimizing tools/techniques/methods and farmers perception about agri-insurance related to banana and dairy insurance. For the purpose of household survey Chitwan and Nawalparasi district were selected purposely based on the available cases for the study. In case of banana insurance census was conducted whereas for dairy insurance farmers different VDCs were identified as a cluster and sample were taken from these clusters randomly. For non-insurer, different nearby clusters were selected and farmers were randomly selected from each cluster. A total of 46 households (30 agri. Insurance and 16 noninsurance farmers) from Chitwan were taken for study in banana whereas a total of 50 households (35 insurer farmers and 15 non insurers' farmers) were taken for study in case of dairy insurance in Nawalparasi district. The information was supplemented by the recent exploratory visits and interaction meeting with insurance companies launching the agri-insurance programs in Chitwan and Nawalparasi districts. The data collected were analyzed using descriptive statistics and qualitative methods. Features of banana insurance in Nepal Constraints for implementation Wind was found as a major weather related risk for damaging banana crop in Nepal. Word Bank (2009) reported the heavy losses of banana due to wind in Chitwan and Nawalparasai district of Nepal. There was a problem for insurance in case of leased land because insurance company demands land entitlement certificate (Lalpurja). Also the mandatory recommendation from VDC secretary during claiming compensation is tedious for the farmers. Farmers who were not participated in insurance program were waiting to see the reimbursement of loss of their neighbor farmers. In case of newly established banana orchard (one to two years), farmers were not interested for insurance due to minimum losses during these years compared to later productive years. Standard plant density of 1400 plant per bigha is fixed as a basis to count the loss of plants, if any, for insurance purpose. Farmers who plant in higher density, has been found claiming for lodged number irrespective 3

8 of remaining plant population in the field. Therefore some farmers with the standard density have also been found taken compensation from insurance companies in some cases. In overall some suggestions were recommended for strengthening banana insurance program such as use of public land, remove the mandatory provision of being land owner and establishing land leasing bank. Also the issues of number of plants per bighha (1400 per bighha) should be reconsidered. Indigenous risk reduction strategies Farmers has been using different indigenous techniques and method for risk minimization such as use of healthy plants, variety change (shift to Malbhog from Green Banana eg. Harisal, Jhapali Hariyo to William hybrid, G-9), use of bamboo staking (Teka), row planting to protect from wind, cleaning (removal of dead leaves, unwanted suckers) of plants, use of pesticides and insecticides and planting time adjustment (escaping fruiting time from Falgun/Chaitra winds which causes the heavy damage to banana). Figure 1: Types of risks to banana farmers Figure 1 shows that more than 90 % farmer's major risk was windstorms both for insurer and non-insurer farmers. Disease and pest rank second and third important risk to banana farmers. Types of risks were common to both the insurer and non-insurer farmers. 4

9 Risk management Insurer farmers were adopting insurance as a major tool for risk minimization in banana. Beside insurance, use of pesticides/insecticides and staking were the important tools used for risk minimization for both types of farmers. More number of Non-insurer farmers (66.6%) was adopting application of compost and fertilizers as compared to insurer farmers (30%). Variety change as an option for climatic risk minimization was adopted by more than 50% farmers in case of both insurer and noninsurer. It was found that farmers now replaced the green variety with malbhog variety (eg. Harisal, Jhapali Hariyo to William hybrid, G-9) because green varieties are more susceptible to breaking by wind. Insurer farmers also used different techniques like planting the wind breaks (perennial trees) and adjustment in planting time to escape from Falgun/ Chaitra wind. Table 1: Different risk reduction strategies used Different risk reduction strategies Frequency % Frequency % Crop Insurance Use of pesticides/ insecticides Staking Orchard management (removal of dead leaves, desuckering Use of compost / fertilizers Earthing up Variety changes Planting wind breaks (perennial trees) Adjustment in planting time Source: Field survey,

10 Sources of information Table 2 shows the sources of information for the farmers about the agricultural insurance. Among different sources available, sources of information was farmers group (Banana production groups) for 96.7% insurer farmers and 60% of non-insurer farmers. DADO as a source of information ranks second in case of insurer farmers, whereas, in case of non-insurer farmer, it comes after radio, TV and newspaper. This may be due to regular contact of insurer farmers with the DADO office. Only 20% people use insurance agents as sources of information on crop insurance. Table 2: Different sources of information on insurance Sources of information for Frequency % Frequency % crop insurance Insurance agents DADO Newspaper Radio TV Farmers group Source: Field survey, 2015 Suggestion for improving the agricultural insurance Both insurer and non-insurer farmers suggested to improve the current agricultural insurance scheme (Table 3) More than 80% farmers (both insurer and non-insurer) suggested for quick settlement of claims. Only 20% insurer farmers suggested increasing the indemnity level, which shows that farmers were satisfied with the current level of indemnity. About 53% of insurer farmers and 26.67% of non -insurer farmers suggested launching awareness programs about agricultural insurance. About 34% farmers who insured their banana crops suggested for covering more risk under the scheme and for making the process easy. 6

11 Table 3: Suggestion for improving the agricultural insurance scheme Suggestions Frequency % Frequency % Reduce premium Quick settlement of the claims Insurance service at door step Raise the indemnity level Awareness program should be launched Should improve the implementation mechanism Cover more risk under scheme Documentation process should be easy Source: Field survey, 2015 Features of livestock insurance in Nepal Constraints for implementation Various problems in insuring dairy animals includes delay in claim settlement, tedious claim procedure of insurance company, difficult to receive payment on mastitis, infertility, fixing age limit for insuring livestock animal which limits some animals even at their productive stage. Also the lack of awareness on the importance, and the subsistence nature of farming have been found limiting the spread of insurance programme. Mastitis has been found a complicated issue for the insurer and the farmers since this disease is not insured based on severity which is necessary to address through a policy change. Insurance company's delay in process, farmer's moral hazard and lack of quality investigation facilities has been found as the factors causing frequent disputes between the parties involved. Exclusion of wild animal's attack under the insurance coverage has also been a constraints for livestock insurance in Nepal. Moreover, 7

12 existing insurance policy lacks the concept of business scale where the premium amount is not based on the size of herd. Indigenous risk reduction strategies Mortality rate was found to be higher in cattle than in buffalo. Livestock grower farmers use the different ways for risk minimization such as vaccination against major diseases, regular consultation with veterinary doctors, changes of breed/animal type, timely feeding with concentrates and green fodder, sanitation of cattle shed, etc. Types of risk From the household survey, it was found that disease was the major risk faced by the livestock insurer. All the insurers and 80% of non-insurer farmers' major risk was disease. Infertility was the major problem of 62.9% of insurer farmer and 20 % of non-insurer farmers. Accidents were also conceived as a major risk in livestock. Figure 2Type of risk in livestock farming Risk reduction strategies in livestock farming Survey result shows that farmers were familiar with the different type of tools and techniques for risk minimization (Table 4). Insurer farmer besides using insurance were using earlier treatment of disease (82.6%), 8

13 sanitation (68.6%), feeding the animal in right time and quantity (57.1%), vaccination of animal against major disease (31.4%) and only 8.6% people were using changes in animal and breed type. In case of noninsurer farmer people used different techniques such as timely treatment of disease (66.7%), sanitation (66.7%) and feeding right quantity of feed in right time (60%) and (33.3%) were using sanitation and changes in animal and breed. Table 4: Different risk reduction strategies used Strategies Frequency % Frequency % Insurance Timely treatment Vaccination against major disease Feeding the animal in right time and quantity Sanitation Changes of breed/animal type Sources: Field survey, 2015 Reason for not going for livestock insurance Main reasons for not going for livestock insurance are presented in table 5. The study revealed that the main reasons for not going for livestock insurance are the lack of faith in the scheme/agency (100%), lack of awareness (46.66%), lack of premium paying capacity (20%), complex documentation (13.3%) and delay in claim payment (6.7%). Table 5: Reason for not going for livestock insurance Reason for not going livestock insurance Frequency % Lack of awareness Lack of premium paying capacity 3 20 Complex documentation No faith in the scheme/agency Delay in claim payment Sources: Field survey,

14 Suggestion for improving the livestock insurance There are some ways to improve livestock insurance in Nepal. They have been illustrated in Table 6. Majority of both insurer and non-insurer farmers suggested to establish premium rate based on herd size, as premium is to be paid on per animal basis which appears huge for commercial livestock growers. About 57% of insurer and about 34% of non-insurer suggested for quick settlement of claims to resume the business immediately after loss. Table 6: Suggestion for improving the livestock insurance Suggestions Frequency % Frequency % Reduce premium Quick settlement of claims Insurance services at doorstep Raise the indemnity level percentages Awareness programs about Dairy insurance Improvement of implementation (Sources: Field survey 2015) Conclusion Agricultural insurance has been growing in slow pace. Out of 500 banana farmers, only 34 insured their banana crop in Chitwan and farmers who insured was satisfied with the current premium rate and indemnity given based on the cost of production. Windstorms was found to be major problem for banana farmers and cause heavy damage to their crops during the month of Feb/Mar-June/July. Major issues need to addressed in banana insurance was requirement of land entitlement certificate for insurance which hindered insurance by farmer who leased land. Also, quick settlement of claims is also urgent to help farmers to continue the enterprise without taking loans from other sources. Disease was found to be major problem for livestock farmers. People used different mitigation measures besides insurance such as vaccination, sanitation, feeding right quantity and quality 10

15 of feed and fodder etc. Major issues were problems of payment in case of infertility and accident. Farmers mainly suggested for adequate publicity of insurance scheme, making insurance procedure easier and quick settlement of claims in order to improve the agricultural insurance scheme. Acknowledgement We highly acknowledge World Bank for the financial support for this research through the project Pilot Program for Climate Resilience (PPCR)-Component D: Agricultural Management Information System. We are also grateful to the Project Director, Mr. Shib Nandan Prasad Sah and NARC Component Coordinator, Dr. Ananda Kumar Gautam for their support in program planning. Researchers in Socioeconomics and Agricultural Research Policy (SARPOD) are thankful for their active participation in collecting, compiling and processing information. References Gauchan, D Importance of Agricultural Insurance in Agricultural Development in Nepal: Proposed Research Activities and Issues. A Paper presented in Regional Stakeholder Consultation Meeting on Agriculture Insurance and Agro-Advisory Bulletin (PPCR/ BRCH), July 6, 2014, NWRP, Bhairahawa. Nepal. GoN Initial national communication to the Conference of the Parties of the United Nations Framework Convention on climate change. Ministry of Population and Environment, Government of Nepal. Singh, F Country report: Nepal. Workshop on climate change and its impact on agriculture. Seoul, Republic of Korea, December Smit, B. and M.W. Skinner Adaptation options in agriculture to climate change: A typology. Mitigation and adaptation strategies for global change 7: , Warner, K., Yuzva, K., Zissener, M., Gille, S., Voss, J. and S. Wanczeck Innovative insurance solutions for climate change: How to integrate climate risk insurance into a comprehensive climate risk management approach. Report No. 12. Bonn: United Nations 11

16 University Institute for Environment and Human Security (UNU- EHS). World Bank Feasibility study for agricultural insurance in Nepal. Finance and Private Sector Development Unit, South Asia Region Global Facility for Disaster Reduction and Recovery. 12

17

18 Contact Address: Socioeconomics and Agricultural Research Policy Division (SARPOD) Nepal Agricultural Research Council (NARC) NARI Building, Khumaltar, Lalitpur PO Box 5459, Kathmandu Tel: