REPORT OF THE international WORKSHOP ON "EFFECTIVE AGRICULTURE INSURANCE SCHEMES FOR SUSTAINABLE FAMILY FARMING IN THE DEVELOPING COUNTRIES" held on 29 April - 06 May 2007 Kuala Lumpur, Malaysia

The Afro-Asian Rural Development Organization (AARDO) was established in 1962 as an inter-governmental Organization in order to provide a forum for the countries in the continents of Africa and Asia to jointly discuss their problems, exchange views, ideas, experiences and information in the field of rural and agricultural development and to make concerted efforts, wherever possible, to improve the quality of life of the rural people. In fact, AARDO has been promoting South-South cooperation and Afro-Asian solidarity for more than four decades. To achieve its mandate, AARDO focuses on three broad areas i.e. human resource development, financing of development pilot projects, and dissemination of information.

As one of its technical activities, AARDO regularly organizes international workshops/seminars on topical themes in the member countries. This helps them to share their experiences and explore the possibilities of replicating successful models in their own countries. The international workshop on “Effective Insurance Schemes for Sustainable Family Farming in the Developing Countries” was an initiative to bring member countries together to share their experiences.

Agriculture is the main source of livelihood for millions of farmers in developing countries. The overwhelming majority of farmers are small producers and depend mainly on rainfall for crops production. The risks and uncertainties associated with agricultural production make agriculture a highly risky business. In order to reduce the risks of natural calamities such as droughts, floods, cyclones, hailstorms, attacks of pests and diseases, etc., crop insurance has been considered as one of the most viable options. According to FAO, the total annual insurance premiums for agriculture and forestry globally accounted for about US$ 6.5 billion in 2001. About 70 percent of this is accounted for by crop and forestry insurance while the estimated total farm gate value of global agricultural production is US$ 1400 billion, which indicates that the insurance premiums paid globally represent just 0.4 percent of the estimated total farm gate value.

The system of crop insurance in the developed countries is practiced as a business whereas it is still in its early stages in the developing countries. In most countries, insurance is paid against hail, frost, droughts, pest, disease as is the case in Argentina, Brazil, Cyprus and, India. Insurance is generally made against both damages - based product “losses” and yield - based product “expected yield”.

However, the global environmental changes, crop damaging weather events, commercialization of agriculture sector and consequently the need for investment in the sector are some of the factors that contribute to the growth in demand for crop insurance. Moreover, issues like food security, guaranteed level of family income and rural employment encouraged the public sector to workout crop insurance schemes. It is worth pointing out here that even WTO permits the subsidization of agriculture through insurance premiums as transfer payment into the farming sector.

Crop insurance is a contract between the financial institution and the farmer and entails some difficulties due to the risks and uncertainties involved in agricultural business particularly in the rain-fed agriculture areas. Yet the key stakeholders can work out an effective and economic crop insurance contract with verifiable variables that can easily be measured or assessed in order to ensure a fair outcome for both the principal and the agent. This is the only way that crop insurance schemes can be developed and promoted.

It can play a vital role in sustaining the small and marginal farmers’ income. Similarly, it can protect small farmers against the risks and uncertainties of production that are beyond their control. Moreover it can attract the youth towards agricultural production by reducing the risks and ensuring a more stable & remunerative income.

With this background, the International Workshop on “Effective Insurance Schemes for Sustainable Family Farming in the Developing Countries” in collaboration with the Ministry of Agriculture and Agro-based Industry (Department of Agriculture) and Ministry of Rural and Regional Development (Institute for Rural Advancement) Government of Malaysia was organised by AARDO in Kuala Lumpur, Malaysia, during 29 April – 06 May 2007. The main objectives of the workshop were to exchange information on the current development of agricultural insurance in the developing countries; to introduce the general theories, concepts and principles of agricultural insurance; to highlight the successful models of agricultural insurance schemes; and to enable the participants to prepare models of sustainable agricultural insurance schemes.

The papers presented by resource persons and participants from the member counties formed the basis of the deliberations of the international workshop. These papers provided invaluable information on agricultural insurance schemes being implemented in Afro-Asian counties. Apart from the presentation of the papers, the field visit to the district of Alor Gajah in the state of Malaka located about 100 kms south of Kuala Lumpur provided the participants an opportunity to study and observe not only the family farming system but also the agricultural insurance schemes being implemented in Malaysia.

The lively and detailed discussions held during the course of the workshop resulted in some extremely useful recommendations for the member counties on various insurance schemes for sustainable family farming systems.


03 October 2007 Abdalla Yahia Adam
New Delhi Secretary General

Excellencies, Distinguished Guests, Participants
Ladies and Gentlemen,

On behalf of the Afro-Asian Rural Development Organization (AARDO)and on my own behalf, I have immense pleasure to welcome you all to this International Workshop on “Effective Insurance Schemes for Sustainable Family Farming in the Developing Countries” being organised by AARDO in collaboration with the esteemed Ministry of Agriculture and Agro-based Industry (Department of Agriculture) and Ministry of Rural and Regional Development (Institute for Rural Advancement ) Government of Malaysia in this beautiful city of Kuala Lumpur.

I wish to extend my sincere thanks to the esteemed Government of Malaysia for kind support and cooperation in making this International workshop possible. I also take this opportunity to express my sincere gratitude to the Honorable Chief Guest for sparing his invaluable time to inaugurate this important workshop. I am also grateful to the Government of participating countries for nominating their senior officers and experts to the workshop.

Excellencies, Distinguished Guests, Delegates, Ladies and Gentlemen,

Let me briefly introduce the Afro-Asian Rural Development Organization (AARDO), which is one of the earliest examples of the South-South cooperation and Afro-Asian solidarity, established in 1962. AARDO is an inter-governmental Organisation in the field of agriculture and rural development with its headquarters located in New Delhi, India. AARDO’s strength presently stands at 30 members, 14 member countries from Asia and 15 member countries and one associate member from Africa. AARDO enjoys Observer status with various UN and other international agencies like Food and Agriculture Organisation (FAO), International Fund for Agricultural Development (IFAD), United Nations Conference on Trade and Development (UNCTAD), United Nations Educational, Scientific and Cultural Organisation (UNESCO), International Cooperative Alliance (ICA), etc.

The main objective of AARDO is to act as a catalyst and provide a forum for the member countries in the Afro-Asian region to jointly discuss their problems, exchange of views, ideas, experiences and information in the field of agriculture and rural development. Also to pool their resources, and make concerted efforts, wherever possible, to improve the quality of life of their rural people. AARDO’s strategies for rural development are focused on three broad areas, i.e; human resource development (HRD), financing of development pilot projects and dissemination of information.

Under HRD, AARDO organises training programmes, workshops, seminars, study visits, deputation of experts, etc. The training programmes are organised in the centres of excellence located in its member countries, namely, Egypt, India, Malaysia, Republic of China, Republic of Korea and Japan. AARDO provides more than 150 fully paid fellowships every year to the participants from the member countries and hopefully this number of fellowships will I increase to 200 soon. The areas of training include issues related to agricultural and rural development from planning to evaluation. Poverty alleviation of sustainable rural development through entrepreneurship development have become an integral part of AARDO Technical Programmes.

Under its development pilot project scheme, AARDO provides financial assistance for various aspects of development like promotion of income generating activities, micro-entrepreneurship projects, development of infrastructure in the rural areas, social development, micro-credit, etc.

AARDO also disseminates information by bringing out its own publication like Journal, News Letters, and reports of various HRD activities and by hosting its own website on internet.

Excellencies, Distinguished Guests, Delegates, Ladies and Gentlemen,

Agriculture is a main source of livelihood for millions of farmers in developing countries. The overwhelming majority of farmers is small producers and depends mainly on rain for crops production. The risk and uncertainty associated with agricultural production make agriculture a highly risky business. To cope with the nature-induced risks such as droughts, floods, cyclones, hailstorms, attacks of pests and diseases, etc., crop insurance has been considered as one of the major viable options. According to FAO, globally total annual insurance premiums for agriculture and forestry in 2001 accounted to come to US$ 6.5 billion. Of this around 70 percent is accounted for by crop and forestry insurance while the estimated total farm gate value of agricultural production globally is US$ 1400 billion which indicates that the insurance premiums paid globally represent just 0.4 percent of the estimated total farm gate value.

The practice of crop insurance is more advanced in developed countries as a business. In the developing countries it is still in its early stages as only 13 percent of global premiums are paid in the developing world. In most countries insurance is paid against hail, frost, droughts, pest, disease as the case in Argentina, Brazil, Cyprus and, India. It is made against both damages - based products “losses” and yield - based products “expected yield”.

Because of the global changes in environment, economy and the farming sector there has been a growing demand for crop insurance. Environmental changes, crop damaging weather events, commercialization of agriculture sector and consequently the need for investment on the sector are some of the factors that contribute to the growth in demand for crop insurance. Likewise issues such as food security, guaranteed level of family income and rural employment encouraged the public sector to workout crop insurance schemes like the case in India. It is worth mentioning that even WTO permits the subsidization of agriculture through insurance premiums as transfer payment into farming sector.

Excellencies, Distinguished Guests, Delegates, Ladies and Gentlemen,

Crop insurance is a contract between the principal “financial institution” and the agent – the farmer – the design of such a contract entails difficulties because of the risks and uncertainties associated with agriculture as a business special rain-fed agriculture. Yet the key stakeholders can work out an effective and economic crop insurance contracts with verifiable variables that can easily be measured or assessed in order to ensure fair outcome for both the principal and the agent. This is the only way that crop insurance schemes can be developed and promoted.

Finally, crop insurance can play a vital role in sustaining small and marginal farmers’ income. Similarly, it can protect small farmers against the risks and uncertainties of production that beyond their control. Moreover, the trend of less succession of the increasingly ageing farm population as well as the misconception of agricultural occupation by the youth can be reversed by crop insurance.

With this background, AARDO decided to organise this international workshop in collaboration with the Ministry of Agriculture and Agro-based Industry (Department of Agriculture) and Ministry of Rural and Regional Development (Institute for Rural Advancement ) Government of Malaysia with the following objectives:
• to exchange information on the current development of agricultural insurance in the developing countries;

• to introduce the general theories, concept and principles of agricultural insurance;

• to highlight the successful models of agricultural insurance schemes; and

• to enable the participants to prepare models of sustainable agricultural insurance schemes.

Fortunately, among us here, we have three resource persons and the participants of 13 member countries namely, Bangladesh, R. O. China, India, Jordan, Mauritius, Morocco, Nigeria, Oman, Pakistan, Sudan, Syria, Yemen and the host country Malaysia, possessing a wealth of knowledge, expertise and experience. I am sure that the resource persons will discuss and share their rich and diverse experiences in the agricultural crop insurance. I hope that the interaction with the resource persons and deliberation during the workshop will certainly help participants deepen the undertaking of the core issues related to agricultural insurance.

I am sure you all enjoy stay in this beautiful city of Kuala Lumpur.

Thanks you all for kind attention.

 

1.1         Introduction

Agriculture is a main source of livelihood for millions of farmers in developing countries. The overwhelming majority of farmers is small producers and depends mainly on rain for crop production. The uncertainties associated with agricultural production make agriculture a highly risky business. To cope with the nature-induced risks such as drought, floods, cyclones, hailstorms, attacks of pests and diseases, etc., crop insurance has been considered as one of the major viable options. Crop insurance can play a vital role in sustaining small and marginal farmers' economy. Similarly, it can protect small farmers against the risks and uncertainties of crop production that are beyond their control thereby sustaining small farming for food security and employment.

The purpose of crop insurance is to compensate farmers in case of crop failure as a result of natural calamities and to encourage small farmers to adopt progressive farming practices, high value inputs and advanced technology in agriculture and to help in stabilising farm income.

In fact, in some of the developing countries, crop insurance does exist as an institutional response to nature induced risks. But still, there is limited knowledge among policy-makers and farmers about the various measures of crop insurance- its merits and demerits. Further, crop insurance is a costly venture, so questions like who would finance the scheme and by how much, and under what terms and conditions arise. Moreover, since crops are not properties of fixed and known values, it is a basic problem to determine their insurance liability or amount, let alone the fact that losses are either partial or total. And lastly, the administrative body to deal with crop insurance should also be clearly determined. Whether government or an agency of the government, private sector, joint venture, and cooperatives that will administer the scheme has to be decided in order to ensure its smooth functioning.

1.2          Objectives

The main objectives of the workshop were :

• to exchange information on the current development of agricultural insurance in the developing countries;

• to introduce the general theories, concept and principles of agricultural insurance;

• to highlight the successful models of agricultural insurance schemes; and

• to enable the participants to prepare models of sustainable agricultural insurance schemes.

1.3          Participation

The workshop was attended by 14 participants and three resource persons from 11 AARDO member countries, namely, Bangladesh, R. O. China, India, Jordan, Mauritius, Nigeria, Oman, Pakistan, Sudan, Syria and the host country Malaysia.
 

1.4        Organisation of the Workshop

The workshop was organised by Afro-Asian Rural Development Organization (AARDO) in collaboration with the Department of Agriculture (DOA), Ministry of Agriculture and Agro-Based Industry and Institute for Rural Advancement (INFRA), Ministry of Rural and Regional Development, Government of Malaysia from 29 April to 06 May 2007. The workshop consisted of two parts, the technical session and the field visit. The technical session included presentation of expert papers by eminent resource persons, country reports by participants and the discussions thereon. A field visit to Agriculture Center, Sungai Udang, Melaka was arranged on 3rd May 2007 to get the participants exposed to the local agricultural situation, family farming system and insurance scheme being operated.

During the business sessions, three (3) expert papers were presented by the resource persons from India, Sudan and Malaysia. In addition, ten (10) country papers by the delegates from AARDO member countries, namely, Bangladesh, R. O. China, Jordan, Malaysia, Mauritius, Nigeria, Oman, Pakistan, Sudan and Syria were also presented.

1.5       Inaugural Session

The inaugural function of the workshop was held on 30th April 2007 at 9:00 A.M. at the Conference hall of the Institute for Rural Advancement (INFRA). While the welcoming address was delivered by H E Mr Abdalla Yahia Adam, the Secretary General, AARDO, Mr Che Hasan bin Che Man, Director, INFRA presented the inaugural address on behalf of the Secretary General Ministry of Rural and Regional Development, Government of Malaysia.
 

1.6    Welcome Address by H E Mr Abdalla Yahia Adam, Secretary General, AARDO

His Excellency, the Secretary General AARDO, while welcoming the distinguished guests and delegates expressed sincere thanks to the Government of Malaysia for its kind support and cooperation in making it possible to organise the workshop. He also thanked the Governments of the participating countries as well the distinguished experts.

Touching upon the issue, His Excellency stated that crop insurance is considered as a viable option to cope with the nature –induced risks associated with the agricultural production. Referring to the FAO, he mentioned that insurance premiums paid globally represent only 4 per cent of the estimated total farm gate income. The crop insurance as a business in the developing countries is still in the nascent stage with just 13 per cent of the global premiums paid. The Secretary General further pointed out that the crop insurance is a contract between the financial institutions and the farmers and the design of such contracts entails difficulties due to risks and uncertainties with agriculture particularly in the rain fed areas. However he suggested that the key stakeholders can work out an effective and economic crop insurance contracts with verifiable variables that can easily be measured and ensure fair outcome of key players. Moreover, it can safeguard small and marginal farmers and help solve the problem of succession of farmers. He hoped that the delegates would deliberate on the issues of crop insurance and exchange the experiences of their respective countries and would come out with appropriate recommendations for the benefits of the developing countries.
 

1.7      Inaugural Address by Mr Che Hasan bin Che Man, Director, INFRA

The inaugural speech was presented by Mr Che Hasan bin Che Man, the Director, INFRA on behalf of the Secretary General, Ministry of Rural and Regional Development (MRRD), Government of Malaysia. Welcoming His Excellency the Secretary General, AARDO and all the distinguished delegates, Mr. Hasan wished them all comfortable stay in his beautiful country. He stated that agriculture is the main source of livelihood and major contributor to the GDP of Malaysia and therefore the introduction of crop insurance could be considered as a step to sustain small and marginal farmers. It can protect them against risks which are beyond control. He hoped that the delegates and experts would discuss issues concerning small farmers and find innovative ways to help them.

1.8        Business Session

Following the inauguration of the workshop, the first business session was devoted to discussion on the concepts and principles of agricultural insurance as well as issues and challenges of agriculture insurance in developing countries. The session was chaired by His Excellency Mr Abdalla Yahia Adam, Secretary General, AARDO.

1.8.1     Presentation of Expert Papers

Expert Paper 1 on “Agricultural Insurance in Developing Countries : Issues and Challenges by Dr T. Haque”

In the session, the first expert paper on “Agricultural Insurance in Developing Countries – Issues and Challenges” was presented by Dr Tajamul Haque, the distinguished resource person from India. His paper evoked lively discussion during the session. Touching upon the concept, theories and principles of agriculture insurance in his presentation, Dr Haque pointed out that in recent times, demand for agricultural insurance has grown because of frequent losses of crop production and livestock, growth of commercialisation and contract farming, WTO compatibility, and development of new insurance products. He highlighted the success as well as failure stories of comprehensive crop insurance scheme, National agricultural insurance scheme, farm income insurance scheme and weather insurance scheme in India. He also discussed about the private sector participation in weather insurance. Dr Haque briefly discussed the experiences of agricultural insurance in some Asian countries. According to him, choice of insurance implementing agency; high risks of catastrophic losses; high administrative costs; non-availability of reliable data; problems of compulsory versus voluntary participation; moral hazard; self finance, reserves and reinsurance; and choice of insurance products such as damaged based specific products, yield based crop insurance, crop income insurance, index insurance, etc., are the real challenges today. He said that agricultural insurance programme in both developed and developing countries are highly subsidised. But the question still remains whether resource poor developing countries would be able to provide adequate subsidies and sustain any comprehensive agricultural insurance policy. At the same time high premium rates unless subsidised by government will ever restrict participation of small and marginal farmers. In this situation, governments of developing countries should educate farmers on non-insurance based risk management strategies so that the economic loss could be minimised. However, if the agricultural insurance helps improve agricultural production and food security of a country, subsidy on agriculture insurance should be justified. <For full text of the paper, please E-mail us>

The Second business session was chaired by Dr Tajamul Haque, the distinguished resource person from India. In the session, two expert papers were presented by the esteemed resource persons from Malaysia and Sudan.

Expert Paper 2 on “Agriculture Insurance Initiatives in Malaysia” by Mr. Lai Poong Shen

The second expert paper on “Agriculture Insurance Initiatives in Malaysia” was presented by Mr. Lai Poong Shen, the distinguished resource person from Malaysia. In his presentation Mr lai, highlighting a case study of paddy filed shortfall insurance scheme, touched upon the reasons for poor development in agriculture insurance scheme, government support, and some critical issues. Explaining the reasons for poor development in agriculture insurance scheme, he held responsible to the low affordability, high operating costs for delivering insurance products and claims management, anti-selection, moral hazard, lack of historical data to support rating structure, lack of technical skills, small size of farms of traditional and subsistence nature.

Mr. Lai, described that the paddy yield shortfall insurance scheme has the scope to cover damages caused by flood, windstorm, drought, insect pest, diseases, etc. The basis of indemnity and sum insured covers multi-perils paddy yield shortfall. The modus operandi for paddy yield shortfall insurance is the compulsory participation of farmers in specific granary, government subsidiaries to the farmers, management of scheme by servicing company and pooling resources by the local insurers.

Mr. Lai informed that the government support for paddy yield shortfall insurance scheme are based on digital mapping of all paddy lots, particulars of farmers/farm, seasonal yield records at locality and irrigation block, SAR remote sensing data for crop monitoring and yield assessment. The government support is further based on familiarisation training on application and knowledge of SAR remote sensing which include growth monitoring and yield and loss estimation of paddy, declaration of sowing and harvesting dates and rescheduling of such dates as well as area to be planted for each irrigation block, coordination between agencies and farmers’ cooperatives in assisting routine manual crop monitoring and yield assessment, redistribution claims for losses at locality level and distribution of claims for flood losses at individual farm level, coordination, management of allocation of premium subsidy, self-Insured loss in-line with approved schemes and government strategy, etc also considered before extending support. The insurance product, administrative infrastructure, migration from subsidiaries to self financing, premium financing, and the role of Government are the critical Issues. <For full text of the paper, please E-mail us>

Expert Paper 3 on “Agriculture Insurance in Africa with Special Reference to Sudan” by Dr Sulaiman Seed Ahmad El-Said Taha

The paper was presented by Dr Sulaiman Seed Ahmad El-Said Taha, the distinguished resource person from Sudan on “Agriculture Insurance in Africa with Special Reference to Sudan”. In his paper Dr Sulaiman stated that people traditionally have been helped by each other at any event of losses due to natural calamity and pest diseases which in itself has been the business of cooperative insurance. It led to the commercialisation of insurance where the insurance companies began their job without Government support.

Dr Sulaiman indicated that two insurance systems exist in the world- the commercial, which is practiced by private companies all over the world, and the cooperative system, which is practiced in various countries. The cooperative system, and for that matter the Islamic insurance system, is based on cooperation of all insured for mutual benefits to mitigate the negative impact of natural hazards that befall some of them.

According to him, there are two options for crop insurance, the one is input-based or loss cost in which actual costs of production, may or may not include harvest cost, are calculated and insured. If the plant is damaged at any stage during the vegetative growth, the incurred costs are indemnified. If the damage is partial and the value of the harvested crop does not cover production costs then the insured shall be indemnified the difference between the value of the harvested crop and the insured costs spent on production. This shall enable him to settle all his liabilities and get ready for the certain season. The other option is yield-based, insuring a certain level of harvest agreed by the insured and insurer.

The practice in Sudan is to use the first option for all annual crops, such as cotton, cereals, vegetable oils, vegetables and to use the second option for perennial crops such as sugar cane, fruit trees, lucerne etc.

Dr. Sulaiman also briefly touched upon the agriculture insurance being practiced in some other African countries like Algeria, Nigeria and Mauritius. In Sudan there was a renewed effort for crop insurance in 1993 by the initiative of Sheikan Insurance and Reinsurance Company Limited (SIRC) which is the only Sudanese company that covers both livestock and crops but with the government support. <For full text of the paper, please E-mail us>.
 

1.8.2     Presentation of Country Papers

The Second business session of the day was chaired by Mr. Lai Poong Shen, the distinguished resource person from Malaysia. In this session three country papers were presented by the delegates from Bangladesh, Republic of China and Jordan

1.8.2.1    Bangladesh

The paper on “Effective Agriculture Insurance Scheme for Sustainable Family Farming in the Developing Countries: A Case of Bangladesh” was presented by Dr. Kamrul Ahsan. In his paper, he explained that sustainable development requires utilisation of natural resources both in the short and the long term and keeping its productivity without damaging its potentialities for future generations. Family farming in Bangladesh mainly integrates with crop, livestock, fishery, horticulture, small business, labour, inputs etc. in subsistence level in majority cases. He informed that about 97 percent farm households of the country constitute small and medium farms. High input cost of agriculture production system, inadequate availability of inputs, poor quality of inputs, frequent natural disasters, poor marketing facilities, etc. are the major hindrances of farm productivity. Apart from about one percent loss of agriculture land and increase of 1.9 percent of population are the major critical considerations for food security of the country. Adoption of crop insurance by farm families is very insignificant due to subsistence earnings of farm families in most cases. Government supports during and posts natural disasters situations through providing agricultural inputs without price or in soft condition. It also uses all the commercial banks to bring farmers under cooperative insurance but the scheme is totally voluntary. The farm families do not get full benefits of the government support due to inefficient distribution mechanism.

Keeping subsidies in national budget on agricultural inputs particularly fertilisers and fuel are common practices. Besides, export oriented agriculture commodities get direct support from the government. Creating better environment to the effective distribution government supports and services to the farm families and technological development of farming practices can enhance family income and thus can ensure Good Agricultural Practices (GAP) at the farmer’s level. <For full text of the paper, please E-mail us>

1.8.2.2 Republic of China

The second paper was presented by Mr. Yuan-Horng Lo on “A Discussion on Agricultural Insurance” in R. O. China. In his paper, he described that crop insurance has been studied for several decades, but not implemented so far in Taiwan. In order to reinforce agricultural natural disaster relief and supplant it with crop insurance, the Council of Agriculture (COA) has amended the Agricultural Natural Disaster Relief Regulations many times to offer relief with more flexible means. The COA has urged competent authorities of various industries to collaborate with the talents of various professional disciplines in the Research and Extension Institutes and Stations to reinforce seminars and training on disaster investigation and loss evaluation, to improve the vocational competency of investigation personnel, and implement works such as disaster investigation and reports, damage assessment and spot inspection. The conclusions drawn from the school’s research of agricultural insurance will be used by the COA as a reference to deciding whether to implement crop insurance or not. <For full text of the paper, please E-mail us>

1.8.2.3  Jordan

The third paper was jointly presented by Mr. Tawfig Z. N. Al Ja’afreh and Mr. Mohammad Aqeel Faraj Al-Awaidah on “The Role of Agricultural Credit Corporation (ACC) in Agricultural Development in Jordan.” In his paper, Mr. Tawfig highlighted the role of Agriculture Credit Corporation (ACC), which was established in 1959 as a legal entity with financial and administrative autonomy. It was established to help support agriculture, develop it and increase production while improving it quantitatively and qualitatively as well as increasing the living standard of farmers by providing the required capital to fund agricultural projects. This, of course, can be secured by several types, terms and agricultural purposes of loans delivered by ACC. He described that various types of loans with varied duration like seasonal loan (12 months), short term loan (2 years), medium term loan (2-10 years), and long term loan (11-15 years) at the interest rates ranging between 6.5 per cent - 9 per cent are provided by ACC to the farmers to cater their needs. He informed that small farmers’ group obtain 85 per cent of the total value of the loans at the interest that does not exceed 6.5 per cent. The loans disbursed during 1960-2006 covered the activities relating to land reclamation in the rain fed areas, land reclamation in the irrigated areas, livestock and poultry production, agriculture machineries and processing, and agriculture inputs, etc. During this period a total of JD 374 million worth loans were disbursed that benefited 189 thousand borrowers. Mr Tawfig informed that his government last year began a risk covering plan at a nominal rate of interest of 0.5 per cent - 1 per cent to initiate insurance of agriculture. <For full text of the paper, please E-mail us>

The third session of the day was chaired by Dr. Sulaiman Seed Ahmad El Said Taha, the distinguished resource person from Sudan. In the session, three country papers were presented by delegates from Malaysia, Mauritius and Nigeria.

1.8.2.4 Malaysia

The paper on “Agriculture Insurance in Malaysia” was presented by Mr Mohd. Anim bin Hosnan with the support of his co-presenters Mr. Ahmad Ramdzani Bin Kesor and Mrs. Azizah Binti Harun. In the presentation, Mr Anim explained that Malaysia is a tropical country with the size of 329,750 square km and 24.5 million populations. The Malaysian economy depends on its services sector which accounts for 59.1 percent in the GDP whereas the industrial sector contributes 33.5 percent and the agricultural sector 7.3 percent. With oil palm as the major crop grown on 3.34 million hectares of land, Malaysia is the largest exporter of crude palm oil. It is followed by rubber plantation (1.59 million hectare). Insurance industry in Malaysia Gross Direct Premium for 2006 amounted to RM 9.386 billion whereby only 0.05 per cent (Estimated about RM 486,000) was involved in agriculture sector. Government of Malaysia had a compensation scheme for agricultural damages due to natural disasters especially on monsoon flood. As an example for Muar District in Johore, the government released RM 3.881 million to 4,573 farmers which lost about RM 12.174 million in recent major flood. This compensation amount has been revised recently to a higher amount that is RM 2,000/ha for vegetable, RM 2,000/ha for Cash crop, RM 1,000/ha for Fruits, RM573.60/ha for Paddy, RM 1,000 for Agro Based Industry, RM 600/head for Cattle, RM 600/head for Buffalo, RM 150/head for Goat, RM 5/bird for Poultry and RM 1,500/Pond for Fisheries.

The existing crop insurance for industrial crop (Oil Palm, Rubber and Cocoa) does exist in Malaysia. For the rubber, the premium rate is 0.665 per cent from the sum insured, 0.756 per cent for oil palm and 0.805 per cent for the cocoa. The premium of RM 7.00 per head of goat from the commercial Bank is available to cover RM 500 per head of goat or at premium of 0.014 per cent. The crop insurance has to be strengthened for better implementation in Malaysia with the commitment of the government, private sector and farmers. <For full text of the paper, please E-mail us>

1.8.2.5 Mauritus

The paper was presented by Mr. Juhoor Ferhan Khan on “Effective Agriculture Insurance Scheme for Sustainable Family Farming in the Developing Countries: A Case of Mauritius”. In his paper, he described that a majority of developing countries in the world are invariably dependent on agricultural production and Mauritius is not an exception. The prosperity of any nation would obviously depend upon its secured food bases and the sustained producing power of its planters even after catastrophic losses. In spite of the increasing food production in Mauritius, the country is bound to increasingly import food to cater the demand. This calls for more vigorous efforts to increase domestic food production. Mr Khan informed that in order to overcome the prevailing situation, the government has come up with a sustained program for agricultural diversification implying additional effort to boost food production in Mauritius.

Consequently in 2004, a Crop Insurance Scheme (CIS) was introduced as an essential risk management tool to provide insurance coverage to small planters whose crop production have been damaged after the occurrence of natural calamities, like cyclones, hence reducing the vulnerability of small planters and assist them to get back to production immediately after a calamity has stricken. The CIS was in line with promotion for the adoption of modern farming technology and appropriate risk management techniques, as it preconditioned these parameters to insurance coverage in order to increase yields and income for the insured. With the increase of yield that CIS helps to bring about, consumers benefit with steady supply and availability of agricultural commodities and maintenance of stability of prices. It also relieves the government from expensive ad hoc disaster relief operations for the planting community as and when the country is hit by any natural calamity. <For full text of the paper, please E-mail us>

1.8.2.6 Nigeria

The paper on “Features of the Nigerian Agricultural Insurance Scheme (NAIS)” was presented by Mr. Kwatri Kwagga Yusuf with the assistance of his co-presenter Mr. Barnaby H. Eku. During the presentation, Mr. Yusuf informed that a few decades ago, Nigeria - with its abundant arable and fertile land for agricultural cultivation was regarded as the food-basket of the African continent because of its buoyant agricultural sector. But this important sector of the economy started recording steady decline leading the nation to a state of food-insufficiency. This, in turn, led to very expensive importation of essential food items. This scenario soon caught the attention of successive Federal and State Governments leading to conceptualisation of various policy-measures aimed at arresting the slide. Among these measures is the Nigerian Agricultural Insurance Scheme (NAIS) which was established on December 15, 1987. During the course of discussion, Mr Yusuf briefly touched upon the experience of the Corporation on the implementation of the Scheme starting with its inception, objectives, methodology and operations. He also highlighted the issues such as beneficiaries of the scheme, funding constraints, progress and most importantly, the impact of the scheme on the Nigerian Economy. He advocated that NAIS has enhanced greater confidence amongst farmers in adopting the new and improved farming practices, provided financial assistance following natural disasters by paying the indemnity sufficient to keep the business on, enabled financial institutions to land more to the farmers, and minimised the need for emergency assistance provided by the government. Under the scheme, while 50 per cent premium is paid by the farmers, 37.5 per cent paid by the Federal government and the rest 12.5 per cent by the State government. <For full text of the paper, please E-mail us>

The third business session of the workshop was chaired by Mr. Kwatri Kwagga Yusuf, the distinguished delegate from Nigeria. In the session, four country papers were presented by the delegates from Oman, Pakistan, Sudan and Malaysia.

1.8.2.7 Oman

The paper was presented by Ali Abdullah bin Mohammed Al- Ajmi who informed that Oman is an arid country with hot, humid and dry climatic conditions and irregular low rain fall that does not fully suit to agriculture or food production. Nevertheless it has considerable potential, due to its size and topography and local variations of climate. Until the development of the oil industry, agriculture and fishing had been the mainstay of the economy over the centuries. Over half of the population is still engaged in agriculture and fishing. Therefore, the Ministry of Agriculture and Fisheries aims at increasing agricultural self-sufficiency in food crops from the current 44 percent. To meet the target, there is a need to increase agricultural and livestock production, improves the agricultural structure, solve the soil exhaustion and raise the living standards of the rural population. For this, private sector needs to be supported for the development of agriculture industry and marketing. The main food produces include dates, limes, mangos, bananas and coconut palms, besides, cultivated tomatoes, onions, peppers and vegetables. Major challenges facing agriculture sector are rare of rainfall, small sized-farms, weeds and pests. The Ministry of Agriculture and Fisheries provides farmers with various technical information and free inputs for production, new machinery and agricultural equipments, etc. Besides, the subsidies are also provided on the activities such as breeding of chicken, agricultural production and quality control, farm machines, tractors, green houses, irrigation systems, etc. <For full text of the paper, please E-mail us>

1.8.2.8 Pakistan

The paper on “Agriculture Insurance in Pakistan” was presented by Mr. Fayyaz Bashir. In his paper, He explained that the main policy focus in Agriculture has been to ensure food security for a growing population, extending foreign exchange flow through agriculture exports and reduce poverty through agricultural growth. Mindful of the role that crop insurance has played in the sustained development of agricultural production in many countries, Government has strongly felt the need and desirability of a viable crop insurance programme for the country. He argued that crop insurance is the only resort to protect crop sector from losses and in its absence, the Government has to provide relief to farmers who suffer heavy losses due to natural calamities, insect’s attack, disease attacks etc: They could be supported by way of payment against natural calamity; remission of various taxes; writing off loans by financial institutions; and grant of interest free rehabilitation loans, etc.

Highlighting the importance of agricultural insurance, Mr Fayyaz argued that it provides a breathing space to effected farmers to re-establish; stabilises farm income; protects farmer’s investment; curtails bank’s default; reduces burden on Government; and generates employment opportunities. He mentioned that in 1986, the Agricultural Development Bank of Pakistan (ADBP), a public sector entity, in collaboration with a private insurance company initiated a comprehensive Cotton Crop Insurance Scheme in two districts of Punjab province which produces most of the agriculture produce. The sum insured was the production loan amount given to the farmers for the purchase of seeds, fertilisers and pesticides. Premium amount was 5.25 per cent of the sum insured. To begin with, participation in this scheme was compulsory for the borrowers of ADBP.

However, because of the pressure from the farmers, participation in the scheme was made voluntary in 1988. But the scheme was of high premium rate which made the credit too expensive for the farmers and the Government was not in a position to provide heavy subsidy. The settlement of claims took a long time due to many formalities and documentation to be completed. Therefore, 90 percent of the farmers who had initially enrolled with rejected scheme when it was made voluntary in 1988. Consequently, number of the participants reduced to just less than 1 percent. It led to the discontinuation of the scheme due to lack of participation of the cotton farmers.

In 2004, the Provincial Government of Punjab renewed the effort through its Provincial Bank (The Bank of Punjab) in collaboration with East West Insurance Company, a private entity, launched a Crop Catastrophe Policy linked with Crop Production loans. The scheme has low premium rate (1.35 per cent - 2.0 per cent); it is inexpensive; simple to operate; and has a provision of basic cover. Besides, there is no subsidy involved. <For full text of the paper, please E-mail us>

1.8.2.9 Sudan

The paper on “Agriculture Insurance in the Sudan” was presented by Mrs. Salwa Ali El Karib. In her paper, she described that due to various environments and different agricultural systems, agricultural production in Sudan is associated with risks and uncertainty which lead to unsustainable production. Insurance could be one of the means of risk management for farmers to achieve production and to be compensated for losses. Crop insurance in Sudan started under the Geziera scheme. The insurance coverage began with 22,000 feddans (about 0.42 per cent of the scheme area). Though, the insured area after 5 years was increased but it is still not exceeding 2.2 per cent of the scheme area. Thereafter, in 2004/2005 an area of about 10,000 feddans of cotton was covered and the same area was insured in 2005/2006. The agriculture insurance started in the mechanised rain-fed area in Al Gedaref where 14,000 feddan planted by sorghum were insured. In 2005/2006 the insured area increased to 200,000 feddans in Al Gedaref, Sinnar, Damazine, and Upper Nile States. The risks covered under the insurance include pests, diseases, flood or recurrence of rainfall and droughts. The traditional rain-fed sector is not yet covered by insurance services. As the crop insurance is a primary risk management program that functions as a public-private partnership, farm leaders need to understand the underlying mechanism of the insurance. <For full text of the paper, please E-mail us>
 

1.8.2.10 Syria

The paper was presented by Mr. Mohammad Marwan al Kateb on “The Agricultural Insurance Trails in the Arab Republic of Syria”. Mr Marwan informed that lot of damages and losses of agricultural products occur every year by weather conditions like frost, heavy rain, storms, etc. No compensations either from the government or any other insurance company is given to the farmers who badly need money. No insurance system has been introduced so far in Syria. High cost of products and volume of losses compel the small farmers to selling out their farms and switch over to other occupations. In such a quandary, farms are converted into other investment projects like tourist resorts, restaurants, recreation grounds, etc. As a result, rural urban migration causes in high consumption and low production of agricultural products. Recently an attempt has been made by introducing a fund for insurance under the Federation of Syrian Chambers of Agriculture (a private sector) to insure livestock. <For full text of the paper, please E-mail us>.

1.9       Discussion and Interventions

• The presentation of papers evoked lively discussion. Some of the observations and responses from the presenters are as under:

• Since market is a dangerous area, insurance should be linked with it and there should be a package for it, this problem needs to be addressed;

• The problem of linkages can be solved by way of (a) developing market access to assured pricing market keeping in view of the entry of commercial companies and their contractual arrangement of assured prices, (b) settlement of disputes among the farmers associations/organisations, and (c) support price of targeted production;

• Though the price protection is not allowed under WTO Amber Box, in the name of food safety of the nation and safety of marginal/small farmers is permissible (food and livelihood security);

• Agriculture is mostly affected by any form of disaster, therefore, family farming should be considered from this point of view. Agriculture is looked from different angles as in advanced countries farmers are subsidised to make up level with the industrial labour;

• There are quite a few insurance schemes being implemented in India. Most of these schemes are based on credit but in case of some government schemes, the insurance schemes are provided to the farmers, independent of credit obtained from the banks;

• The premium is set on the basis of expected yield for 3 years in India;

• The premium rates, which are charged, could be based on data, yield data, cost of production in particular commodity. For example, in the case of wheat, average weight, average cost and market price are taken as the basis. Thus, commodity data, price data, market data are covered over five years;

• With regard to the administrative cost, there is a need to nationalise the subsidy. Alternatively, if any insurance company is charging higher rates, cost benefit ratio gets down with experience;
 

• With regard to the agricultural/crop insurance, there are challenges ahead which, among others, include: choice of insurance/implementing agency; high risks of catastrophic losses; high administrative cost; non-availability of reliable data; compulsory versus voluntary partnership; moral hazards; self-finance, reserves and reinsurance; and choice of insurance products such as damage based disaster specific product, yield based or multipoint crop, crop revenue or income insurance, index insurance (certificates), more participation will bring down the losses;

• The biggest challenge is of good governance and making insurance more transparent;

• Private insurance should also be supported by Government. Insurance policy should be designed to help marginal farmers;

• The willingness to promote agricultural insurance on the part of other than farmers can also be added;

• In the case of Malaysia, besides paddy, livestock is also being covered under insurance like commercial crops in Nigeria;

• Palm oil trees are covered under fire damage insurance. However, there is the problem of statistics in Malaysia; the premium rate is fixed by the insurance organisation of Malaysia and the duration of cover is one year at a time;

• The indemnity is not paid when loss is partial in industrial crops such as oil palm or rubber. It has been observed that big planters in Malaysia do not buy agricultural insurance which is common among the owners of 10-20 hectares plantation;

• Bangladesh is prone to lot of natural disasters and, as a result, insurance companies are not coming forward to start crop insurance schemes;

• With a well structured revenue department whose role is to follow crop production, assessment on crop losses incurred due to insects/diseases are carried out in Pakistan in order to prevent farmers from negligence in fields affected by pests and diseases.
 

1.10    Closing Ceremony

The closing ceremony of the seminar was held in the afternoon of 05 May 2007. On this occasion, Mr. Roseley bin Dato’ Khalid, Deputy Director General, Department of Agricultural, Government of Malaysia was the Chief Guest to grace the occasion. Besides him, Mr. Che Hassan Che Man, Director, INFRA and Dr. Syed Mohammed Ovais, Head, Capacity Building and Development Projects Division, AARDO were also present on dais. Following the brief speeches, the certificates of participation were awarded to the participants by the Chief Guest. A vote of thanks, on behalf of the participants, was presented by Dr. Kamrul Ahsan the delegate from Bangladesh.
 

In order to arrive at appropriate recommendations, participants were divided into three groups; each group had a Chairperson to support the group for discussion. Each group discussed on three issues – i) Why Agriculture Insurance; ii) Current Status of Agricultural Insurance in the Developing Countries; and iii) Difficulties Encountered. The group reports and the recommendations were presented in a separate session which was chaired by Mr. Johari Seraj, Director, Human Resource Development, Department of Agriculture, Government of Malaysia. The group reports and the recommendation are as follows:

GROUP "A"

Chairperson        : Dr. Tajamul Haque, India
Members             : Mr. Fayyaz Bashir, Pakistan
                                Mr. Tawfig Z. N. Al Ja’afreh, Jordan
                                Mrs. Azizah bt. Harun, Malaysia
                                Mr. Mohammad Marwan Al Kateb, Syria
                                Dr. S M Ovais, AARDO

• Why Agriculture Insurance?

i) Agriculture provides some protection to farmers against risks and uncertainties of crop production which are beyond their control.

ii) In the event of heavy loss of production or income, due to natural calamities, agricultural insurance provides breathing to space affected farmers and also enable them to stay in farming.

iii) Agricultural insurance may help encourage farmers to produce more and earn more through greater investment in new technology, especially if large part of the risk in farming is covered by insurance.

iv) Agricultural insurance may help improve food production and food security of a country.

v) Agricultural insurance when linked with banks and other financial institutions help develop a healthy rural financial market. It helps reduce the incidence of over dues/ default and improve the viability of credit institutions.

vi) Subsidy for agricultural insurance is WTO compatible and therefore developing countries should rationalise and restructure their subsidies to support agricultural insurance and promote agricultural growth and farmers’ welfare.

vii) Agricultural insurance may help encourage commercial and contract farming and improve farm income as well as diversified rural development.

• Current Status of Agricultural Insurance in the Developing Countries

From the point of view of status of agricultural insurance, the countries which participated in the workshop could be broadly categorised into three groups. These are as follows:

i) Countries like India, Nigeria and Mauritius have achieved some measure of success, although there is lot of scope for improvement.

ii) Countries like Sudan, Pakistan and Malaysia have gained some useful experience in agricultural insurance in recent years which can help widening and improving the scheme in future.

iii) The countries like Bangladesh, Syria, Oman, Jordan and R O China have yet to launch an agricultural Insurance scheme, even though some of these countries are currently exploring the feasibility of agricultural insurance.

• Difficulties Encountered

i) High claims – premiums ratio or cost – benefit ratio;

ii) Poor resource base and lack of adequate support or subsidy by the government

iii) High cost of administration

iv) Unaffordability of small and marginal; farmers to pay insurance premiums, especially if the premium rates are high

v) Frequent occurrence of disasters like drought, flood and cyclone result in catastrophic losses in several places and tend to make agricultural insurance non-viable because of large claims

vi) Non-availability of adequate and reliable data poses a problem