Agriculture Insurance

The whole civilization process started because men started cultivating. Foundation of society was formed as they started living at one place for carrying out agriculture activities, for survival. There are various theories of agriculture and how it started, however the conclusion is, agriculture gave birth to the formation of society as people started living together in primitive stage. In terms of profession, agriculture would be considered as oldest profession, or an employment sector where people are involved.

Coming to the facts, the five contiguous states of former Soviet Central Asia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan has more than 60% population living in rural areas and nearly 45% people dependent on agriculture activities. Nearly 45% population get employment in agriculture sector. In Ukraine and Belarus, agriculture contributes to nearly 10% of the GDP and around 15% to 18% people get employed in the sector. Although it differs on country to country, the significant crops in CIS countries are cotton and wheat. Other crops that are quite familiar in CIS region are barley, corn, flax, grapes, potatoes, rice, sugar beets, sunflowers, tobacco, apricots, pears, plums, apples, cherries, pomegranates, melons, dates, figs, sesame, pistachios, and nuts.

Talking about the USSR, it is estimated that Russia has nearly 30% of the world natural resources. The World Bank estimates the total value of Russia's natural resources at $75 trillion US dollars. (Reference: Russia' economy is almost 6th largest in the world. As per Growthpraxis In 2012, agriculture contributed to 3.87% of GDP in Russia taking it to agricultural GDP of 37.9US$ billion which makes it a large market relative to other Asian countries. Russia has a total land area of 16,376, in 2012. Total arable land consists of 1,211,888, which is 7.4% of total land area.

Looking at a common contribution of agriculture in GDP, Russia in recent time had 4.5%, Kazakhstan 5.2%, Kyrgyzstan 20.1%, Tajikistan 21.4%, Uzbekistan 21.9%, while Turkmenistan 7.9. Country where more than 60% people living in rural areas, and 45% people employed in Agriculture sector, which should be the major portion of the society, poverty rates are quite disturbing. People living below poverty line in Russia 12.7% as of 2011, Kazakhstan 8.2%, Kyrgyzstan 33.7%, Tajikistan 46.7, Uzbekistan 16%, while Turkmenistan we do not have factual data to validate.

The statistics above would suggest, there is a need to provide comprehensive insurance cover for agriculture sector and population attached to it. Insurance for people with Accident, Medical, Life, Pension, Saving products, insurance for Tractor, etc. agriculture equipment, insurance for crops. Crop insurance in various forms have been available, however it has not been focused as it should be. Taking it to the various product of Crop insurance, we have Yield based and weather based crop insurance. There are some products in few countries that is called as multi-peril crop insurance products. Some explanation as per Apiculture Project about what we have in agriculture insurance is

Single-Risk Insurance: Single Risk insurance will cover a single risk or peril. While talking about the crop insurance methods, hail insurance is one of the most widely applied single-risk insurances.

Combined Peril Insurance: Combined Peril Insurance is known as multi-risk insurance. The insurer provides coverage against more than one risk. Hail and frost is a good example of combined peril insurance. Sometimes, the coverage is extended to fire, earthquake, lightning, and other nature-related disasters.

Yield Insurance: This type of insurance provides coverage against fluctuations in the farm yield. Thus any risk factor that affects the farm's productivity is covered by the yield insurance. These risks can be listed as, but not limited to flood, drought, frost, hail, disease, fire, etc. Anything that affects the insurer with losses is fully or in most cases partially covered by yield insurance. Usually, coverage against these risks are presented under a single policy, namely, multi-peril crop insurance policy. This is a costly coverage since almost all risks are covered. 

Price Insurance: This type of insurance provides coverage against fluctuations in the product prices. Thus, if the product price falls below a pre-specified level, indemnities are paid according to the insurance terms.

Revenue Insurance: This type of insurance provides coverage against changes in farm revenue. Since revenue equals price times quantity, revenue insurance offers protection against both price and quantity fluctuations.

Whole-Farm Insurance: This type of insurance provides coverage against changes in the farm's yield or revenue. The farm revenue insurance is a special case of revenue insurance where the farm's entire activities are insured including but not limited to agricultural activities.

Income Insurance: This type of insurance provides coverage against the fluctuations in the farmer's incomes. Income is defined as the difference between revenues and costs. Thus, the income insurance covers risky changes in yield, price, as well as cost of production, since it covers all factors affecting the income of the farmers.

Index Insurance: The definition of the index insurance is based on the type of the index used to determine the losses. The index insurance provides coverage against the fluctuations in farmer's yield, revenue, or any other factor that affects the farmer's income. 

Area Yield Index Insurance: This insurance type provides coverage against fluctuations in the area-yield. The average yield of a large geographical area (such as a valley) is used as a threshold to trigger indemnity payments.

Area Revenue Index Insurance: The insurance type provides coverage against fluctuations in the revenue of an area. Similar to area-yield index insurance, indemnities are based on the threshold. However, this time, the threshold is based on the average revenue per unit of a large geographical area.

As of 2015, the agriculture sector contributed around 6% of the world GDP. According to World Bank, 70% of the world population lives in rural areas and depends on agriculture sector. However, there is not much work done for crop insurance so far. We do not have much stats to produce showing percentage of population covered by agriculture insurance, however the statistics of world population covered with insurance (insurance penetration rates), would give us some idea about situation. While targeting agriculture insurance, we are targeting 70% of the world population, we can assume the grown of insurance industry here.

by Hitesh KHRISTY

Hitesh KHRISTY is a Development, Project Management and Reinsurance Professional, having worked in multiple countries. He has been writing for NGOs, IT Companies, insurance sector and on social issues, political empowerment, United Nation and it's concerns, war and peace, for more than one decades. Has been involved in speaking at Social work and Social science schools & various universities on Welfare Insurance, Micro Insurance, War & Terrorism, Social issues. Few of his upcoming books are on 1) Modern Social Problems, 2) Liability Insurance,  3) Terrorism etc.

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