Agriculture Insurance: the Big Billar of Nepalese Economy

Crops and livestock insurance in Nepal is an important aspect of agriculture risk management. Nepal is an agriculture country with 65% of the population directly engaged in agriculture and contributing to around 27% of the country GDP. The Nepalese geography is bit diversified covering maximum area of hills, mountains and less area covering plain land which is usually appropriate for farming. However, this sector is highly vulnerable to various risk such as natural disasters, pets and diseases, which can causes substantial to losses to farmer and affect the economy as a whole. Agriculture insurance can be a vital pillar for Nepal’s economy as it can help migrate these risks associated with agriculture production and ensure food security, stability, and sustainability. The government has also introduced several programs to promote crops and livestock insurance and has been working to increase the coverage of insurance in Nepal, the uptake of insurance among farmers remains relatively low. This is due to a lack of awareness of insurance among farmers, low levels of trust in insurance companies, and the high cost of insurance premium in relations to the Farmers income. However, with continued efforts to promote and to make it more affordable and accessible to farmers, it is hoped that more farmers will take up insurance to protect their crops and livestock.

Crops and livestock insurance is an important tool for managing risk in agricultural production systems. Globally, insurance schemes for crops and livestock are available in many countries, both in developed and developing nations. More than 100 countries presently offer agriculture and livestock insurance, either through well-stablished systems or pilot projects. However the uptake of insurance in agriculture varies widely across different regions and types of farmers. Only one third of middle and low -income nations presently offer such products and programs, compared to the vast majority of high income countries, who have well established crop insurance markets. Given that there are already more than 70 agriculture insurance programs opening globally, the international experience with crop insurance is extensive most recently, governments have increased their involvement in agriculture insurance, particularly in developing nations, as well as in major markets like the USA and Europe (e.g. subsidize multi peril crops insurance) MPCI in France and emerging markets like Poland and Romania). (e.g New subsidize programs in China ,South Korea, Brazil. Chile and Turkey) (World Bank, 2009). Various kind of agriculture insurance are being used in the Asia and Pacific reason. India and the Philippines use the public sector model, China and the Republic of Korea are adopting public private partnerships (PPP), Australia and New Zealand use only private markets and models, and Bangladesh and India are all big proponents of informal mutual and community based crops and livestock  initiatives. China commands the largest market share (50%) of the total premium) in the area, followed by Japan (31%) and India (11%). In developed countries, such as the United States and European nations, crop insurance programs are well established crops and government subsidies often make it more affordable for farmers. Livestock insurance is also available in these countries, covering risks such as diseases, accidents, and theft too which not included in Nepal in any policies for various reasons .In developing countries, crop and livestock insurance schemes have been introduced in recent years, primarily as a way to mitigate  risks associated which climate change and extreme weather events. In India for examples, the government has introduced a crop Insurance schemes to cover losses from natural calamities, pests, and diseases. Similar schemes have been introduced in other countries such as China, Brazil, and Kenya. However the uptake of Insurance in agriculture is often low in developing countries, due to various such as low awareness and education levels, limited access to financial services, and administrative challenges in implementing insurance schemes. In resent years, new technology, such as satellite imagery and remote sensing, has been utilized to enhance the accuracy an efficiency of crop insurance products. These tool are allow insures to accurately assess crop yields and damages, improving the speed and accuracy of claims settlement.

Overall, crop and livestock insurance is an important tool for managing risks in agriculture and improving the financial resilience of farmers. However, further efforts are needed to increase access to insurance among smallholder farmers , particularly in developing countries where the need for risk management tools is most acute looking at the countries all over the world, all most every countries has the provision of subsidy, grant or facilities provide by the government to help the farmers. It’s all because to reduce production cost of the farmers and to increase overall production and productivity of the agriculture products which will directly benefit the countries economy. So it’s the basic rule of economics used by government to strengthen countries economy. Like every country, Government of Nepal is also contributing to farmers in the all ways as much as the government can. Bulk amount of budget is allocated in agriculture sector every year to upgrade Nepalese agriculture system. That’s the reason why farmer get 80% subsidy in premium they need to pay while buying any kind of agriculture policy so that the farmers can be benefited in several ways

Agriculture insurance can play a crucial role in Nepal’s economy by:
1. Protecting income loss especially of marginalized farmers: Crops and livestock insurance can protect farmers from income loss due to Crops failure, livestock death, or other risks. By providing a safety net for farmers, agriculture insurance can help to stabilize incomes, reduce poverty, and enhance livelihoods.
2. Encouraging investment in agriculture: Agriculture insurance can encourage farmers to invest in their farms, improve production, and adopt new technologies. With the knowledge that their investments are protected, farmers may be more willing to take risks and invest in their farms, which can lead to increased productivity, higher yields, and higher incomes.
3. Promoting financial inclusion: Agriculture insurance can also promote financial inclusion by enabling farmers to access credit and other financial services. By providing insurance coverage, lenders may be more willing to lend to farmers, who may otherwise be seen as too risky to lend to.
4. Mitigating the impact of natural disasters: Agriculture insurance can also help to mitigate the impact of natural disasters on the economy. With insurance coverage, farmers can recover more quickly from disasters such as floods, droughts, and earthquakes, which can reduce the economic impact of such events.
Agriculture insurance has just touched the 10 years marks starting from January 14, 2013. Looking at the agriculture insurance figure, it is increasing in increasing rate year by year be it total number of policies or total premium collected. The approach to overall non-life insurance has increased in this last 10 years drastically, so we cannot deny the fact that the agriculture insurance has played the vital role to increase the awareness among people about the insurance even to marginalized peoples.

Looking at this 10 year figure, agriculture insurance has not achieved the top level like other insurance policies; thus it is still in the work in progress stage but the policy makers from Nepal Insurance Authority and Ministry of Agriculture and Livestock insurance ( MOALD) are keeping agriculture insurance in top priority and publishing new policies in regular interval as well as updating old policies having drawbacks which makes both farmers and insurance company easier to collaborate. Agriculture insurance is still a work in progress because less than 10% of total livestock population is insured in the animal sector and even less in the crops sector, despite the fact that crop GDP contribution is nearly 80% and livestock GDP contribution is around 20% including fish. These are the minor issue but with the peace Government sector is prioritizing on Agriculture insurance, the next ten years scenario will be completely different. Presently there is a clause for every insurer given by insurance authority to sell at least of 5% agriculture insurance policy in one fiscal year but this will also be removed in upcoming days as every insurance company are moving towards agri-insurance because they are gradually becoming familiar towards the process.

Agriculture insurance in Nepal faces several challenges, some of the major challenges are listed below:

1. Lack of Awareness: Many farmers in Nepal are not aware of the importance of agricultural insurance and how it works. This lack of awareness often leads to a low demand for insurance products.
2. Limit Reach: Agriculture insurance program in Nepal are limited in terms of their reach, especially in ruler areas. This is due to inadequate infrastructure, lack of access to technology, and poor connectivity.
3. High Transaction Cost: The high administering agriculture insurance programs in Nepal is a major challenge. This is due to the large numbers of smallholders and the high administrative cost involved in underwriting and claims processing.
4. Inadequate Data: The lack of reliable data on crop yields, weather patterns and other key variables makes it difficult for insurers to accurately assess risks and price premiums.
5. Insufficient Risk Management: The absence of effective risk management practices is another challenge facing agriculture in Nepal. This includes poor crop management practices, inadequate agricultural inputs, and lack of knowledge of good agricultural practices.

The main challenge now for crops and livestock insurance is involving farmers of rural areas too. Looking at the last 10 years figure, big farmers living in places near to big cities has done agriculture insurance and have been benefited from the claim too. But the farmer living in the remote areas don’t get any reach to insurance companies, agriculture agent or any other stake holders encouraging them to initiate crops and livestock insurance. The other big problem with the farmers in rural areas is that the maximum number of farmers are illiterate and they aren’t aware about the basic meaning of insurance which will be the big challenge for all the organizations to solve. Keeping this factor in mind, recently Nepal Insurance Authority has given license to micro-insurance Companies to operate in 7 provinces of Nepal.

The other big challenge existing in current time is that the insured farmers are also not fully aware about the insurance policy they brought and the kind of risk covered. They don’t have the clear knowledge about the claim process which later on has brought the dispute among insured and insurer in some occasion.

Addressing these challenges requires a multi-faceted approach that involves the government, insurers, farmers, and other stakeholders. This includes promoting awareness of agriculture insurance, investing in technology and infrastructure, improving risk management practices,   and providing policy and regulatory support.

As we cannot deny the fact that all insurance companies are not services-oriented organization but profit oriented organization; all the expenses, management work and staff salary are given through the earning from the money generated from the premium. Insurance sector is only where there is Farmers monitory contribution, although 80% of premium subsidy is provided by the Government. Any kind of the organization like NGO, INGO private company and even Government Organizations working in the agriculture field has more investment in farmers and very less return or no return.

In conclusion, agriculture insurance can be a vital pillar for Nepal’s economy, promoting food security, stability, and sustainability. Starting from 2069 Magh 1st to fiscal year 2077/78 total claim paid by all the insurance company in Agri-insurance is 265 crore plus which means 265 crore assets has been restored of the farmers which has played a big role in holding the country economy. Most of the Nepalese farmer are engaged in subsistence farming because of various risks but if their all losses are restored by insurance company, then most of the farmers growing crops and livestock sufficient for their own use will definitely shift themselves towards the commercial farming. This will not only increase the income of the farmer but also improve the country’s economy in whole. By protecting farmers from income loss, encouraging investment in agriculture, promoting financial inclusion, and mitigating the impact of natural disasters, agriculture insurance can help  to build a more resilient and prosperous agriculture sector in Nepal. Therefore, it is essential to promote the uptake of agriculture insurance among farmers in Nepal through education, awareness-rising campaigns, and affordable insurance premiums. Agriculture insurance in Nepal is still in its early stages, but there is a growing need for innovative insurance solution to help farmers manage their risks and protect their live hoods. With the government’s continued support and the participation of private insurance companies, agriculture insurance has the potential to play a critical role in supporting the agriculture sector in Nepal and promoting long-term sustainability in agriculture.

In addition, agriculture insurance can also support the government’s efforts to promote agricultural modernization and reduce poverty in rural areas. By providing farmers with access to credit and other agricultural inputs, agriculture insurance can help to improve the productivity and competitiveness of the agricultural sector, leading to increased employment opportunities and higher incomes for farmers. Furthermore, agriculture insurance can also contribute to the overall economic growth of Nepal by reducing the government’s expenditure on disaster relief and reconstruction. By providing financial protection to farmers, agriculture insurance can reduce the government’s burden of compensating farmers for losses due to natural disasters, which can have a significant impact on the government’s budget.