Research for Agricultural Insurance in South Asia: A Regional Dialogue

This article was originally posted on  by Berber Kramer and Patrick Ward

Julie Lang/IFPRI

In South Asia, livelihoods are intricately intertwined with agricultural production, and thus highly dependent on weather. For millennia, the yearly monsoon rains have been the lifeblood of agriculture, but climate change is making this annual boon increasingly unpredictable both in timing and intensity, exposing farmers’ livelihoods to increased production risks.

There is considerable interest within the international development community in mitigating these risks through insurance. While insurance has been around for a very long time, many of its more traditional forms have suffered from low demand and asymmetric information between insured and insurer, giving rise to adverse selection and moral hazard.

The agricultural research community has responded to these challenges by identifying and developing research-based innovations for agricultural insurance, such as index-based insurance programs that can minimize the severity of adverse selection and moral hazard; the use of cutting edge remote sensing and information technologies; and the bundling of insurance with novel “climate-smart” agricultural technologies and practices (CSA) that are more resilient to adverse weather conditions than traditional technologies and practices, thus serving an important risk management function in their own right.

In order to better understand how CGIAR research can further contribute to the development, implementation, and evaluation of agricultural insurance programs, IFPRI organized a regional dialogue in Dhaka, Bangladesh on December 17. The event was mounted in partnership with the CGIAR research programs on Policies, Institutions and Markets (PIM) and Climate Change, Agriculture, and Food Security (CCAFS), as well as the Cereal Systems Initiative for South Asia (CSISA).

Policy makers, practitioners, and researchers from Bangladesh, India, and Nepal convened to share their experiences with implementing agricultural insurance across the region, and to learn about the latest agricultural research on this subject. The chief guest, Wais Kabir, executive director of the Krishi Gobeshona Foundation, and keynote speaker, Saleemul Huq, director of the International Center for Climate Change and Development(ICCCAD), helped to lay the foundation for the day’s discussion.

Huq’s keynote address highlighted the role of agricultural insurance as an instrument for meeting the key targets in the Paris climate agreement—not only by offering compensation for crop losses and other economic damage, but also by providing a mechanism to improve adaptation, with subsequent benefits from reduced agricultural sector emissions. The workshop presented evidence and case studies that vividly illustrated how research can help improve insurance products and programs to help meet compensation, adaptation, and emissions targets.

One of the main challenges in implementing the largest agricultural insurance program in South Asia—India’s Pradhan Mantri Fasal Bima Yojana (PMFBY)—is loss assessment: To verify losses, PMFBY aims to measure average yields at the village level through intensive crop-cutting exercises. This is a daunting task, requiring crop samples to be collected from three million fields within the short period before harvest. Herein lies an important role for the agricultural research community and the CGIAR more specifically. Agricultural research has helped advance the use of satellite imagery and other remote sensing techniques for crop loss assessment, and case studies are showing that it is possible to use such methods to detect prevented or delayed sowing, which could ultimately reduce the number of crop samples required for village-level yield assessments.

While promising, remote sensing is hardly a panacea. First, the resolution of open-access or affordable satellite imagery is still too coarse to detect plot-level losses. Second, the notion of satellites orbiting the earth and collecting images from space is an abstract concept to many farmers, and much evidence has shown that insurance products must be presented with simplicity and transparency to generate sufficient interest among potential buyers. Third, data processing and evaluation of remotely sensed images is often a major challenge. Unmanned aerial vehicles (UAVs) offer higher resolution imagery than satellites, but are expensive to operate and may face various regulatory hurdles in different contexts.

There are other solutions that can complement remote sensing techniques and address some of these challenges. The IFPRI-led picture-based crop insurance (PBI) project, for example, demonstrates that it is possible to engage farmers directly in taking a stream of smartphone pictures to document crop losses. Going forward, researchers from CGIAR and other agricultural research institutions will have an important role to play in evaluating and validating different interventions.

The agricultural research community can also play an important role by positioning insurance as one instrument in a larger portfolio of risk management tools. Smallholder farmers can also shield their livelihoods from risk through savings, credit, and informal insurance networks, and by adopting CSA technologies. Examples of the latter include conservation agriculture (a suite of sustainable agricultural and land management practices) and stress-tolerant cultivars such as drought-tolerant maize or flood-tolerant rice.

CGIAR researchers, working with counterparts from national agricultural research systems, have developed many improved seed varieties for various staple crops that can reduce farmers’ exposure to weather-related production risk and increase yield stability. But these stress-tolerant varieties can protect crops only up to a point, leaving production exposed in the event of severe droughts or floods. When sold in tandem with a complementary insurance product, however, the bundle provides a near comprehensive risk management solution, as demonstrated by IFPRI-led research in Odisha, India. Under this approach, weather index insurance can be designed to pay out only under more extreme weather conditions causing catastrophic losses, while CSA technologies shield livelihoods from more moderate weather shocks and accompanying income losses. This can also help lower premiums, improving the demand for insurance.

A final, important issue that arose during the dialogue is that the countries of South Asia vary in many aspects: In topography and the risks farmers face, and in the policy and regulatory environments where insurance markets operate. In India, for instance, the government is very active in promoting agricultural insurance under PMFBY through large subsidies, while in Bangladesh and Nepal, insurance is not a prominent feature of agricultural development strategies or policies. Such differences raise important questions about how to best organize insurance markets and innovation activities country by country. These questions remain unanswered, but may prove to be an important area for IFPRI’s policy research in the coming years.

Berber Kramer is a Research Fellow in IFPRI's Markets, Trade, and Institutions Division; Patrick Ward is a Research Fellow in IFPRI's Environment and Production Technology Division.

Loan waiver is not the solution

Since Independence, one of the primary objectives of India’s agricultural policy has been to improve farmers’ access to institutional credit and reduce their dependence on informal credit. As informal sources of credit are mostly usurious, the government has improved the flow of adequate credit through the nationalisation of commercial banks, and the establishment of Regional Rural Banks and the National Bank for Agriculture and Rural Development. It has also launched various farm credit programmes over the years such as the Kisan Credit Card scheme in 1998, the Agricultural Debt Waiver and Debt Relief Scheme in 2008, the Interest Subvention Scheme in 2010-11, and the Pradhan Mantri Jan-Dhan Yojana in 2014.

It is encouraging to see a robust increase in institutional credit from ₹8 lakh crore in 2014-15 to ₹10 lakh crore in 2017-18. Of this, ₹3.15 lakh crore is meant for capital investment, while the remaining is for crop loans, according to the Ministry of Agriculture and Farmers Welfare. Actual credit flow has considerably exceeded the target. The result is that the share of institutional credit to agricultural gross domestic product has increased from 10% in 1999-2000 to nearly 41% in 2015-16.

Clamour for loan waiver

While the flow of institutional farm credit has gone up, the rolling out of the farm waiver scheme in recent months may slow down its pace and pose a challenge to increasing agricultural growth. The Uttar Pradesh government has promised a ₹0.36 lakh crore loan waiver covering 87 lakh farmers, whereas the Maharashtra government has announced it’s writing off ₹0.34 lakh crore covering more than 89 lakh farmers. The demand for a loan waiver is escalating in Punjab, Karnataka, and other States. This clamour is only poised to increase as the 2019 general election comes closer.

There is a serious debate on whether providing loans to farmers at a subsidised rate of interest or their waiver would accelerate farmers’ welfare. At the global level, studies indicate that access to formal credit contributes to an increase in agricultural productivity and household income. However, such links have not been well documented in India, where emotional perceptions dominate the political decision quite often. A recent study by the International Food Policy Research Institute reveals that at the national level, 48% of agricultural households do not avail a loan from any source. Among the borrowing households, 36% take credit from informal sources, especially from moneylenders who charge exorbitant rates of interest in the 25%-70% range per annum. More importantly, the study using the 2012-13 National Sample Survey-Situation Assessment Survey (schedule 33) finds that compared to non-institutional borrowers, institutional borrowers earn a much higher return from farming (17%). The net return from farming of formal borrowers is estimated at ₹43,740/ha, which is significantly greater than that of informal sector borrowers at ₹33,734/ha. Similarly, access to institutional credit is associated with higher per capita monthly consumption expenditures.

A negative relationship between the size of farm and per capita consumption expenditure (a proxy for income) further underscores the importance of formal credit in assisting marginal and poor farm households in reducing poverty. Indeed, access to formal institutional credit also tends to enhance farmers’ risk-bearing ability and may induce them to take up risky ventures and investments that could yield higher incomes. Going by the NSS schedule 18.2 (debt and investment), rural households’ investments in agriculture grew at a high rate of 9.15% per annum between 2002 and 2012. While 63.4% of agricultural investments are done through institutional credit, landless, marginal and small farmers’ investment demand is met through informal sources to the tune of 40.6%, 52.1%, and 30.8%, respectively. Statistics show that nearly 82% of all indebted farm households (384 lakh) possess less than two hectares of land compared to other land holders numbering 84 lakh households. Those residing in the less developed States are more vulnerable and hence remain debt ridden.

Not helping farmers’ welfare

Clearly, a major proportion of farmers remain outside the ambit of a policy of a subsidised rate of interest, and, for that matter, of loan waiver schemes announced by respective State governments. In other words, this sop provides relief to the relatively better off and lesser-in-number medium and large farmers without having much impact on their income and consumption. This anomaly can be rectified only if the credit market is expanded to include agricultural labourers, marginal and small land holders. It is, therefore, important to revisit the credit policy with a focus on the outreach of banks and financial inclusion.

Second, the government along with the farmers’ lobby should desist from clamouring for loan waivers as it provides instant temporary relief from debt but largely fails to contribute to farmers’ welfare in the long run. To what extent this relief measure can help bring farmers out of indebtedness and distress remains a question. This is because farmers’ loan requirement is for non-agricultural purposes as well, and often goes up at the time of calamity when the state offers minimal help. If governments are seriously willing to compensate farmers, they must direct sincere efforts to protect them from incessant natural disasters and price volatility through crop insurance and better marketing systems.

Third, it should be understood that writing off loans would not only put pressure on already constrained fiscal resources but also bring in the challenge of identifying eligible beneficiaries and distributing the amount.

The report of the Committee on Doubling of Farmers’ Income, Ministry of Agriculture and Farmers Welfare, has rightly suggested accelerating investments in agriculture research and technology, irrigation and rural energy, with a concerted focus in the less developed eastern and rain-fed States for faster increase in crop productivity and rural poverty reduction. Additional capital requirements estimated for 20 Indian States are ₹2.55 lakh crore (₹1.9 lakh crore on irrigation and rural infrastructure by State governments and ₹0.645 lakh crore by the farmers) at 2015-16 prices by 2022-23. Public and private investments are required to grow at an annual rate of 14.8% and 10.9% in the next seven years. A diversion of money towards debt relief, which is in fact unproductive, will adversely impinge on state finances, may dissuade lending by the banks, and hence prove counterproductive to the government’s broader mandate of doubling farmers’ income by 2022-23.

Anjani Kumar and Seema Bathla are agricultural economists at IFPRI and Jawaharlal Nehru University, New Delhi, respectively. This piece was originally published in The Hindu 

Time for PPPs in Agriculture

Ch. Hira Singh Wholesale Vegetable Market at New Sabzi Mandi, Azadpur, Delhi
Watching over pineapple fruit trucks.
Photo Credit: Melissa Cooperman / IFPRI

Indian agriculture has come a long way from its earlier image of being traditional, subsistence and non-commercial. With the increasing demand for value added and high-quality products, agriculture has been adopting commercially and economically viable agribusiness solutions. In the recent past, business and investment opportunities in this sector have suddenly jumped manifold. But the response from the private sector has been likewarm.

There is a pressing need to develop a structured approach for increasing the number of bankable agri-business and agri-infrastructure projects through private sector participation for better quality and improved services. Role of private sector is immense in reinvigorating agri-food sector. We have good record of public-private partnership (PPP) in infrastructure development such as highways, ports, power and other sectors. Unfortunately, agri-infrastructure development in PPP mode was not adapted and applied in agriculture sector with the same vigor as done for these sectors.

Engaging private sector in developing and managing agri-infrastructure will bring improved technologies, best practices in operations and generate rural employment. The partnership can emerge as an important tool to induce investment and capitalize on the synergies of public and private sector. While the government continues to lead and facilitate development of agriculture sector through its policies, the entry of the private sector will induce a fresh bouquet of ideas that when scaled up can emerge as mass development models for the agriculture sector. Drawing lessons from other sectors, we are proposing few areas for developing agri-infrastructure in PPP mode.

Wholesale market development: Agricultural markets in India are thinly distributed. Existing marketing is characterized as inefficient, fragmented and unorganized. Very few markets have been developed during the last three decades; most of these are concentrated only in well off areas. The time is apt for evolving mechanisms to develop wholesale markets in PPP mode in a similar pattern of constructing and managing national highways using BOT (built, operate and transfer) approach. A model concession agreement using viability gap funding mechanism should be created by central government with encouragement to state to implement the process as per specific needs of each states. 

Warehouse and cold storage development: High price volatility is one of the major reasons for agrarian distress. Prices crash in the event of high production. Warehouses and cold storages play an important role to stabilize prices and benefit farmers as well as consumers. Development of warehouses and cold storage offers enormous opportunity for public-private partnership. Non-availability of land and low scale of business are reported to be the major obstacles for private sector response in this sector. Panchayat land, uncultivated land, government land, including some of the railways land, may be allocated on a long-term lease with annual rent by inviting bids from private sector in OMDA (Operation, Management and Development Agreement) mode as has been done for airport development and management.

Agro-processing development: The agro-processing, especially of perishable commodities, has huge opportunities as their demand in domestic and global market is rising very fast. This sector must be harnessed to meet the future demands and reduce unaccounted losses of perishable commodities. The Ministry of Food Processing and Industries committed for continued emphasis on creation of world class infrastructure for growth of food processing sector through mega food parks and Integrated cold chains. Use of PPP model for achieving these objectives and developing processing plants and linking them with micro, small and medium enterprises (MSMEs) will boost agri-processing sector. This is a lesson to be drawn from successful PPP mode in constructing airports, providing numerous services, and linking operations by various airlines.

Canal irrigation development and management:  India has large network of major and minor canals and distributaries from various rivers. Roughly 40 per cent of all irrigated area is covered by canals. Huge investment has been made to develop reservoirs, canals and distributaries. The canal irrigation system in many parts of the country is reported to be underperforming with irrigation efficiency is mere 30 per cent. The PPP model can be extended to this sector on the lines of the power sector. At first level, the irrigation department, should take sole responsibility for developing and managing the water reservoirs. This way government will have control over water for irrigation. At second level, canal management and water delivery could be contracted out to the private sector based on the performance. The contract may include canal and distributary management, water pricing and promoting efficient -irrigation methods. This will incentivize for volumetric release of water at different stages from reservoir to the farmers and eventually improve water use efficiency.

Agriculture extension: Public agricultural extension system has significantly contributed in bringing green revolution in the country. But it is its efficiency and effectiveness are now being questioned.  At present, Krishi Vigyan Kendras (KVKs) and Agriculture Technology Management Agencies are the last mile connectivity for technology delivery. Some of the KVKs are also run by private sector but majority are with agricultural universities (AUs) and Indian Council of Agricultural Research (ICAR). The AUs, ICAR institutions and KVKs have good infrastructure with land and water resources; a part of that can be allocated on a medium to long term lease (7-10 years) to the private sector for demonstrating their best practices. Private sector and public research system can also jointly undertake research for demonstration purposes. The process can also be used to incentivize private sector to use their CSR funds.

Private sector will come at its own where there is commercial viability and profit can be generated. But above-mentioned areas may have less commercial viability but high economic benefits. Therefore, these are the areas for developing public-private partnership to re-energize agriculture sector. This could mark the beginning of the next revolution in agriculture – one that is driven by institutional and governance reforms implemented via social equity based PPP process. This will require a new thinking to evolve enabling policy environment to attract private sector in developing agri-infrastructure.

This article was originally published in Business Standard

P K Joshi is the director- South Asia, International Food Policy Research Institute. Tushar Pandey is the freelance consultant in PPP and social equity related policy analysis.



Green Revolution in Eastern India: Constraints, Opportunities and Way Forward

Call for Abstracts

Puri District, Odisha, Oct 2012 Source: Vartika Singh, IFPRI

You will agree with me that the eastern region of India, comprising Bihar, Chhattisgarh, Eastern UP, Jharkhand, Odisha and West Bengal is lagging in agriculture and is home to more than 50 percent of India’s poor and food insecure population. More than three fourths of poor in the region lives in rural areas. India’s success in reducing rural poverty from 53 percent in 1977/78 to 21.4 percent in 2011/12 is attributed mainly to the green revolution. However, the eastern region was by passed from the benefits of green revolution and the increasing concentration of the rural poor in this region is a reality. The persistence of high poverty and food insecurity has a serious economic, social and political implications.

Agriculture in eastern region of India is slowly transforming, but the pace needs to be accelerated by reforming policies, institutions, and markets and by developing agri-infrastructure. Several initiatives such as “Bringing Green Revolution to Eastern India (BGREI)” have been launched to push green revolution for accelerated agricultural growth in this region. However, the region is struggling to ensure sustainable high agricultural growth and continues to linger in a vicious circle of low input – low output syndrome. To overcome the challenges and unleash the opportunities, a critical understanding of the constraints which are impeding the real take off, of green revolution in eastern India needs to be thoroughly analyzed and understood.

To address these issues, we are organising a conference on “Green Revolution in Eastern India: Constraints, Opportunities and Way Forward” on Oct 09-10, 2017 at NASC, Pusa, New Delhi, India. The conference is jointly organized by the International Food Policy Research Institute (IFPRI) and Tata Cornell Institute for Agriculture and Nutrition (TCI).  The conference is expected to evolve a “road map” with clear prioritization and strategies for accelerated and sustainable agricultural growth in eastern India.

We are inviting contributions from you and your colleagues for presentation in this conference. We shall appreciate if you and your colleagues submit a brief abstract of about 500 words for including in the conference by September 7, 2017 in the following broad areas:

  1. Constraints in Production System
  • Agricultural performance in Eastern India vs Western India
  • Land ownership and tenurial arrangements
  • Investment and subsidies
  • Agricultural risks
  1. Technology Adoption and Constraints
  • Adoption of improved varieties
  • Adoption of conservation technologies
  • Farm mechanization 
  1. Institutions and their Effectiveness
  • Irrigation and water markets
  • Financing agriculture
  • Agricultural markets
  • Farmer Producer Organizations
  1. Opportunities in Eastern India
  • Bridge yield gaps
  • Potential of agricultural diversification
  • Potential of rice-fallow utilization
  • Opportunities for agro-processing
  1. Role of Private Sector
  • Climate smart agriculture
  • Solar power for irrigation
  • Reform to promote agri-business

You can send your abstract to Vaishali Dassani ( Please send complete details, including the topic under which your abstract falls and the corresponding address.

Concept Note


Growing Fertilizer Market in Nepal

Landlocked Nepal faces the challenge of low crop productivity due to climate change, depletion of soil fertility, and low fertilizer use. Over the years, there has been a significant shift in the use of inorganic fertilizer in the Terai agro-ecological belt, while use has stagnated in the hill and mountain regions. The low fertilizer use may be partly due to insufficient demand, the shortage of fertilizer-responsive varieties that suit Nepali production environments, limited access to irrigation facilities, or limited market access aggravated by rugged terrain in many parts of the country.

The government is concerned about high prices and the dubious quality of fertilizers sold in the country. It is unclear why the demand for and sale of chemical fertilizer supplied through private, informal channels remain high despite the poor quality of chemical fertilizers.

Divya Pandey/IFPRI

To support the government of Nepal, USAID Nepal, through IFPRI, carried out a study to identify what determines the quantity of chemical fertilizer farmers’ use. The project also studied how variation in chemical fertilizer prices across regions between 2003 and 2010 contributed to variation in chemical fertilizer use and other economic outcomes of farm households during the same period.

Key Findings and Policy Recommendations

Analysis of past policies and panel data from the Nepal Living Standard Survey for 2003 and 2010 show that in Nepal's Terai region, lowering the price of chemical fertilizer is more advantageous for larger farms than smallholder farms. The growth in fertilizer demand has been met by private markets, despite the knowledge that chemical fertilizer from private markets is often inferior and impure compared with the chemical fertilizer supplied by the government, nongovernmental organizations, and cooperatives.

The study outlines the following policy options:

  • increasing the use of chemical fertilizer in Nepal, particularly in the hill and mountain regions, which may require the government to focus on raising returns from the use of chemical fertilizer rather than on reducing the price of chemical fertilizer through subsidies
  • conducting further research on the variation in use of chemical fertilizer between medium- to large-size farms in Terai and those in the hill region, as well as on the interactions between chemical and organic fertilizer and the long-term environmental sustainability of increased chemical fertilizer use
  • enhancing investment in agricultural research and development on production technologies

Read more: Determinants of Chemical Fertilizer Use in Nepal

Farm Size and Effects of Chemical Fertilizer Price on Farm Households

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