At long last, the stage is set to launch crop insurance in a significant manner from this Kharif by two big state institutions. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan (NBP) are about to enter into an arrangement — probably within ten days — to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks.

‘’Top NBP executives were reluctant from the beginning to co-ordinate with NICL for getting insurance coverage of their production loans’’, a well-placed source in the insurance business disclosed. But the NBP changed its mind after the Prime Minister Syed Yusuf Raza Gilani, in his first speech in National Assembly put crop insurance as one of the key points on new government’s agenda.

Early last week, the NICL informed the NBP that its partners the international re-insurance companies have given a final notice of quitting support arrangement if no headway is made in crop insurance.

The NBP gave its consent to be a partner of NICL on April 2, 2008 in crop insurance after more than a year-long negotiation and correspondence. It was on Wednesday last that the President of Sindh Chamber of Agriculture, Syed Qamaruzzaman Shah told Dawn over telephone that the State Bank Governor Dr Shamshad Akhtar had informed him about launching of crop insurance from this Kharif.

The production loans to be offered for cotton, sugar cane and rice for this Kharif to the farmers by the NBP will have insurance cover. The NICL wants crop insurance to be mandatory for all borrowers. Bankers and insurance officials are now discussing whether a law will be needed to make the crop insurance mandatory for borrowers or simply a directive of SBP will serve the purpose.

Assuming all formalities for launch of crop insurance are completed within the next fortnight, bankers and insurance executives estimate a sum of Rs3-4 billion will come under insurance coverage which is hardly two per cent of the total agricultural loaning in 2007-08. About 100,000 farmers will benefit from crop insurance this year. The crop insurance will cover only a part of NBP loaning. The Zarai Tarraqiati Bank Limited (ZTBL), also a state-run bank, is still reluctant to join the insurance arrangement. Institution-wise, the ZTBL offers the highest amount of loans-Rs60 billion indicated for 2007-08- and its reach to farmers is also the highest.

Once, the crop insurance business gets going by next Rabi, we hope substantial expansion in the coming year’’ an insurance executive said. Agriculture now contributes over 20 per cent of the GDP and is worth over Rs1.4 trillion. It provides livelihood to the majority of the country’s 160 million people.

A small beginning was made in the year 2004 in the crop insurance by a few private insurance firms like East West, United Insurance, Adamjee Insurance and EFU. The East West Insurance Company has been offering crop insurance to borrowers of Punjab Bank for last four years. Its annual report for 2007 carries a few paragraphs on crop insurance but does not give figures about the volume of business.

‘’Yes, we did receive claims from farmers about damages by flood waters,’’ an official of East West Insurance in Lahore said. Most of the claims are from farmers on River Indus belt-Mianwali and Khushab. Insurance officials say that are no surveyors to assess crop losses and East West Insurance Company has been taking services of agro-economists, practicing agriculturists and knowledgeable people.

Almost a dozen districts in Punjab, seven in Sindh and a few in NWFP are considered to be ‘’flood prone’’ from where insurance companies expect loss claims. But natural calamities also hit in the form of earthquake as in October 2006 and drought for almost four years which afflicted agriculture in Sindh .

‘’We will entertain claims only after the provincial governments declare districts and parts of districts calamity affected,’’ an insurance executive explained who said the surveyors will determine the extent of damage to the crop or fruit orchards for which compensation can be paid. Insurance officials say that crop insurance will be viable only if it is made mandatory for borrowers of production loans. “The bigger the base of policy holders, the less will be impact of loss that is shared by the insurance firms,’’ he said.

But the total number of borrowers of agricultural loans is hardly half a million as the overwhelming majority of farmers---70 per cent according to an official Committee of the SBP on Rural Finance--do not enjoy access to bank loans. Small farmers do not have collaterals to offer. The provincial boards of revenue do not give them pass books.

In Sindh, as many as 250,000 small farmers have been denied pass books by the Board of Revenue, Sindh, despite repeated advice from the SBP for the last five years. Obviously, the majority of small farmers will remain outside the net of insurance cover if at any time, banks agree to co-ordinate with insurance companies for getting a cover.

‘’Documentation is a pre-requisite of insurance cover,’’ argued an insurance officer who wondered when a big part of urban economy is un-documented how it would be possible to bring agriculture under documentation and provide benefits of insurance business.” he asked.

The fact is that agriculture is key to Pakistan’s economic progress and provides strategic support to country’s industrial growth. Late Z.A. Bhutto introduced two land reforms and crop insurance in decade of the seventies. Benazir Bhutto also announced crop insurance in 1994 budget but could not make any headway because of the political events that overtook all other priorities.

The former Chief Minister of Punjab Chowdhry Pervez Elahi introduced crop insurance through Bank of Punjab and three private insurance companies in the year 2004. The benefits of crop insurance have so far been confined to only seven or eight districts of central Punjab, where, according to insurance business sources, the rate of farmers’ literacy is perhaps highest and they are far more progressive and well-connected in social terms.

While crop insurance is a way of life and established norm in developed countries, it is going through experimentation in the developing countries. In South Asia crop insurance was introduced in India in 1979-80 as a pilot scheme A Comprehensive Crop Scheme was introduced in 1985. The National Crop Insurance Scheme was introduced in 1999.

‘’A study comparing yields of 15 crops showed that the risk of loss is as high as 40-60 per cent,’’ a website report observes about crop insurance in India. The report says the crop insurance based on premium rate of one to three per cent is not an effective cover and it estimates the premium as high as 30 per cent.

How far these observations are relevant for Pakistan can be best understood by the insurance business people, farmers and the government. In India, the crop insurance losses are being shared by the Union and state (provincial) governments with the banks and insurance companies.

But in Indian Gujrat, a model co-operative dairy farming has done wonders for farmers and it offers many lessons for Pakistan where a beginning is being made in dairy business. The NICL is negotiating with a big company to provide insurance cover to animals. Private insurance companies also offer this cover but the volume is too small.