Scope of Agriculture insurance in Nepal

Rajesh Gupta,

Agriculture has always depended on the weather and the climate. There has always been a danger of flood, drought or storms, however recently they have become even more frequent than before. It is a result of climate changes which we can observe nowadays. They all cause troubles for farmers and ranchers. For these reasons agricultural producers try to protect themselves and agricultural insurance is one of the possible ways to help them. Besides helping when there is a natural disaster, agricultural insurance also helps to protect against the losses caused by the declines in the prices of the commodities. Some risks are covered by the insurance offered by private commercial insurance companies and the other risks are covered by the state insurance programs.

If the agricultural production is decreased, it influences also other areas of the economy and that is the main reason why the governments participate and support this kind of insurance. Agriculture is one of the pillars of the economy in a lot of countries. Another reason why the governments support it is the development of the countryside which cannot be done without agriculture.

 

Agricultural insurance is necessary for the successful and profitable agricultural policy. And effective agricultural policy leads to effective national economy and national growth. It must be a common interest of governments, insurance companies and agricultural producers.

 

Insurance spreads risk across the farming industry or the economy or, in the case of international reinsurance, to the international sphere. Insurance is sold and bought in a market. The purchasers must perceive that the premiums and expected benefits offer value; the sellers must see opportunity for a positive actuarial outcome, over time, and profit.

 

Insurance is not the universal solution to the risk and uncertainties that farmers face. It can only address part of the losses resulting from some perils and is not a substitute for good on-farm risk-management techniques, sound production and farm management practices and investments in technology.

 

 

Financial institutions accelerated lending to the agriculture sector after Nepal Rastra Bank (NRB) directed them to float a minimum of 10 per cent of their total lending to agriculture and energy sectors. Those commercial banks that have lent less than 10 per cent in these sectors will have to reach the requirement by the end of fiscal year 2013-14.

 

The central bank has recognised cereal crops, crops-related services, tea, coffee, tobacco, jute plants, forestry, irrigation, animal husbandry, poultry and fishery under agriculture. “The central bank has always encouraged financial institutions to provide loans to agro projects since agriculture is a predominant sector in Nepal,

 

To promote lending to agriculture sector, NRB is providing refinancing facilities for agriculture at 6.5 per cent interest as it does with hydropower loans.

 

“There is immense scope for financing in agriculture and energy sectors but most banks used to concentrate on unproductive sectors — especially real estate — previously. By venturing into these sectors, banks themselves diversify their exposure,

 

Although agriculture contributes about 35 per cent to the total gross domestic product of Nepal, financing to the sector has remained out of the radar of banks for their low commercial viability and higher risk.

However, the recent introduction of agriculture insurance is expected to boost the whole agro sector and stimulate agro financing.

 

Insurance Board (IB) has made agro insurance mandatory for non-life insurance companies since January 14. Non-life insurance companies will from now on have to insure paddy, vegetables, fruits, potatoes, livestock and poultries under the heading. “Companies are preparing a working plan for the implementation of the agro policies in the initial phase,”

 

The agriculture sector is risky due to its dependence on weather conditions and similar uncontrollable factors. Introduction of agro-insurance is expected to stimulate lending to the sector, as banks will be assured that the loans will not go bad.

 

The Livestock and Crop Insurance Guidelines which the National Insurance Board issued on Monday came into effect from today.

The board issued the guidelines for making the farmers' investment secure. With this, the board has also issued some insurance policies on certain sectors as cattle insurance, poultry insurance, fruit insurance and paddy insurance.

The board has issued the guidelines to 17 different insurance companies working in the non-life insurance sector.

 

The crop and vegetable insurance will be done on the basis of the investment made by the farmers while that of livestock would be done on the basis of the price of the animal or bird. The farmers insuring their crops and livestock are required to pay their insurance in installments on the evaluation carried out by offices under the Department of Agriculture and Livestock Services.

 

In a country like Nepal where there is more dependence of people in agriculture sector must be aware with agriculture insurance.

 

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