Latur: Ram Venkat Rao Hande rues the day he paid the insurance premium to safeguard his crop. In 2014, the farmer shelled out Rs 3,001 to cover the channa (chickpea) that he had cultivated on his 4.5 acres land in Ausa taluka of Latur district. Unseasonal rains destroyed the crop and after two years, he got a total of Rs 17,810, not even enough to cover the market cost of one acre of channa.
“I would have got Rs 18,000 per acre of channa just by selling it,” Hande told Firstpost. “What’s the use of insurance that doesn’t even cover my production cost?”
Insurance, as a product to hedge against risk, is widely used to provide cover against unforeseen factors. Three years of continuous drought and extreme weather events in Marathwada has made agriculture more unpredictable, but the financial products that are meant to defray the risk are failing farmers, Firstpost found by talking to farmers and bankers.
Crops like soyabean, pulses like urad, moong and tur, rice and fruits like grapes and chikoo are usually grown in this part of Latur. Interviews with cultivators revealed that the insurance they get for crop damage doesn’t even cover the cost of cultivation.
Pradeep Sonawane has around 24 acres of land in Ausa taluka where he cultivates crops like urad, tur, jowar and grapes. The cost of cultivating one acre of urad and moong is around Rs 10,000. Soyabean is slightly higher at Rs 14,000 per acre. Last year, when unseasonal rain destroyed these crops, the amount he got was way below what he had spent in cultivating the crops.
“I got Rs 2,000 per acre for soyabean and Rs 1,500 for tur. The insurance doesn’t cover the actual cost of the crops destroyed,” Sonawane said.
For urad, a type of pulse, the premium for one acre is Rs 378 for a 100 percent coverage of Rs 6,000, in theory. But Sonawane said that he got only Rs 600-1,000 per acre.
Shivaji Sonawane, the president of the Grape Growers’ Association in Latur, feels that the reason why crop insurance cover is so low is because the likelihood of payout is much higher for agriculture.
Insurance works on the principle that the premiums collected for a particular risk category by a company will always be higher than the likelihood of an actual payout. The chance of a fire breaking out at a warehouse is much more improbable than the premiums collected for fire insurance from several warehouses. Similarly, the chance of crashing your car is remote, compared to the surety of your annual vehicle insurance payments.
But in case of agriculture, which is largely dependent on monsoons, a slight deviation from a normal monsoon means widespread destruction of crops. Either excessive or deficient or even untimely rains are enough to destroy the crops, which is what is happening in Marathwada, along with unseasonal hail.
“The reasons why we don’t get adequate cover are linked to climatic factors,” Shivaji Sonawane said. “In our case, one extreme weather event will ruin thousands of farmers. Which company wants to take that risk?”
In the case of crop insurance, some part of the premium is paid by the government. For grapes, the premium comes to Rs 18,000 per hectare, of which half is paid by the government and Rs 9,000 by the farmer. However, grape crop insurance is only for 40 days, which is less than the grape season. For instance, two years ago, Shivaji Sonawane’s insurance cover expired on 28 February and a hailstorm destroyed his crops on 5 March.
Jayanta Sinha, an independent banking consultant who was formerly the chief general manager for rural business at the State Bank of India, said that the average all India penetration of insurance is just 22 percent (of cropped area). This is the reason why premiums are high. “The sum paid out as insurance is low while premiums are high. This is the reason farmers are reluctant to purchase crop insurance,” Sinha said in an interview.
Sinha said that the government’s new insurance scheme, the Pradhan Mantri Fasal Bima Yojna, announced by Prime Minister Narendra Modi earlier this year has the potential to change things for the better. “This can be a game changer because it is assuring a lower premium and higher payouts,” Sinha said.
Under the scheme farmers will pay 2 percent premium for kharif crops, 1.5 percent for rabi and 5 percent for cash crops. The aim is to take insurance penetration to 50 percent of gross cropped area in the next two years, because the success of the scheme will depends on that. The premium percentage is based on output per hectare multiplied by the average price per hectare.
Of course, insurance is just a financial product to defray risk. The structural factors affecting Indian agriculture are deeper than that and those need to be addressed to make agriculture viable.
Shivaji suggested that one way to improve insurance is to include the cost of cultivation and 50 percent of profit on that. That would act as an incentive for farmers to continue cropping. This view was echoed by Sudhakar Shinde, a farmer and political activist who grows soyabean and pulses.
Pradeep Sonawane, on the other hand, wants opening up of the insurance sector so that a larger number of products are available to the farmer. “Let the government allow foreign companies to come in and compete with the companies operating locally. Maybe then we will get a better insurance deal.”
Shivaji Sonawane laments that the current debates going on in the country do not feature farmers or agriculture at all. “Right now, everything in the news is about Kanhaiya and beef. What about the issues that really matter? Agriculture and the people who grow food are a vital part of the economy, but we hardly figure anywhere in the collective consciousness of the nation.”
This is the eleventh segment of a 13-part series on Marathwada’s drought.
Part 12: Climate change and its impact on the farmers of Marathwada.
Read the previous parts of the series here:
Part 1: Region is parched, impoverished and desperate, but it's a crisis of its own making
Part 2: In the midst of severe economic downturn, private water sellers reap profits in Latur
Part 3: Drought has brought the economy down and is forcing farmers to leave the region
Part 4: Water scarcity has created a region where trust has eroded and left the social fabric frayed
Part 5: Maha has the most dams in the country, but the least effective irrigation network
Part 6: A surveyor of suicides tells the story behind the statistics and the lonely struggle of Indian farmers
Part 7: Will outreach help reduce farmer suicides?
Part 8: 'Toothless' laws lead to water exploitation
Part 9: Shirpur, Jal Biradari projects show impact of small local initiatives
Part 10: Why debt-ridden farmers are deemed least creditworthy