PROJECT REPORT

ON

CROP INSURANCE

BACHELOR OF BANKING & INSURANCE

(B.B.I.)

SEMESTER V

In Partial Fulfillment of the requirement

For the Award of Degree of Bachelor of

Banking & insurance (BBI)

By

PRAVIN M. KHARATE

ROLL NO.1228026

SHRI SIDH THAKURNATH COLLEGE OF ARTS

AND COMMERCE, ULHASNAGAR 421 004

UNIVERSITY OF MUMBAI

INDEX

SR.NO TOPIC PG.NO 1 INTRODUCTION 2 INDIAN

AGRICULTURE:DEPENDENCE ON RAINFALL

3 RISK AND UNCERTAINITY IN AGRICULTURE

4 EVOLUTION OF CROP INSURANCE IN INDIA

5 RATIONALE OF CROP INSURANCE

6 PAST EXPERIENCE IN CROP INSURANCE

7 PRODUCT IN THE MARKET

8 COMPARISON OF NAIS-WBGIS

9 CROP INSURANCE IN BANGLADESH

10 CROP INSURANCE IN TAMIL NADU

11 PRIVATE PARTICIPATION

12 THE FUTURE FOCUS

13 RESULT AND DISCUSSION

14 RECOMMENDATION

15 CONCLUSION

16 REFERENCE

History

The Crop Insurance in India was started with the introduction of the All Comprehensive Crop Insurance Scheme (CCIS) that covered the major crops. This scheme was introduced in 1985. In fact this period of introduction also coincided with the introduction of the Seventh-Five-year plan. This initial scheme was of course later substituted and National Agricultural Insurance Scheme (NAIS). This substitution came into effect from 1999.

These Schemes that have been introduced throughout the crop insurance history have been preceded by years of preparation, studies, planning, experiment and trails on a pilot basis. In the crop insurance history, the question of introducing a crop insurance scheme was taken up for examination soon after the Indian independence.

The first aspect that was examined related to the modalities of crop insurance. The issue under consideration was about whether the crop insurance should be offered under an individual

approach or on Homogenous area approach. The Individual approach of the scheme

indemnifies the farmer to the full extent of the losses. Also the premium that is to be paid by him is determined with reference to his own past yield and loss experience.

The Individual approach for these schemes necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period, for fixation of premium on actuarially sound basis. The Homogenous area approach on the other hand was aimed at envisaging a homogeneous area from the point of view of crop production and similarity of annual variability of crop production. The homogenous area approach was found to be more favorable. This is because it would facilitate the provision of a single unit treatment to various agro-climatically homogenous areas and the individual farmers and allow them to pay the same rate of premium and individual fortunes. Receive the same benefits, irrespective of their individual fortunes.

Introduction

Agriculture has been a crucial sector in many developing countries across the world for its perceived ability to contribute significantly to achieve developmental objectives such as economic growth, employment generation, food security, poverty reduction, and environmental sustainability. Increasing the productive capacity of agriculture through higher productivity has been the main policy agenda in many developing economies. India is not an exception where agriculture provides employment to millions of people in the rural areas, and hence the growth and development of this sector assumes important among the policy makers. With almost little scope for further expansion in arable lands, there is a need to increase yields to technically maximum possible levels through appropriate investment in basic infrastructure, human development, and research and extension services (Chaves, 2006; Zepeda, 2006; Mathura et al, 2006).

There has been a consistent decline in growth of the agriculture sector since 1990 onwards as compared to 1980s. It was 4 per cent per annum during the 1980s on an average, which came down to 3.2 per cent during 1990s and 2 per cent in the last five years. Growth in real value of food grain production has been an abysmal -3 per cent during the 1990s and - 5 per cent during 1999-2000 to 2002-03, with minor improvements estimated during 2003-04 (Mathura et al, 2006). While there has been decline in overall agricultural growth, there are considerable interregional variations across the country. With regard to the period 1993 to 2003, the state-wise analysis shows wide variations in growth from 28 per cent to 19 per cent taking the first three years and last three years, viz, 1993-96 and 2000-03.

Over the years, many researchers have attempted to study variations in terms of agricultural production, productivity, and agricultural growth performance across regions in the

country (Sawant, 1997; Singh et al, 1997; Praveen et al, 1997; Rao and Gopalappa, 2004; Sidhu and Bhullar, 2005; Mathur et al 2006). These studies by and large found that there are considerable variations in yield, production, input use in agriculture and agricultural growth across regions. However, studies on regional differences in farm profitability are limited. Moreover, growing imbalances in agricultural growth and development led to disparity in status of farmers across regions. Significant proportion of farmer households has been trapped to indebtedness. Recent estimates show that nearly 49 per cent of farm households are indebted and the average amount per indebted household is Rs.12585. This issue made the academicians and policy makers to carefully analyze why this happens in the era of globalization, technological advancement, and economic growth.

Farmers face floods, drought, pests, disease, and a plethora of other natural disasters. Crop insurance as a risk management tool is being widely adopted both in developing and developed countries. Agricultural crop insurance has assumed much importance with large scale damage caused due to pest attacks, crop diseases and vagaries of weather. The objective here is to provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests and diseases. The list of crops being covered for insurance differs from state to state. Generally quite a few Kharif and Rabi season crops are covered. These crops are insured at the community/block/gram panchayat levels. Agriculture insurance schemes are of immense help to farmers, providing them with financial security.

Developed countries have a variety of government-supported, agriculture-related insurance services. But, in India, farmers generally rely on informal arrangements like diversifying crops, favouring traditional practices over modern techniques, and entering into share-cropping carrangements. Such arrangements, however, are not totally gainful in mitigating the risks as

efficiently as formal arrangements. Therefore, crop insurance as one of the means of reducing the agricultural risks, indemnifies the losses arising from natural calamities like drought, flood, storm and pests and diseases. Crop insurance brings in security and stability in farm income.

Crop insurance protects farmers investment in crop production and thus improves their risk

bearing capacity. It facilitates adoption of improved technologies and encourages higher investment resulting in higher agricultural production. Further, it spreads the crop losses that occur due to uncontrollable natural factors, over space and time and helps farmers make more investments in agriculture. Realising the importance of potential contribution of crop insurance in agricultural sector, the present paper aimed at (i) critically review the various crop insurance schemes in Tamil Nadu state and (ii) work out the instability index for important crops.

Definition

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities.

The two general categories of crop insurance are called crop-yield insurance and croprevenue insurance.

Crop-yield insurance:

There are two main classes of crop-yield insurance

Crop-hail insurance

It is generally available from private insurers (in countries with private sectors) because hail is a narrow peril that occurs in a limited place and its accumulated losses tend not to overwhelm the capital reserves of private insurers. In early 1820s, crop-hail insurance were available to farmers in France an):d Germany. That is among the earliest forms of hail insurance from an actuarial perspective. It is possible to implement the hail risk into financial instruments since the risk is isolated.

Multi-peril crop insurance (MPCI

Coverage in this type of insurance is not limited to just one risk. Usually multi-peril crop insurance offers hail, excessive rain and drought in a combined package. Sometimes, additional

risks such as insect or bacteria-related diseases are also offered. The problem with the multi-peril crop insurance is the possibility of a large scale event. The Risk Management Agency (RMA) is active in calculating the premiums based on individual risk factors since 1996.

Crop-revenue insurance: Crop-yield times the crop price gives the crop-revenues. Based on farmer's revenues, crop