Agriculture is undoubtedly risky, and the risk of a bad year discourages farmers from investing in high-yielding activities. By building resilience, agricultural insurance can help farmers improve their productivity and provide food security. The Indian government has therefore implemented a new agricultural insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY). On December 21, the International Food Policy Research Institute (IFPRI) and Swiss Agency for Development and Co-operation (SDC) jointly organised a workshop on the PMFBY. The workshop brought together policy-makers, experts from the insurance industry as well as academics to identify innovative approaches and technologies to strengthen India’s agricultural insurance sector.
Workshop participants were provided with an overview of the PMFBY, expectations from the insurance industry, and an introduction to insurance in the context of a broader portfolio of risk management strategies. The PMFBY is improving on the former insurance scheme in various ways, but still faces a number of challenges, including low participation rates among farmers who are not automatically enrolled by taking a loan, no clear guidelines on how to settle disputes between yield estimates from crop cutting experiments versus remote sensing technologies, and payments being made too frequently for insurance products to be sustainable.
The participants discussed new technologies to improve loss assessment and reduce basis risk (the risk that a farmer experiences a loss but the insurance product does not pay out), including geo-referenced photography through smartphones, unmanned aerial vehicles (UAVs), and satellite data, which were applied as part of the PMFBY by the RIICE project in Tamil Nadu.
The workshop discussed the need for insurance to cover only extreme risks, and hence presented opportunities for the PMFBY to link with resilience technologies such as paddy residue management. In particular, IFPRI noted that conditioning insurance premium subsidies on farmers not burning their paddy residues helped reduce burning in several districts in Punjab and Haryana.
Participants further discussed how to use remote sensing through satellites and smartphone pictures to improve the sampling for crop cutting experiments (CCEs) used to establish the area yield index, the backbone of the PMFBY. Dr. Rajeev Chawla, Principal Secretary at the Horticulture Department, presented a successful case of using ICT in Karnataka. Finally, experts expressed a need for joint efforts in integrating technology into the PMFBY, and IFPRI will coordinate a proposal in understanding the use of technology in PMFBY.
The workshop yielded a number of key outcomes and conclusions including the following:
1. Technology can contribute to the sampling and transparency of CCEs. A large portion of PMFBY coverage is based on an area-yield index. To estimate the yield in a given area, the PMFBY samples several sites and carries out a crop cutting experiment (CCE). The data from these CCEs needs to be accurate and available to insurance companies and farmers alike; technology can help improve the transparency of data collection and the real-time availability of the data, for instance by posting videos of the CCE online. Remote sensing technologies can further improve the sampling of CCEs and reduce the number of CCEs to be conducted while improving accuracy at the same time. At the same time, there is a need for guidelines on how disputes are settled in case satellite-based yield estimates are different from those obtained through CCEs.
2. Yield estimates on the basis of technology should not be a black box. For technology to be used in loss assessment on a large scale in a program like the PMFBY, it is important that all stakeholders know how the loss assessment is done, and that there is standardization in doing so. This requires proper documentation of how the technology is being used in loss assessment, and it is important that technologies are being validated and replicated.
3. It should be clear that farmers will not receive money every year. An insurance product that pays farmers every year is not sustainable. Farmers are not sufficiently aware that they cannot receive a payment every year, and there is a role for policy-makers to communicate this. Insurance is not a welfare scheme that can pay a small amount every year; insurance is meant to provide larger payments to help farmers cope with losses in years that have seen unexpected shocks.
4. Insurance should explore linkages with other risk management strategies. Insurance is a tool to help farmers cope with extreme risks. Smaller risks can often be mitigated by good agricultural practices and technologies, and for risks that cannot be mitigated, savings and credit instruments provide farmers with a way to cope. To encourage farmers with insurance coverage to keep managing their risk also in other ways, subsidies on insurance premiums could be conditioned on farmers adopting better practices and technologies. Agro-advisories provided along with insurance could play an important role in advising farmers how to mitigate their risks.
5. Technology can help improve products beyond sampling for CCEs. The PMFBY aims to also cover losses related to other aspects than crop yield, for instance pre-sowing risks, mid-season adversaries and post-harvest losses. There is a need to explore how technologies can help in providing coverage for such risks. In addition, technology can help transition from block-level to village-level and ultimately even individual-level insurance coverage in order to reduce basis risk.
6. There is a need for longer-term notification. Insurance companies need to be notified – meaning that the insurance company is the main insurance provider in a district – every year. Due to the short duration of an insurance companies’ presence in a district, insurance companies cannot invest as much in their relation with farmers and the insurance infrastructure on ground as they would if the duration of a notification in a given district were longer.
7. There is a need for more coordinated pilot projects. The final conclusion of the workshop was that there is a need for a more coordinated approach, in which the different organizations who participated in the workshop join forces, and standardize the use of technologies across a number of pilot projects, thereby leveraging each other’s activities. IFPRI can potentially play a coordinating role in this joint effort to improve the use of technologies in the PMFBY.
All presentations from the meeting are available here.
Written by: Berber Kramer and Arsheen Kaur