Agri insurance as viable fallback for drought 

By Sajitha Prematunge-June 6, 2018, 10:43 pm

Developing nations are considered more susceptible to the effects of extreme weather events as economic constrains make it difficult for them to deal with the damages caused by such events. They are also technologically less advanced and therefore lack access to adaptive technology. Being a natural resource dependent production process, agriculture is the most vulnerable to such events as floods and droughts. Consequently, agricultural activities of developing nations are particularly vulnerable.

In fact, 66 percent of Sri Lankan cropland is rain-fed, making them most vulnerable to drought. Paddy, tea, spices and vegetable cultivation are affected by drought and delayed monsoonal rains. Extreme weather events heighten poverty levels in the rural agriculture sector, which will further impede adaptation measures making them increasingly vulnerable to extreme weather events, which in turn further reduces agricultural productivity, further increasing poverty. This is a vicious cycle. Consequently adaptation is vital for the protection of those engaged in agriculture as well as for food security in general.

Ironically the workshop, on the development of an algorithm for drought-related crop insurance products, organised by the SLAAS section F Social Sciences, held recently was rained in. The issues raised, nonetheless, were significant. Meteorological and agricultural drought incidence, available technologies and methods for drought assessment and their strength and limitations, risk management strategies, prospective insurance products and tenability of index based insurance were among the topics discussed.

The workshop was organised in partnership with the Gamani Corea Foundation, World Food Programme, National Insurance Trust Fund and Institute of Policy Studies. The objective was to bring the concerned groups together to develop an implementable and sustainable risk management programme by introducing innovative crop insurance products. Agencies working in related subject areas were invited for thematic presentations and group activities.

Prof. Sarath Amarasinghe (President), Kumudu Seneviratne (Vice President), Dr. Prasad Neelawala (Secretary), Kapila Premarane (Rapporteur), Dr. Chandana Jayawardena, Danesh Wisumperuma, Achini Weerawardena, Dr. Wasanthi Wickramasinghe, Dr. W. Bohingamuwa and Geethika Priyadarshnie took part in the discussions.

Armed with extensive experience in food information systems, drought-related issues and working with farmers, the workshop was deftly coordinated by Dr. Wasanthi Wickramasinghe, a Senior Research Fellow at Gamini Corea Foundation as well as a Committee Member of Section F, SLAAS. "Farmers are the poorest segment of society. This is why it's so important to deal with their problems," said Wickramasinghe.

Concurring with Wasanthi Wickramasinghe, Institute of Policy Studies, Research Economist, Kanchana Wickramasinghe pointed out that natural disaster incidence has increased as of late and dry zone, paddy farmers are particularly vulnerable. In her thematic presentation on risk management strategies and innovations, Kanchana pointed out that climate change related disasters, rainfall uncertainties and fluctuation in water availability are among the top uncertainties identified in a study conducted among 750 dry zone farmers. "Minor irrigation activities mostly depend on rainfall. Cultivation is destroyed before and post harvest due to disasters," said Kanchana.

Paddy specifically depends on water for most of its lifecycle. Smallholder farmers are especially at risk as income generated through agriculture is their only source of sustenance. According to an exploratory study on adapting to climate change in coastal areas of Sri Lanka by Shanila Athulathmudali, et al, nearly 70 per cent of the paddy cultivated is in the dry zone which has an average annual rainfall of less than 1750 mm. Consequently, adaptive measures are vital when climate goes haywire.

Research such as Agricultural adaptation to climate change: insights from a farming community in Sri Lanka by Esham Mohamed and Chris Garforth have identified different types of adaptation. Introducing improved crop varieties, micro irrigation and crop diversification are among the major adaptation strategies. Water management adaptive systems include; increased use of supplementary irrigation, water conservation, rain water harvesting and using ground water.

However, insurance is the last strategy that a farmer would think of when dealing with natural disasters. Introducing insurance schemes to protect the farmers from extreme weather related risks has proven difficult due to lack of enthusiasm of farmers themselves. Crop insurance lacks wide acceptance among farmers in Sri Lanka, according to Mohamed and Garforth.

"Farmers' major risk management strategy is borrowing from informal sources as credit and pawning jewellery. They borrow, cultivate and repay. This is a vicious cycle of debt," explained Kanchana. She cited lack of awareness of insurance, previous bad experience by fellow farmers with insurance companies and lack of trust as reasons for not getting insured. "They are also under the impression that insurance is of no use for small-scale farmers." Kanchana also pointed out that insurance companies have not approached such farmers.

Kanchana emphasised that, with the right kind of policy, the 'debt' in the cycle can be replaced by insurance. However, success of such a scheme depends on an increase in farmer's income, tangible benefits, increased access to services and food security in bad year. Farmers’ decisions to adopt such adaptation measures as agricultural insurance depend on their constraints and applicability of adaptation methods at farm level. Understanding this is vital to developing any adaptation strategy.

National Insurance Trust Fund, Chief Executive Officer, Sanath C de Silva pointed out that tackling information and data, lack of knowledge in farmers regarding insurance, difficulty in developing agricultural risk modelling are major challenges in introducing agricultural insurance to Sri Lankan farmers.

"The government should facilitate information regulation, training and awareness," said de Silva. In his thematic presentation on current Implementation of crop insurance schemes in Sri Lanka and Prospective Insurance Products, de Silva pointed out that farmers do not have the individual capacity to withstand exposure to catastrophic weather events. Moreover, the agriculture industry is inherently vulnerable, in that it requires a large labour force and the cost of production is high while per acre yield is low. "Our objective is to rid farmers of the habit of borrowing from the informal sector, for which the farmers incur exorbitant interest," said de Silva.

Group discussions on methodological consensus on drought assessment technologies to characterise agricultural drought, opportunities and challenges of using existing knowledge in risk management in agriculture and exploration of prospective Insurance Products and a panel discussion on factors related to the development of an algorithm, underlying factors, such as availability of alternative risk management strategies were also held during the workshop.