Crop insurance is a facility aimed at local farmers to protect against loss of produce. The scheme covers crop damage and loss from natural disasters. History of crop insurance in the USA is traced back 1938 congress. The US congress passed the federal crop insurance program with increased participation in 1980.
The legislation included public-private participation with focus on private insurance companies. By 2019 it is estimated that over 1 million farmers in the United States of America farming 380 million acres of farmland are captured under the scheme.
Types of agricultural insurance
Crop insurance is only a small aspect of agricultural insurance. There are different types of agricultural insurance. We have crop revenue coverage, livestock mortality index insurance.
Others are named perils, multiple perils, climatic. Crop index insurance. More are standard vegetation index and forest fire index insurance.
- crop revenue coverage
- livestock mortality index insurance
- named perils
- multiple perils
- crop index insurance
- standard vegetation index
- forest fire index insurance
Types of reimbursement are based on yield loss, index payment scale and crop revenue cover. Others are climatic index payment scale, percent of the damage, yield/area loss. There is also the livestock mortality index payment scale.
- yield loss
- index payment scale
- crop revenue cover
- climatic index payment scale
- percent of the damage
- yield/area loss
- livestock mortality index payment scale
Products available for insurance
Products available for insurance are pesticides, fertilizer, livestock feed and products harvested on the farm. Others are forest, agricultural installations, premises, machines and equipment.
- livestock feed
- products harvested on the farm
- agricultural installations
- machines and equipment
Types of crop insurance
There are two types of crop insurance purchased by agricultural producers. Categories include crop revenue insurance and crop yield insurance. Crop yield insurance is further segmented into two classes of insurance. They are the multi-peril crop insurance and crop-hail insurance.
- multi-peril insurance
Multi-peril insurance covers different risk factors. Factors include disease, insect infestation, drought, excessive rainfall. Partially subsidized by the government different causes of significant loss or large scale event are captured in a single policy.
- Crop-hail insurance
Crop-hail offered by private insurers is an early form of insurance premium. It covers local or regional areas with limit financial instrument or disaster cover.
Revenue insurance schemes
Revenue insurance schemes protects policy holder’s from yield decrease or price fluctuations. Some parameters include expected revenues, short term funding, income generated, farm yield or price. Therefore insurance cover on compensation paid to the insured is either named peril plans or multiple peril plans.
Crop Insurance Scheme in Different Countries
There are varied types crop insurance schemes in different countries. We will look at similar schemes in India, Canada and the United States of America.
India Crop Insurance
India agriculture insurance company (government owned company) offers multi-peril crop insurance. This scheme is compulsory for Indian farmers seeking agricultural loans from financial institutions.
Farmer with less than 2 hectares farmland enjoy a subsidized premium in the scheme. Farmers are designated based on area, district, block or state. The scheme offers shortfall compensations in comparison to farmer’s performance in past 5 years.
United States of America
Authorized by federal crop insurance act the risk management agency subsidize multi-peril federal insurance to farmers. Crop list includes over 100 types of crops covered in the scheme.
Every county enjoys this initiative including basic free catastrophic crop insurance for growers. Federal crop insurance is sold by private insurance firms however federal government subsidizes.
Canada crop insurance
The Prairie Farm Assistance Act was issued by the Canadian Government in 1939. It offers permanent crop loss disaster assistant for grain farmers in a specific location.
Farmers in the Prairies and the Peace River area enjoyed this facility. However a 1959 act offered protection for farmers in all provinces.
Challenges of agricultural insurance
There are many challenges facing agricultural insurance. They are urbanization, development of renewable energy in arable lands. Others are crop price volatility, climatic change and exposure to different hazards. More are change in consumer habits, expansion of livestock farming, and growing global population.
- development of renewable energy in arable lands
- crop price volatility
- climatic change
- exposure to different hazards
- change in consumer habits
- expansion of livestock farming
- growing global population
Government support for agricultural insurance
Penetration of underwritten insurance policies depends on state and government support. Support for crop insurance include subsidizing administrative costs, establishment of state reinsurance companies or involvement of private participation.
Other support include data collection, training, subsidies. More are insurance legislation, premium subsidies and loss assessment subsidies.
- public sector reinsurance
- administrative and operating expenses subsidies
- premium subsidies
- insurance legislation
- involvement of private participation
- data collection
Agriculture accounts form a huge amount of any countries gross domestic product (GDP). The federal Government should put in place a robust agricultural insurance scheme to aid rural farmers. This in turn will increase revenue of low income farmers while increasing farm yield.