Farm reforms: Insurance could allay fears

By Madhusudhan Pillai

The government would have done better had it either provided for or communicated alternative risk management measures to farmers to minimise the risks emanating from new farm laws. The farm bills, namely the Agricultural Produce Trade and Commerce Bill, Farmers Price Assurance Bill together with changes in the Essential Commodities Act have given farmers marketing freedom, provided for contract farming, removed stocking limits and changed the operating framework of agriculture.

The current unease amongst farmers and intermediaries is on account of increased risk perception. The farm sector engages over 50% of the workforce and contributed 16.5% to GDP in FY20. Agri infrastructure: Insurers are mandated to invest not less than 15% of their investment assets in infrastructure and housing. The infrastructure definition as amended by the IRDAI Registration of Insurance Companies (Second Amendment), 2008, provides for investment in construction related to projects involving agro-processing, supply of inputs for agriculture, preservation and storage of processed agro products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality.

Insurers can, therefore, directly invest in financially viable projects including integrated cold food chains, creation/expansion of food processing and preservation capacities across the value chain the need for which has increased.

The Economic survey 2019-20 has projected investment in agriculture and food processing infrastructure for FY20 to FY25 at `60,553 crore. There is a shortfall of integrated pack houses, reefer transport and ripening units at 99%, 85% and 91% respectively. The spin-off benefit, Central Institute of Post Harvest Engineering and Technology estimates, will be a reduction of wastage of 16% for fruits and vegetables, 6% for cereals, 8.4% for pulses and 10% for oilseeds. So, creating appropriate infrastructure has the potential to increase farm incomes.

Insurers, guided by their investment committees, can also participate in the Agri Infrastructure Fund. A coordinated effort between insurers can make funds available for both debt and equity investments in entities engaged in this sector.

Insurance coverage: The warehouses and cold storages can be provided comprehensive cover for all storage risks and deterioration of stocks on account of failure of power supply for perishables. The risk for the farmer will end at farmgate/nearest market on sale of the produce. When the purchaser takes over the commodity, her risk commences. Linking inland transit insurance of agriculture produce for inter-state trade and for refrigerated containers can aid the sale of produce at better price points within India and also for exports.

Crop insurance and rural employment: The PMFBY, which is now voluntary, has potential for employment generation of at least 1.5 million over three years through the creation of a rural agency force which can focus on the development of crop insurance and enhancing awareness. Technology solutions leading to efficient claims settlements can build trust in insurance as a risk management tool.

The scheme can also be aligned to the contract farming rules providing for sum insured for insurance cover based on the price and value as per contract, thereby reducing risk. FPO as a larger unit for underwriting purposes for insurance is a potential next step. They will help achieve collective bargaining power for remunerative prices.

Agri-tech start-ups providing digital access to farmers, along with a physical presence and with a focus on farm-to-fork connect or linking farms to factories through technology, can also partner with insurers in supporting farmers in the new operating environment.

The insurance sector can take up all these measures in an integrated manner and allay apprehensions, contribute to an alternate risk management program for agriculture and lead to a stabilisation of farmer’s incomes.

Senior insurance professional