AGRICULTURAL INSURANCE EXPERIENCES AND CHALLENGES IN SRI LANKA

AGRICULTURAL INSURANCE: EXPERIENCES AND CHALLENGES IN SRI LANKA CHANDIKA VILASHINI ETHUGALA (BSC SP HONS, MPA, MPHIL) DIRECTOR IRRIGATION AND WATER RESOURCES MANAGEMENT SRI LANKA

The Democratic Socialist Republic of Sri Lanka Area: 25332 sq miles (65610 sq km) Population: 0. 6 mln Water: Inland 2905 Sq km Coastal 1660 Sq km Currency: Sri Lankan Rupee ( 1 Rupee = 0. 0069 USD) Climate: tropical Major Crops: rice, tea, rubber, coconuts Main Exports: tea, gemstones, petroleum products, leather goods, garments Cuisine: rice and curry National Pastimes: cricket, rugby, volleyball, football

THE COUNTRY (2014) • Infant mortality rate : 8. 2 per 1, 000 live births (2013) • Expectation of Life at Birth : 74. 9 • Literacy Rate Average : 93. 3% • HDI : 0. 757 Rank /188 countries : 73 • Electricity Electrification level 98. 5% • Water Supply & Sanitation Access to safe drinking water 89. 7 %

THE COUNTRY (2014) • Infant mortality rate : 8. 2 per 1, 000 live births (2013) • Expectation of Life at Birth : 74. 9 • Literacy Rate Average : 93. 3% • HDI : 0. 757 Rank /188 countries : 73 • Electricity Electrification level 98. 5% • Water Supply & Sanitation Access to safe drinking water 89. 7 %

GDP CONTRIBUTION OF AGRICULTURE IN SRI LANKA GDP- Agriculture 8 7 6 5 4 3 2 1 0 GDPAgriculture, 5. 5 2010 2011 2012 2013 2014 2015

POTENTIAL RISKS IN AGRICULTURE 1. Price risks (Economic uncertainity) • Productivity, product quality, • Equipment, buildings, health, labour • Market, price volatility etc 2. Output risks (Natural hazards) • Climatic hazards – frequency & severity • Pests and diseases

VULNERABILITY OF FARMER… • Majority of rural farmer with his low savings and high indebtedness • almost all the farmers operating at a marginal level • come up against serious at times of calamities • Frequently face the problem of financing next cultivation • State to provide some kind of relief assistance to ensure their existence

AGRICULTURAL LOSSES

HISTORY OF AGRICULTURE INSURANCE IN SRI LANKA • Sri Lanka was the first developing country in Asia to have launched an 'all-risk‘ insurance of the paddy crop on a limited experimental scale with Food and Agriculture Organization (FAO) assistance (Ray, K. , 1981)

HISTORY OF AGRICULTURE INSURANCE IN SRI LANKA • In 1956, the Sri Lankan government recognized agricultural insurance as a mechanism: – to increase agricultural productivity – to offer relief and protection to the socially and economically beleaguered segment of the population

BACKGROUND OF AGRICULTURE INSURANCE IN SRI LANKA • Pilot agricultural insurance scheme - 1958 maha season; – approximately 26, 000 Acres (11607 Ha) of paddy in five Districts. • By 1974, nearly 16% of the total area cultivated with paddy was covered by insurance in both seasons.

BACKGROUND OF AGRICULTURE INSURANCE IN SRI LANKA – The Crop Insurance Board in Sri Lanka established in 1974 under the Parliamentary Act No. 27 of 1973 – To operate a comprehensive agricultural crop insurance scheme (CIS) for rice, other field crops and livestock farmers – Funds of the government and self-finance schemes

BACKGROUND OF AGRICULTURE INSURANCE IN SRI LANKA • Agricultural and Agrarian Insurance Board Act No. 20 of 1999 which came in to effect from August 16, 1999 (AAIB) • self-finance basis and a broader perspective

BACKGROUND OF AGRICULTURE INSURANCE IN SRI LANKA General coverage for crop insurance AAIB • Drought • Water stress • Flood • Excess water • Plant diseases • Pests • Damage by wild animals

BACKGROUND OF AGRICULTURE INSURANCE IN SRI LANKA • Agricultural Insurance Scheme in operation for over five decades • Farmer participation is far from satisfactory • Area under insurance was only about one percent of the total paddy lands in 2005

GOVERNMENT INITIATIVES IN SRI LANKA • To promote crop insurance by injecting more investments to develop the agricultural sector • Agricultural Insurance Act was amended in 1999 – provisions for the private sector involvement in crop insurance • Implementation of projects such as Disaster management fund under Climate Resilience Improvement Project

AGRICULTURE POLICY – SRI LANKA • 10. Agriculture Insurance • Introduce appropriate agricultural schemes to protect the farmers from risks associated with the natural calamities

WHY LOW PRIVATE SECTOR CONTRIBUTION? • Periodical legal restrictions due to publicly owned schemes • hard to compete with a heavily subsidized public schemes • absence of diversified private insurers Most with solid experience in automobile, home, life or health insurance offers a weak base for building up agricultural insurance

WHY LOW PRIVATE SECTOR CONTRIBUTION? • Infant-industry problems in establishing agricultural insurance, as the initiative is taken by farmers rather than by an existing non-agricultural insurer • The limitation of potential amount of international re-insurance for agriculture

STRATEGIES ADOPTED TO PROMOTE INSURANCE • Payment of Fertilize subsidy after reduction of insurance premium • Bank loans for livestock approve only after insurance of the animal • Cultivation loan schemes operate in public entities always covered with an insurance • Government subsidy for banks to promote cultivation loans

MICRO INSURANCE SCHEMES SRI LANKAN EXPERIENCE • paddy crop cultivated by small-scale (peasant) farmers in Sri Lanka interest in joining is 88% (SD=2. 4%) (demand perspective) • strongest influence factors of farmers • willingness to join, age, total household expenditure and, awareness

MICRO INSURANCE SCHEMES SRI LANKAN EXPERIENCE • willingness to pay determinants varies significantly on spatial and insurance contracts • indicating a potential for a discriminating and flexible policy in the insurance scheme rather than as a uniform structure.

CONSTRAINS TO INSURANCE DEVELOPMENT • Insufficient geographical Coverage and indemnity Eg: Farmer pension scheme Minimum Rs =/1000 Maximum Rs =/5000. monthly pension • The asymmetry of the information • The impact of individual risks • Impact of Inconsistant policies and unpredictable market behaviour

LESSONS LEARNED • In terms of farmers’ perceptions about harm and coverage levels, irrigated area farmers preferred low damage contracts and high coverage levels • High variation within each irrigation type • Need better innovative interventions • Need to support the creation of a more efficient systems

SOME STUDY RESULTS • Reasons were not given for non payment of indemnities -17% • Lack of awareness regarding the crop insurance scheme -16% • Indemnity is not sufficient and delayed 16% • Inefficiency of the officers attached to the agricultural insurance scheme and malpractices 12%

SOME STUDY RESULTS • Interest of bank loans has increased due to delays in indemnity payments – 8% • Difficult to get insurance policy for lands which are not legally owned – 6% • It is difficult to obtain indemnities for damages by wild animals – 6% • Re-cultivation gets late due to delays in estimation at the initial stages 5%

SOME STUDY RESULTS • Activities could not be performed according to the condition of the agreement 4% • Application form of the insurance claim is not easily understood by the farmers 4% • Small damages were not concerned at all 3% • No direct linkage with farmers an d the insurance company 2% • Estimation is done during the harvesting period, disrespecting of the stage of the crop damages 1% (Rambukwella et al (2009))

CONCLUDING REMARKS • There is a need and high potential to introduce a insurance scheme • • • Reliable Trustworthy Case sensitive/innovative Timely operating Accessible Re-insured

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