Agriculture is a notoriously risky business, often affected by adverse weather conditions. Sudden frost, hail, tornado, thunderstorm or drought can damage an entire season's crop. Time and again, crops have been also infected by pests, damaged by wildlife or disease inflicted.
In addition, farmers are often exposed to financial damage due to several factors. This is when crop insurance comes into play. As the name suggests, it is an insurance related to the agriculture sector. It is a policy purchased by farmers and ranchers to protect themselves against the uncertain weather and loss of their crops due to natural disasters, such as hail, drought and floods. Agricultural producers can also opt for crop insurance for the loss of revenue due to decline in the prices of agricultural commodities.
What are the kinds of Crop insurances?
The two general categories of crop insurance are crop-yield insurance and crop-revenue insurance.
The two main classes of crop-yield insurance are:
1. Crop-hail insurance - Crop-hail insurance is purchased by farmers because hail has the ability to destroy completely a large part of the field. This kind of insurance is given by private insurers and is limited to countries with private sectors only. Hail is a very narrow peril that occurs in a limited place and its accumulated losses do not tend to overwhelm the capital reserves of private insurers.
2. Multi-peril crop insurance – This type of insurance extends its purview to a number of risks. Usually multi-peril crop insurance includes hail, excessive rain and drought in a combined package. At times, additional risks such as insect or bacteria-related diseases are also covered under this insurance. Several perils are thus, bundled together in a single policy called a multi-peril crop insurance (MPCI) policy.
MPCI coverage is generally offered by a government body and the premiums are usually partially subsidized by the government. The U.S. Department of Agriculture is believed to have implemented the earliest MPCI program in 1938.
Crop-revenue insurance
Crop-revenue insurance is computed on the deviation of a farmer’s mean revenue.
Crop insurance can be an extremely complicated policy with different schemes adopted by every country. The government of India started offering crop insurances in the year 1985, with the Comprehensive Crop Insurance Scheme (CCIS). This scheme was later replaced by the National Agriculture Insurance Scheme (NAIS). The NAIS simply replaced one flawed scheme with another slightly less flawed one. In the United States, most of the farmers opt for a subsidized multi-peril federal insurance program, administered by the Risk Management Agency.
Government crop insurance has not proved to be a very big success worldwide.The biggest reason behind the failure of the crop insurance scheme in India is the lack of awareness.
