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Corruption and poor design threaten Pakistan crop insurance scheme

by Aamir Saeed | @AamirSaeed_ | Thomson Reuters Foundation
Friday, 4 July 2014 07:00 GMT

Ashfaq Abbasi works at a job caring for buffalo in the suburbs of Islamabad after his fruit orchard was destroyed by hailstorm in May, 2014. THOMSON REUTERS FOUNDATION/Aamir Saeed

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New government plan to help small-scale farmers deal with climate change pressures won’t work, officials and experts say

ISLAMABAD, Pakistan (Thomson Reuters Foundation) – Pakistani farmers and agricultural experts are objecting to a new government insurance plan designed to compensate farmers for loss of crops due to natural disasters, saying it will not help the small-scale farmers who are most affected.

Hailstorms, torrential rains, floods and heavy winds destroy thousands of acres of standing crops across Pakistan each year, leaving thousands of families in economic peril – and the problem is growing worse as climate change brings more extreme weather.

Ashfaq Abbasi, 57, a farmer in Rawalpindi district in Punjab province, has a fruit orchard on two acres (0.8 hectares) of his land.

“My crop of apricots and plums was completely damaged by a hailstorm in May along with (the crops of) hundreds of other farmers, but there is no system of compensation,” he said.

After the loss of his crop, Abbasi is now working tending buffalo in the suburbs of Islamabad, Pakistan’s capital, in order to earn money to support his family.

“Had there been a crop insurance scheme, I wouldn’t have faced this ugly situation,” he said.

Successive Pakistani governments have proposed crop insurance programmes for small-scale farmers, but none of the plans has advanced beyond a pilot project.


Now, however, the government of Prime Minister Nawaz Sharif has allocated 2.5 billion Pakistani rupees ($25 million) in its fiscal year 2014-15 budget for an insurance scheme – but farmers and experts say it has numerous loopholes, and they are sceptical it will help those who need it most.

Farmers with up to 25 acres of land who obtain loans for the production of five major crops – wheat, sugarcane, rice, cotton and maize – will be eligible to take part in the scheme.

Around 91 percent of farmers in Pakistan fall into this category, said Hamid Malhi, a director at Farmers Associates Pakistan, a nongovernmental organisation for farmers.

The government hopes that around 700,000 agricultural households will benefit from access to insurance, according to details released in the budget last month.

However, Sarfaraz Ahmad Khan, president of the Kisan Board, another farmers’ non-governmental organisation, predicted the scheme will be of little use because he believes the government lacks the marketing strategy or infrastructure to sign up subsistence farmers in rural areas of the country.

More than two-thirds of Pakistanis live in rural areas. About 68 percent of them are employed in agriculture, representing 40 percent of the country’s total labour force.


Khan said that a further barrier to the proposed insurance working effectively is that a farmer who has lost crops to extreme weather conditions cannot receive an insurance payout unless the government declares an entire district or sub-district a disaster zone – something he said it rarely does in rural and remote areas.

“The governments design such schemes to get political mileage instead of benefiting the farmers,” he charged.

What is needed instead, Malhi suggested, is insurance that covers damages based on a farmer’s crop yield – though assessing that on an individual basis could be time consuming and difficult.

In the past 10 years, the government has declared 70 disasters in Punjab, affecting 10,000 villages, as well as 10 disasters in areas of Sindh province and 22 in parts of Khyber Pakhtunkhwa, while Balochistan was affected by drought for seven years, according to a report by the State Bank of Pakistan.

Zafar Altaf, a former secretary of the agriculture ministry and former chair of the Pakistan Agricultural Research Council, pointed out that the government is already required to compensate farmers for crops damaged by natural disasters, under legal provisions known as the Land Administration Manual.

The manual includes a compensation act for crops damaged by hail, wind, floods or excessive rains. But these provisions are not put into practice, Altaf said.

“The government should implement the ... act to compensate growers instead of launching a separate insurance scheme,” he said.


Critics also point out that farmers can only benefit from the new scheme if they have taken out a loan from Zarai Taraqiati Bank, a state-owned agriculture bank, to buy seed, fertiliser or pesticides for their crops.

According to the bank’s annual report, 64 billion rupees ($650 million) in loans were disbursed to 406,000 farmers across the country in 2012, the latest year for which figures are available.

Malhi said crop insurance should not be conditional on taking out a loan, because only 3 to 4 percent of farmers finance their planting in this way.

Pervaiz Amir, an environmental expert and former member of the Prime Minister’s Task Force on Climate Change, said he was concerned that “such schemes are always open to corruption and geared to benefit big farmers.”

He suggested the government, to benefit small-scale farmers, should instead try to improve things like access to markets and crop yields.

Admitting flaws in the scheme, Muhammad Rizwanullah, a senior vice-president at Zarai Taraqiati Bank, said the bank has no power to improve on the planned insurance because it only serves as a liaison between the State Bank of Pakistan and insurance companies.

Rizwanullah acknowledged that one serious problem facing the programme is that the bank is required to distribute compensation equally to all insured farmers in an affected area, irrespective of the degree of damage each has suffered to his crops.

“The farmers never get full claim for their insured crops, and it needs to be fixed,” Rizwanullah said, adding that he has already forwarded some proposals to the government to improve the scheme.


Ashfaque Hasan Khan, a former economic adviser to the finance ministry, sees the insurance scheme as part of a pattern in which large-scale farmers exploit agricultural programmes that are nominally designed in the name of small-scale farmers.

For example, he said, subsidies for fertiliser or big equipment such as tractors are of no use to small-scale farmers, who cannot afford these products.

In any case, he said, the government is not financially able to support the new insurance plan and should instead urge the private sector to provide crop insurance.

“The government will have to bear a budgetary cost if it goes ahead with the scheme, but this is not feasible under the present economic conditions,” he said.

Aamir Saeed is a journalist based in Islamabad. He can be reached at aamirsaeed@ymail.com.

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