Livestock needs insurance support more in Bangladesh
Livestock insurance is one of the simplest of various forms of agricultural insurance. It was also probably the earliest one. A system reportedly was in practice even under the Babylonian civilization. In several countries of Europe, livestock insurance has been under evolution and implementation for over 700 years. A large number of developed and developing countries are implementing livestock insurance to provide protection to investment in livestock farming.
An important feature of livestock insurance is that it is essentially self-financing with loss ratio generally kept under manageable limits. Besides, subsidisation of premium is admissible to developing countries as per WTO Rules. This is evidently an indication of the growing recognition of the importance of this economic tool to manage risks in agricultural production. Many of the developing countries like India are providing premium subsidy to their low-income farm households raising livestock.
For all latest news, follow The Daily Star's Google News channel. Livestock insurance was introduced in Bangladesh as early as 1979 by Sadharan Bima Corporation under the Ministry of Commerce. This was a unit under the Agricultural Insurance Wing covering crop insurance as well. The performances of livestock insurance were somewhat better compared to crop insurance as reflected through lower loss ratio, the ratio between claims settled and premiums earned. The loss ratio of livestock insurance up to December 1995 was 0.5:1 while for crop insurance it was 5:1 for the same period. The crop insurance programme was however suspended during 1995, pending its revival after necessary improvements. Livestock insurance has been continued uninterrupted though under a weakened set up.
During nearly a quarter century of its operation, insurance coverage was given by SBC to only 7567 animals, financed by the banks. The programme faced acute setbacks with depletion of staff due to discontinuation of the crop insurance component. Besides, there were no serious efforts to innovate and bring dynamism in the system nor any worthwhile moves made to popularise it. Sadharan Bima Corporation also did not develop any effective collaboration with the Deptt of Livestock Services to mobilise their activities. No animal husbandry and veterinary specialists were inducted in their pay rolls to gain from their expertise. Government also precious little to patronise the system with state support.
There was however an element of understanding with Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank during the mid-nineties towards providing insurance support to their financed animals. But that proved to be ineffective subsequently due to depletion of staff and failure of SBC to innovate. As a result, these banks set up their own informal Death Risk Funds with deduction of a certain percentage of loan money to meet any eventualities. Some of the livestock development project resorted to some such informal arrangements to meet emergencies. These are indications of the growing needs for formal livestock insurance.
It is unfortunate that livestock insurance should suffer such a fate which is not justified by any available indications. Besides low loss ratio, the loss : cost ratio also shows positive indication of profitability to livestock insurance. The loss: cost ratio, which is the ratio of claims settled to the sum insured and a measure of payable premium, stood at 0.02:1 or 2 percent as against its actual premium rates of 3.5 to 5 percent. The incidences of false claims are also largely controllable through proper identification of insured animals. It has also been the general experience that livestock insurance does not result in any appreciable loss or burden to the public exchequer even when provided to the small traditional sector farms.
Government in recent years has accorded priority to the development of the animal farming sector with initiation of a variety of development programmes suited to different animal rearing zones ensuring availability of credit and other incentives. And these have prompted growth of many enterprises involving dairy, poultry, beef fattening, goat and sheep rearing and the like. The large scale commercial component of such enterprises is being propelled through the institutional lending, while the small scale component through NGOs' lending or by self-financing. The combined thrust of all such development initiatives has led to an upsurge in the growth of the livestock sector in recent years.
The growth in the animal farming sub-sector at constant prices has been steadily rising and by 2004-05 it reached the level of 7.8 percent. This has far exceeded the overall growth in GDP and crop sub-sector and has nearly reached the growth of manufacturing (8.43%). This spectacular growth in livestock has no doubt impacted favourably on generation of employment and income and greater availability of animal protein nutrition and reduction of poverty. This growth has been propelled by both favourable policy regime and increased flow of credit from institutional and micro-credit sources.
The loans annually disbursed by the four major microcredit agencies nearly doubled the total annual lending by the institutional agencies to agriculture. As per Credit Development Forum's data, about 16 percent of NGO loans reached the livestock farmers, which is three times higher compared to institutional lending. These growing investments in livestock farming needs protection against various risks and calamities by providing them appropriate and low-cost insurance support. Such a support is desperately needed by our low-income households as it is this group of entrepreneurs who are most vulnerable to risks. It is by providing such a vital support that India achieved spectacular breakthrough in milk production.
It is against these backdrops that we greatly welcome the recent budget speech of the Finance Minister proposing allocation for a sum of Tk 50 crore in the next year's budget for setting up a "Fund for Assistance to Small Farmers Affected by Natural Disasters" to meet agricultural insurance needs. We hope this will receive wholehearted support and approval of our Hon'ble Parliament Members.
Providing livestock insurance is becoming relatively easier with growing availability of improved management packages and veterinary facilities. Besides, veterinary establishments are also being set up in the rural areas, particularly in the private sector. Time is now opportune to provide a renewed and vigorous thrust on livestock insurance by harnessing all available resources.
Therefore the following suggestions are made in respect of setting up the proposed fund and on some broad policy issues in livestock and crop insurance:
a) The proposed fund be set up in Bangladesh Bank to meet the following two basic needs of agricultural insurance: (i) Paying an agreed part of excess indemnity claims over premium incomes of the participating insurance agencies and (ii) Providing premium subsidy to livestock insurance for identifiable small and land-poor households to start with. There should be no doling out of this fund to meet any emergency relief needs.
b) Revamp Sadharan Bima Corporation with recruitment of specialists from the livestock and crop sub sectors and start a Pilot Project for developing appropriate models on livestock and crop insurance. Both the programmes must proceed simultaneously under a unified setup to reinforce each other and for achieving efficiency.
c) One TAPP must be implemented with some possible donor support for at least two initial years to provide much needed expertise in designing and developing models and in providing training to the participating staff and farmers.
d) There should be a sort of consortium of livestock insurance with participation of SBC and willing private insurance agencies. They will follow some standardised procedures on issuance of policies, charging of premiums and settlements of claims. They will receive the needed support from the proposed fund.