Fertilizer prices rise indirectly thro’ new crop insurance for farmers

Fertilizer prices rise indirectly thro’ new crop insurance for farmers
By Bandula Sirimanna
Sunday Times

The Sri Lankan government is imposing mandatory crop agriculture insurance on all farmers by indirectly increasing the price of a 50kg bag of subsidized fertilizer by Rs.150 to Rs.500 from the earlier price of Rs.350 as a compulsory premium for the schem, officials said.

All farmers will be automatically enrolled in the insurance scheme at agrarian centres countrywide when they purchase subsidized urea fertilizer, they revealed.

The new insurance scheme contained in the 2013 budget has raised many concerns with several heads of farmer organizations in the South telling the Business Times that the government has increased the price of fertilizer under the guise of a crop insurance scheme. They declined to be identified and spoke on condition of anonomity.

A senior government official said that Sri Lanka plans to liberalise agriculture insurance activities making the Agricultural and Agrarian Insurance Board’s (AAIB) current crop insurance scheme defunct through the introduction of this new, mandatory scheme.
The board set up in 1999 to undertake the business of agricultural insurance is also implementing a crop insurance scheme covering 5 per cent of the total 3.4 million acres cultivated with paddy during the Yala and Maha seasons.

All banks, financial and insurance companies have been directed to transfer 1 per cent of their profits to the National Insurance Trust Fund (NITF) which will implement the new scheme from 2013.

NITF Chairman D. Vidanagamachchi said additionally the premium paid by farmers will also come into the fund coffers to enforce the scheme in which compensation would be paid to loss of cultivations in natural disasters such as floods or drought.

Mr. Vidanagamachchi said that the NITF will have to devise a methodology to implement the new scheme in consultation with the Finance Ministry, Agrarin Department, Agricultural and Agrarian Insurance Board and farmer organizations.

“It is important to have mechanisms in place to manage risks faced by the poor farmers. But, agriculture insurance is only one of the tools among many and it has both a price risk and a production risk,” he added.

AAIB Director General Panduka Weerasinghe said the board has the expertise and experience in handling the crop insurance scheme for over 12 years and it has the necessary infrastructure to handle any type of crop insurance schemes,
According to the AAIB’s crop insurance scheme, farmers paid 6 per cent of the cost of crop production as insurance premium. If the cost of production is Rs. 30,000 per acre of paddy, farmers paid Rs.1800 as premium, he said.

Under the new scheme, if the farmer purchases three bags for paddy cultivation per acre, the (total) premium will be Rs 450 which is Rs.1350 less than the premium now being paid to AAIB, he said.

The AAIB has been collecting around Rs.1.2 billion through its insurance scheme but can raise this to Rs 21.2 billion if it covers the entire 3.4 million acres, he said adding that it has failed to achieve this target due to various bottlenecks.

Under the new scheme, the premium collection would be around Rs.14. 3 billion.

One percent of profits from banks & insurance companies to be taken off for this? What is the effect on the banking / insurance sector?