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Farm Income Insurance Scheme

Farm Income Insurance Scheme . Department of Agriculture & Cooperation Ministry of Agriculture Government of India 17 th February, 2004. Risk in Agriculture. Yield and Price Risks due to Nature of Production Process Nature of Products Climatic Uncertainties

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Farm Income Insurance Scheme

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  1. Farm Income Insurance Scheme Department of Agriculture & Cooperation Ministry of Agriculture Government of India 17th February, 2004

  2. Risk in Agriculture • Yield and Price Risks due to • Nature of Production Process • Nature of Products • Climatic Uncertainties • Institutional Characteristics • Government Intervention Important in Risk Management

  3. Major Elements of Government Policy • (a)Generation and Diffusion of New Technology • (b)Crop Development Programmes • (c)Price Policy • Setting up APC ( CACP ) • MSP for 25 Agricultural commodities • Market intervention through FCI

  4. Agricultural Price PolicyObjectives • Remunerative Prices to Farmers • Stimulate higher levels of Investment and Production • Infrastructure for Market intervention • Reasonable Prices to Consumers

  5. Price Policy Experience • Rich dividends on production front • Transition from shortages to surplus • Remunerative prices to farmers • Terms of trade made positive – although declining in recent past • Food Security • In recent years : • Problems of Plenty: Excess Food grain stocks • Sustainability Issues • Equity issue

  6. Changing Agricultural Scenario • Surplus emerging in several other States- Assam, Bihar, East U.P., Orissa, West Bengal; • 203 M.T Average annual foodgrain production in 9th Five Year Plan period; • Current production 7 Million Tonnes more than consumption; • 4% targeted growth during 10th Plan likely to lead to even higher surplus (projected supply: 230 million tonnes in 2006-07) • Need to diversify from rice and wheat to crops like pulses and oilseeds

  7. Excess Stocks • Fiscal and Infrastructure Constraints • Increasing cost of holding, inefficiency, wastage • Depreciation in the value of the stock – Limited shelf-life • Increase in food subsidy (Rs. 24,000 crores in the year 2002-03)

  8. Need for Delinking MSP & Procurement • To protect farm incomes • Income protection based on Yield, MSP & Market Price • MSP to be the basis for guaranteed income • Procurement at Market Price for buffer stock & PDS

  9. ALTERNATIVEFARM INCOME INSURANCE SCHEME(FIIS) • To protect against Production Risk • To protect against price and market risks

  10. Vicious Circle of Poverty Low +uncertain inc FIIS Low productivity Low savings Low investment

  11. FIIS - Objectives • Protect farm incomes • Ensure Sustainable production • Enhance Food and Livelihood security • Encourage Crop diversification • Increase Competitiveness

  12. FIIS – Main Features • Determination of income level (Guaranteed Income) using past yield and MSP (Reference price) • Fixation of indemnity level and premium based on the risk exposure • Assessment of the indemnity payments based on actual income i.e. the difference between the product of actual yield and market price, and Guaranteed income

  13. Determination of MSP • By CACP • Key components • Terms of Trade • Inter crop price parity • Cost of production • Market factors (Demand, Supply, Trade) • Macro Economic and Policy considerations • CACP recommendations on prices to be binding

  14. INCOME ASSESSMENT • Guaranteed income = MSP x Average Yield of • last 7 years x Indemnity level. • Actual income = Market Price x the Actual • Yield of the Unit Area which may be Block or Tehsil (to be brought down to Panchayat level within three years)

  15. Assessment of Actual Income Yield • Use the same data collected for NAIS for yield Price • Determining market prices : weighted average of model prices of first eight weeks from first arrival in the relevant regulated markets (APMCs) in the district. • Cupping & Capping with respect to State price to be applied. • Wherever regulated prices are not available, the same to be obtained from the district administration.

  16. Implementation of FIIS • Operation on NAIS pattern • Voluntary for the States • Compulsory for loanee farmers • Area Based: • District for market prices; • Block/Tehsil for yield assessment (to be brought down to Village/Gram Panchayat over 3 years).

  17. Components of FIIS • Initially for rice and wheat throughout the country • Other crops to be added subsequently • All farmers including share croppers and tenants • NAIS to continue for remaining crops • Level of indemnity : • 90% for low risk crops • 80% for other crops

  18. Financial Implications of FIIS Parameters assumed

  19. ILLUSTRATION For a farmer having 1 hectare of land and growing wheat: 1. Size of Farm = 1 hectare 2. Average yield = 2.7 tonne per hectare 3. Level of indemnity = 90% 4. MSP or Base price = Rs.6300 per tonne GI per hectare = 2.7 x 90% x 6300 = Rs.15309 Premium payable at 5% : 15309 x 5% = Rs.765 Actual Income 1.Actual yield = 2.2 tonnes per ha.per hectare : 2. Actual market price= Rs.5800 per tonne. 3.Actual income/Ha=2.2x5800 =Rs. 12760

  20. Contd... Total shortfall in income of farmer = Rs.15309-12760 = Rs. 2549 Gross liability of Insurance company = Rs.2549 Net liability after deducting the Premium received = Rs.2549-765=Rs.1784 Income earned by the farmer = Rs.12760 + Rs.1784 = Rs.14544 after insurance Income earned if entire produce sold on MSP = 2.2 x 6300= Rs. 13860 Farmers income over & above MSP price = Rs.14544 - Rs.13860 = Rs.684 (Assuming 100% produce is marketed) Calculations with subsidy Income of the farmer @ 50% subsidy on premium=Rs. 14544+383=Rs. 14927 Income of the farmer @ 75% subsidy on premium=Rs. 14544+574=Rs. 15118 Income over and above MSP Price @ 50% subsidy = Rs. 684+383 = Rs.1067 Income over and above MSP Price @ 75% subsidy = Rs.684+574 = Rs. 1258

  21. PREMIUM PAYABLE BY FARMERS AT DIFFERENT SUBSIDY LEVELS(In Rs/ha)

  22. Total Premium on Total Normal Area(Rs. in crores)

  23. Premium subsidy payable by Govt. at different subsidy levels(Rs. in crores)(Assuming 30% of total normal area with S/M farmers)

  24. Subsidy Liability for Centre and State on 75 : 25 Sharing Basis(Rs. in Crores)

  25. Subsidy Liability for Centre and State on 50 : 50 Sharing Basis(Rs. in Crores)

  26. INCOME IMPLICATIONS FOR FARMERS(Rs. in Crores)

  27. INCOME IMPLICATIONS FOR FARMERS….Contd…(Rs. in Crores)

  28. Income G A Q

  29. Approximate Savingsfor Central Government FCI Expenditure on carrying of additional Central Pool Stocks above the Buffer Norm YearRs Crores 2000-01 4356 2001-02 8198 2002-03 9848 ASSISTANCE YearRs. Crores 2000-01 1213 2001-02 1368 2002-03 5743 Note: All data refers to wheat and rice. Contd.

  30. Approximate Savingsfor Central Government NAIS (Total claims and premium subsidy – Wheat and paddy in Rs. crores) Year Kharif Rabi Total 2000-01 313 30 343 2001-02 128 46 174 2002-03 623 623

  31. Factors Determining the Success of FIIS • Realistic Determination of MSP • Reforms in Commodity Markets • Private Sector Participation in commodity trade • Coordination in Policy Formulation and implementation

  32. Reforms in Commodity Markets • Strengthening market intelligence and information systems • Legislation to streamline the role of regulated markets and commission agents • Removal of restrictions on movement and storage of food grains

  33. Private Sector Participation • Private sector participation in commodity trade to be encouraged • Increasing private sector participation in the output market will strengthen price discovery mechanism • Quality of agricultural produce will also improve • Crop diversification • Greater private sector participation in Insurance scheme would enable development of alternative attractive schemes for farmers.

  34. Merits of FIIS • Remedy to the problem of excess stock with FCI • Comprehensive risk coverage as it covers both yield and price risks unlike the NAIS • Comprehensive spatial coverage unlike MSP • Increase in confidence of private trade • Prices to be determined by market forces • Incentive to farmers for quality production • Contd…

  35. Merits of FIIS • Market takes care of BPL during good harvests • Buffer stock to take care of production shortage and BPL requirements • Softening of prices during excess production leading to comparative advantage in exports • Savings on export subsidy

  36. PILOT PROJECT – RABI 2003-2004 • UNDER IMPLEMENTATION IN 19 DISTRICTS OF 12 STATES • Progress upto 9 February -- • Approx. 18000 loanee farmers • Approx. 2000 non-loanee farmers

  37. PILOT PROJECT – KHARIF 2004 • Proposed to be implemented in 100 districts all over the country subject to the consent of State Governments • State Governments already addressed on the subject

  38. THANK YOU

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