Crop Insurance as a Risk Management Strategy in Bangladesh

implement from the perspective of politicians, also tends to be regressive in nature. It benefits
larger farmers much more so than smaller one because they tend to have more access to
formal credit and take out on average larger loans.
3.4 Rationale of Crop Insurance and increasing Demand
As discussed in last section, the modern insurance sector can play a major role to solve the
problems mentioned there, and considerably strengthen the financial security of farmers.
Agricultural Insurance is a more efficient instrument and an effective institutionalized
mechanism for dealing with the problem. It helps to streamline the relief efforts and reduces
the direct and indirect costs on the national economy. (Jain, 2004). For a number of reasons
demand for crop insurance is increasing day by day, which can be grouped as;
• Evidence is accumulating of connections between climate change, and the increasing
incidence of crop damaging weather events of extreme severity.
• Farming is becoming steadily more commercialized, with greater financial investment.
Farmers / investors and their banks frequently examine the feasibility of using a
financial mechanism i.e. insurance, in order to address part of the risk.
• The World Trade Organization (WTO) regulations generally forbid governments from
subsidizing agriculture directly; however, they permit the subsidization of agricultural
insurance premiums. In the case, demand for crop insurance will increase in those
economies that wish to implement a policy of permitted subsidization of their farmers.
• Insurance can also assist in managing the on-farm production risks consequent to
changes in pest management practices. Such changes are increasingly required in order
to address environmental protection and food safety concerns. This is that any insurance
arrangement will involve not only the farmer and the insurer, but also important third
parties. Consideration is now given to these changes to the business of farming.
Table 3.3: Agricultural Insurance at a Glance
Region of the World Share of
Agricultural
Insurance
Premiums, 2001
24
Cumulative Share
North America (US & Canada) 55 55
Western Europe 29 84
Australia & New Zealand 3 87
Latin America & the Caribbean 4 91
Asia 4 95
Central & Eastern Europe 3 98
Africa 2 100
Source: Schuetz, 2005