NARC Publication Serial No.

00274-088/2015/16

Agriculture Insurance in Nepal:

Case of
Banana and Livestock
Insurance

Dr. Yuga N. Ghimire

Dr. Krishna P. Timsina
Mr. Ghanashyam Kandel
Mr. Dinesh B. Thapa Magar
Mr. Sudeep Gautam
Ms. Bimala Sharma

Government of Nepal
Nepal Agricultural Research Council
Socioeconomics and Agricultural Research Policy Division
(PPCR/BRCH/AMIS Project)
Khumaltar, Lalitpur

2016
© Socioeconomics & Agricultural Research Policy Division, NARC,
Khumaltar, 2016. The contents in the document are the responsibility of
the authors and do not necessarily reflect the views of any organizations.

Socioeconomics & Agricultural Research Policy Division

Nepal Agricultural Research Council (NARC)
Khumaltar, Lalitpur, Nepal
P.O. Box : 5459, Kathmandu Nepal
Telephone : 00977-1-5540818
Email : apord.narc@gmail.com
URL : http:// www.narc.gov.np
 Table of Contents

Background 1
Methodology 2
Features of banana insurance in Nepal 3
Constraints for implementation 3
Indigenous risk reduction strategies 4
Risk management 5
Sources of information 6
Suggestion for improving the agricultural insurance 6
Features of livestock insurance in Nepal 7
Constraints for implementation 7
Indigenous risk reduction strategies 8
Types of risk 8
Risk reduction strategies in livestock farming 8
Reason for not going for livestock insurance 9
Suggestion for improving the livestock insurance 10
Conclusion 10
Acknowledgement 11
References 11
Background
Agricultural systems are highly dependent on suitable climatic conditions
making it vulnerable to any change in climate in Nepal (GoN, 2004).
Agriculture has always been a risky business in the country as agricultural
production are frequently affected by natural disasters such as droughts,
floods, storms, landslides, weed, erratic rainfall, and many other
problems which are beyond the control of the farmers. Given the low
development of the country with subsistence based, rain-fed dominant
farming system, complex topography, and higher vulnerability to climate
change, managing agricultural risk associated with climate change and
climate change adaptation has become a major challenge and priority for
the country (Singh, 2011; MoE, 2010; World Bank, 2009). Agricultural
insurance is widely recognized as one of the key options to manage
such climate and other risks to farm level production, infrastructure
and income (Smit and Skinner, 2002; Warner et. al., 2013). Agricultural
insurance schemes help to reduce the risks and vulnerabilities of poor
rural smallholders and open their access to a range of financial services
for improving their livelihoods.

Agriculture and livestock insurance have gained higher importance in

recent years in Nepal due to evident abrupt changes in climatic conditions
resulting in large scale damage to the production system. The Ministry
of Agricultural Development introduced a subsidy on the premium paid
for crop and livestock insurance in June 2013. The government provides
a 50 percent subsidy on insurance premiums paid by individual farmers,
farmers’ groups and farmer cooperatives for crops and livestock. Since
the year 2014, Government of Nepal has increased subsidy premium from
50 percent to 75 percent to attract farmers in insuring their agricultural
commodities. Furthermore, Government of Nepal has also a provision to
provide additional 15% subsidy on premium if a cooperative insures its
agribusiness. The major agricultural commodities prioritized for insurance
schemes are paddy, vegetables, fruits, potato, livestock and poultry.

The Government of Nepal (through the Insurance Board) in January 2013

introduced crop and livestock insurance directives to encourage insurance
companies to develop commercial agricultural insurance. The directive
introduces the obligation for non-life insurance companies to offer
agricultural insurance, and also the guidelines for the insurance policies
that insurance companies can use. Insurance companies are also free to

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submit their own schemes for approval by the Insurance Board. 17 out of
19 non-life insurance companies have offered agricultural insurance, and
insurance coverage is particularly higher for livestock than the crop sector.
Apart from this, Cooperative organization of farmers and farmers' groups
and Credit Security program of the Agricultural Development Bank have
also been implementing agricultural insurance schemes in the country
which are separate from the insurance companies’ subsidy scheme and
is not scheduled to stop anytime soon. Prior to these recent initiatives on
agricultural insurance, insurance schemes particularly in livestock were
also in operation as pilot projects in Nepal through the Small Farmer
Cooperative Limited (SFCL) scheme and the Community Livestock
Development Programme (CLDP), and Cooperatives, under the technical
and financial assistance of international development agencies. This
study was conducted to assess the existing crop and livestock insurance
implementation practices in Nepal taking the cases of banana farming and
livestock keeping and providing suggestions for its further improvement.

This paper focus on the differences between crop and livestock insurance
implemented in the country in term of constraints for implementing,
types of risk associated, Indigenous risk reduction strategies, sources of
information to farmers about insurance process. These issues have been
discussed here taking the cases of banana farming and livestock keeping.

Methodology
The study employed combination of different tools/methods which includes
the Desk Review, Focus Group Discussion (FGD), Household Survey
and Stakeholder’s Panel Workshop with expert relevant to agricultural
insurance program in Nepal. The stakeholder interaction workshop was
carried out with the participation of researchers, extension officials,
insurance companies, cooperatives and seed company representatives
and farmers engaged in insurance schemes as well as farmers who were
not engaged in agricultural insurance from Nawalparasi and Chitwan
districts. The main aim of stakeholder’s workshop was to elicit expert
knowledge and experiences of different stakeholders on implementation
of agricultural insurance and update research findings.

Two FGDs, one focusing on banana insurance at Chitwan and other

focusing on the dairy at Nawalparasi were carried out. A total of 12
banana farmers (8 insurers and 4 non insurers) and 13 livestock farmers

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(8 insurers and 5 non insurers) were participated in the discussion with
the help of a checklist prepared.

Two Household level surveys were conducted to study about the various
issues, farmer's indigenous risk minimizing tools/techniques/methods
and farmers perception about agri-insurance related to banana and dairy
insurance. For the purpose of household survey Chitwan and Nawalparasi
district were selected purposely based on the available cases for the study.
In case of banana insurance census was conducted whereas for dairy
insurance farmers different VDCs were identified as a cluster and sample
were taken from these clusters randomly. For non-insurer, different
nearby clusters were selected and farmers were randomly selected from
each cluster. A total of 46 households (30 agri. Insurance and 16 non-
insurance farmers) from Chitwan were taken for study in banana whereas
a total of 50 households (35 insurer farmers and 15 non insurers' farmers)
were taken for study in case of dairy insurance in Nawalparasi district.
The information was supplemented by the recent exploratory visits and
interaction meeting with insurance companies launching the agri-insurance
programs in Chitwan and Nawalparasi districts. The data collected were
analyzed using descriptive statistics and qualitative methods.

Features of banana insurance in Nepal

Constraints for implementation
Wind was found as a major weather related risk for damaging banana
crop in Nepal. Word Bank (2009) reported the heavy losses of banana
due to wind in Chitwan and Nawalparasai district of Nepal. There was a
problem for insurance in case of leased land because insurance company
demands land entitlement certificate (Lalpurja). Also the mandatory
recommendation from VDC secretary during claiming compensation is
tedious for the farmers. Farmers’ who were not participated in insurance
program were waiting to see the reimbursement of loss of their neighbor
farmers. In case of newly established banana orchard (one to two years),
farmers were not interested for insurance due to minimum losses during
these years compared to later productive years.

Standard plant density of 1400 plant per bigha is fixed as a basis to count
the loss of plants, if any, for insurance purpose. Farmers who plant in
higher density, has been found claiming for lodged number irrespective

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of remaining plant population in the field. Therefore some farmers with
the standard density have also been found taken compensation from
insurance companies in some cases.

In overall some suggestions were recommended for strengthening banana

insurance program such as use of public land, remove the mandatory
provision of being land owner and establishing land leasing bank. Also
the issues of number of plants per bighha (1400 per bighha) should be
reconsidered.

Indigenous risk reduction strategies

Farmers has been using different indigenous techniques and method for
risk minimization such as use of healthy plants, variety change (shift to
Malbhog from Green Banana eg. Harisal, Jhapali Hariyo to William
hybrid, G-9), use of bamboo staking (Teka), row planting to protect from
wind, cleaning (removal of dead leaves, unwanted suckers) of plants, use
of pesticides and insecticides and planting time adjustment (escaping
fruiting time from Falgun/Chaitra winds which causes the heavy damage
to banana).

Figure 1: Types of risks to banana farmers

Figure 1 shows that more than 90 % farmer's major risk was windstorms
both for insurer and non-insurer farmers. Disease and pest rank second
and third important risk to banana farmers. Types of risks were common
to both the insurer and non-insurer farmers.

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Risk management
Insurer farmers were adopting insurance as a major tool for risk
minimization in banana. Beside insurance, use of pesticides/insecticides
and staking were the important tools used for risk minimization for both
types of farmers. More number of Non-insurer farmers (66.6%) was
adopting application of compost and fertilizers as compared to insurer
farmers (30%). Variety change as an option for climatic risk minimization
was adopted by more than 50% farmers in case of both insurer and non-
insurer. It was found that farmers now replaced the green variety with
malbhog variety (eg. Harisal, Jhapali Hariyo to William hybrid, G-9)
because green varieties are more susceptible to breaking by wind. Insurer
farmers also used different techniques like planting the wind breaks
(perennial trees) and adjustment in planting time to escape from Falgun/
Chaitra wind.

Table 1: Different risk reduction strategies used

Different risk reduction
Frequency % Frequency %
strategies
Crop Insurance 30 100 0 0
Use of pesticides/
30 100 14 93.3
insecticides
Staking 21 70 11 73.3
Orchard management
(removal of dead 26 86.7 4 26.7
leaves, desuckering
Use of compost /
9 30 10 66.7
fertilizers
Earthing up 7 23.3 8 53.3
Variety changes 18 60 11 73.3
Planting wind breaks
5 16.7 0 0
(perennial trees)
Adjustment in planting
11 36.7 0 0
time
Source: Field survey, 2015

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Sources of information
Table 2 shows the sources of information for the farmers about the
agricultural insurance. Among different sources available, sources of
information was farmers group (Banana production groups) for 96.7%
insurer farmers and 60% of non-insurer farmers. DADO as a source of
information ranks second in case of insurer farmers, whereas, in case of
non-insurer farmer, it comes after radio, TV and newspaper. This may be
due to regular contact of insurer farmers with the DADO office. Only 20%
people use insurance agents as sources of information on crop insurance.

Table 2: Different sources of information on insurance

Sources of
information for Frequency % Frequency %
crop insurance
Insurance agents 6 20 3 20
DADO 12 40 5 33.3
Newspaper 7 23.3 7 46.7
Radio 6 20 8 53.3
TV 6 20 8 53.3
Farmers group 29 96.7 9 60
Source: Field survey, 2015

Suggestion for improving the agricultural insurance

Both insurer and non-insurer farmers suggested to improve the current
agricultural insurance scheme (Table 3) More than 80% farmers (both
insurer and non-insurer) suggested for quick settlement of claims. Only
20% insurer farmers suggested increasing the indemnity level, which
shows that farmers were satisfied with the current level of indemnity. About
53% of insurer farmers and 26.67% of non -insurer farmers suggested
launching awareness programs about agricultural insurance. About 34%
farmers who insured their banana crops suggested for covering more risk
under the scheme and for making the process easy.

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Table 3: Suggestion for improving the agricultural insurance scheme
Suggestions Frequency % Frequency %
Reduce premium 4 13.3 6 40
Quick settlement of
26 86.7 12 80
the claims
Insurance service at
12 40 5 33.3
door step
Raise the indemnity
6 20 2 13.3
level
Awareness program
16 53.3 4 26.7
should be launched
Should improve the
implementation mech- 13 43.3 3 20
anism
Cover more risk
10 33.3 0 0
under scheme
Documentation pro-
10 33.3 8 53.3
cess should be easy
Source: Field survey, 2015

Features of livestock insurance in Nepal

Constraints for implementation
Various problems in insuring dairy animals includes delay in claim
settlement, tedious claim procedure of insurance company, difficult
to receive payment on mastitis, infertility, fixing age limit for insuring
livestock animal which limits some animals even at their productive stage.
Also the lack of awareness on the importance, and the subsistence nature
of farming have been found limiting the spread of insurance programme.

Mastitis has been found a complicated issue for the insurer and the farmers
since this disease is not insured based on severity which is necessary to
address through a policy change. Insurance company's delay in process,
farmer's moral hazard and lack of quality investigation facilities has
been found as the factors causing frequent disputes between the parties
involved. Exclusion of wild animal's attack under the insurance coverage
has also been a constraints for livestock insurance in Nepal. Moreover,

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existing insurance policy lacks the concept of business scale where the
premium amount is not based on the size of herd.

Indigenous risk reduction strategies

Mortality rate was found to be higher in cattle than in buffalo. Livestock
grower farmers use the different ways for risk minimization such as
vaccination against major diseases, regular consultation with veterinary
doctors, changes of breed/animal type, timely feeding with concentrates
and green fodder, sanitation of cattle shed, etc.

Types of risk
From the household survey, it was found that disease was the major risk
faced by the livestock insurer. All the insurers and 80% of non-insurer
farmers' major risk was disease. Infertility was the major problem of
62.9% of insurer farmer and 20 % of non-insurer farmers. Accidents were
also conceived as a major risk in livestock.

Figure 2Type of risk in livestock farming

Risk reduction strategies in livestock farming

Survey result shows that farmers were familiar with the different type
of tools and techniques for risk minimization (Table 4). Insurer farmer
besides using insurance were using earlier treatment of disease (82.6%),

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sanitation (68.6%), feeding the animal in right time and quantity (57.1%),
vaccination of animal against major disease (31.4%) and only 8.6%
people were using changes in animal and breed type. In case of non-
insurer farmer people used different techniques such as timely treatment
of disease (66.7%), sanitation (66.7%) and feeding right quantity of feed
in right time (60%) and (33.3%) were using sanitation and changes in
animal and breed.

Table 4: Different risk reduction strategies used

Strategies Frequency % Frequency %
Insurance 35 100 0 0
Timely treatment 29 82.6 10 66.7
Vaccination against major disease 11 31.4 5 33.33
Feeding the animal in right
20 57.1 9 60
time and quantity
Sanitation 24 68.6 10 66.7
Changes of breed/animal type 3 8.6 5 33.3
Sources: Field survey, 2015

Reason for not going for livestock insurance

Main reasons for not going for livestock insurance are presented in table
5. The study revealed that the main reasons for not going for livestock
insurance are the lack of faith in the scheme/agency (100%), lack of
awareness (46.66%), lack of premium paying capacity (20%), complex
documentation (13.3%) and delay in claim payment (6.7%).

Table 5: Reason for not going for livestock insurance

Reason for not going livestock insurance Frequency %
Lack of awareness 7 46.66
Lack of premium paying capacity 3 20
Complex documentation 2 13.3
No faith in the scheme/agency 15 100
Delay in claim payment 1 6.7
Sources: Field survey, 2015

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Suggestion for improving the livestock insurance
There are some ways to improve livestock insurance in Nepal. They have
been illustrated in Table 6. Majority of both insurer and non-insurer farmers
suggested to establish premium rate based on herd size, as premium is to
be paid on per animal basis which appears huge for commercial livestock
growers. About 57% of insurer and about 34% of non-insurer suggested for
quick settlement of claims to resume the business immediately after loss.

Table 6: Suggestion for improving the livestock insurance

Suggestions Frequency % Frequency %
Reduce premium 29 82.9 10 66.7
Quick settlement of
20 57.1 5 33.33
claims
Insurance services at
6 17.1 4 26.7
doorstep
Raise the indemnity
14 40 5 33.33
level percentages
Awareness programs
4 11.4 7 46.7
about Dairy insurance
Improvement of
5 14.3 5 33.33
implementation
(Sources: Field survey 2015)

Conclusion
Agricultural insurance has been growing in slow pace. Out of 500 banana
farmers, only 34 insured their banana crop in Chitwan and farmers who
insured was satisfied with the current premium rate and indemnity given
based on the cost of production. Windstorms was found to be major
problem for banana farmers and cause heavy damage to their crops during
the month of Feb/Mar-June/July. Major issues need to addressed in banana
insurance was requirement of land entitlement certificate for insurance
which hindered insurance by farmer who leased land. Also, quick settlement
of claims is also urgent to help farmers to continue the enterprise without
taking loans from other sources. Disease was found to be major problem
for livestock farmers. People used different mitigation measures besides
insurance such as vaccination, sanitation, feeding right quantity and quality

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of feed and fodder etc. Major issues were problems of payment in case of
infertility and accident. Farmers mainly suggested for adequate publicity of
insurance scheme, making insurance procedure easier and quick settlement
of claims in order to improve the agricultural insurance scheme.

Acknowledgement
We highly acknowledge World Bank for the financial support for this
research through the project “Pilot Program for Climate Resilience
(PPCR)-Component D: Agricultural Management Information System”.
We are also grateful to the Project Director, Mr. Shib Nandan Prasad
Sah and NARC Component Coordinator, Dr. Ananda Kumar Gautam
for their support in program planning. Researchers in Socioeconomics
and Agricultural Research Policy (SARPOD) are thankful for their active
participation in collecting, compiling and processing information.

References
Gauchan, D. 2014. Importance of Agricultural Insurance in Agricultural
Development in Nepal: Proposed Research Activities and Issues.
A Paper presented in Regional Stakeholder Consultation Meeting
on “Agriculture Insurance and Agro-Advisory Bulletin (PPCR/
BRCH)”, July 6, 2014, NWRP, Bhairahawa. Nepal.

GoN. 2004. Initial national communication to the Conference of the

Parties of the United Nations Framework Convention on climate
change. Ministry of Population and Environment, Government of
Nepal.

Singh, F. 2011. Country report: Nepal. Workshop on climate change

and its impact on agriculture. Seoul, Republic of Korea, 13-16
December 2011.

Smit, B. and M.W. Skinner. 2002. Adaptation options in agriculture to

climate change: A typology. Mitigation and adaptation strategies
for global change 7: 85–114, 2002.

Warner, K., Yuzva, K., Zissener, M., Gille, S., Voss, J. and S. Wanczeck.
2013. Innovative insurance solutions for climate change: How
to integrate climate risk insurance into a comprehensive climate
risk management approach. Report No. 12. Bonn: United Nations

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 University Institute for Environment and Human Security (UNU-
EHS).

World Bank. 2009. Feasibility study for agricultural insurance in Nepal.

Finance and Private Sector Development Unit, South Asia Region
Global Facility for Disaster Reduction and Recovery.

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 Contact Address:
Socioeconomics and Agricultural Research Policy Division (SARPOD)
Nepal Agricultural Research Council (NARC)
NARI Building, Khumaltar, Lalitpur
PO Box 5459, Kathmandu
Tel: 977-1-5540818
Email: apord.narc@gmail.com

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