Ensuring financial coverage for farming community.

Area-yield index insurance was first developed in Sweden in the early 1950s and has been enforced in India since 1979 and in the United States since 1993. There have been numerous attempts to establish crop insurance programmes in developing countries. Some of them have succeeded in laying the foundation for a sustainable risk management service. But there have also been failures. Most of such programs that did not prove durable were set up on the base of unrealistic prospects. Risk management is of pivotal importance in the investment and financing decisions of growers in developing countries and in transition economies.

Agrarian insurance, although one of the most frequently used tools for risk management, can only play a limited role in managing the pitfalls involved in farming. The application of insurance in any given situation is grounded on consideration whether it is a cost-effective means of addressing a given risk. In practice, agricultural insurance is almost invariably peripheral to a whole set of risk management measures, of which adequate farm management practices constitute an important element.

Agriculture is very much vulnerable to the unpredictability of nature. The impact of natural disasters and other agricultural risks, therefore, cannot be taken lightly as agricultural production represent the only livelihood for numerous resource-constrained Pakistani growers. In case of natural calamities, the growers not only have to bear the loss of their yield/crop but also have to face defaults for the bank credit. The need to protect the interests and investments of growers is, therefore, of paramount significance.

Crop insurance is a risk management mechanism designed to smooth out agrarian risks and even out the consequences of natural disasters to make losses, especially to the marginalized growers, more bearable. In countries having multiple-risk insurance schemes, government's intervention or its heavy support to agricultural insurance operations has been regarded justifiable and inevitable due to the market failures. Such support has been provided in the form of subsidies on premium to growers, operational subsidies to private insurers to cover some of the high administrative costs associated with agricultural insurance contract underwriting and subsidized reinsurance.

The system of government intervention also varies from country to country. For example, in Canada, Japan and Philippines, the insurance schemes are...