Crop insurance revisited

The fact that the Centre’s new crop insurance scheme has hit a WTO speedbreaker does not really surprise.

The EU, Canada, Australia and Thailand have implicitly said that in its present form, insurance payouts cannot readily be placed in the ‘green box’ — one that exempts certain expenditures from farm subsidy calculations for WTO purposes.

They have, in effect, argued that for crop insurance to qualify as a green box item, the damage, or income (and not output) loss, should not be less than 30 per cent and the government should declare a natural calamity.Banner-280120That is, the income loss in the current year should be at least 30 per cent of the farmer’s average income in the preceding five years, excluding the best and the worst years.

The agriculture and commerce ministries would have to return to the drawing board to iron out inconsistencies with the WTO’s Agreement on Agriculture (AoA).

A 30 per cent threshold so calculated may sound stiff, but it may go some way in checking moral hazard, an aspect that the current policy does not adequately address.

For income losses to be computed at the farm level in a country where markets are fragmented, e-markets for food products and livestock will have to evolve quickly.

Insurance companies, dealing with both yield-based and weather-based products, will have to adjust to the WTO scheme of things, wherever required.

It would be a pity if the salutary features of the new scheme — better coverage for lower premiums with the government picking up the tab — were to run into trouble on technicalities.

Crop insurance, implemented well through the financial inclusion platform, can help dispel the pessimism that seems to cling to agriculture, more so in times of increasingly unpredictable weather.

It is possible for India to meet its food security, rural livelihood and development concerns within the WTO framework, even as it questions certain conditions, such as the computation of the global price while arriving at the ‘aggregate measure of support’, which is the difference between domestic and world prices.

Using the 1986-88 period for arriving at the reference price exaggerates the AMS, more so when domestic prices are at market rather than real rates.

Under Article 6.2 of the AoA, investment support and input subsidies for resource-poor farmers are left out of subsidy calculation, as they are not seen to be market-distorting.

But a $20 billion public stockholding programme has driven up its AMS to more than 5 per cent of farm GDP.

While India’s argument on computation of global prices is all very well, it should consider achieving optimal results through a lesser outgo on subsidies through direct transfers.

A shift from ‘amber box’ (price-related subsidy such as the minimum support price programme) to green box related expenditure will lower its AMS. This will leave it with elbow room, both in a budgetary and WTO sense, to cope with the multiple challenges that agriculture faces today.

Curated from Crop insurance revisited.

You may also like...