Since our ancestors started growing crops and settling in one location, agriculture has always been accompanied by inherent natural risks. Although the types and levels of those dangers have evolved, the threats have not altered. Human actions have caused some hazards to be further exacerbated and others to be generated, even though our knowledge and contemporary science have helped us recognize and partially reduce many risks.
Additionally, given the state of the agricultural market and economy, it is getting harder and harder for farmers of all sizes to decide how to manage risk in their operations. Crop Insurance in Pakistan can help in this situation. Most countries, including the United States, are aware of the need for food security and have helped make crop insurance plans available to farmers as a much-needed safety net. To choose the best alternative described later in this article, it is essential to understand how crop insurance differs from all other available insurance types.
Crop insurance: what is it?
As the name implies, crop insurance’s fundamental idea is straightforward: The crops of farmers and agricultural businesses are covered by crop insurance. In other words, crop insurance shields farmers from recognizable and generally anticipated risks such as drought; fire; hail; cold/wet weather; flooding; and market price fluctuations.
In addition to these general characteristics, others may be unique to a particular region or type of crop. Additionally, the type of insurance differs according to the likelihood of the risk factors occurring. Risk factors can be divided into groups according to how frequently they occur and how seriously they could result in financial loss. A place where drought is expected will have different crop insurance options available than a place where it doesn’t often happen, for instance. It would help you comprehend how crop insurance operates to make an informed selection when getting crop insurance.
What is the process of crop insurance?
The government-sponsored approved insurers that provide crop insurance under the Federal Crop-Insurance Program (FCIP) are subsidized by the government. The FCIP program is run by the USDA’s Risk-Management Agency and the insurance companies. The supermarkets sell, distribute, and manage insurance through licensed individual crop insurance agents. The federal government’s job is to support the insurers if they have to pay the amount in claims they have accrued due to collecting premiums. In exchange, the government receives a portion of any profits.
The concept of reference yield or reference revenue, which are yield or revenue benchmarks that are established by executing statistical operations on historical data from the farms in the area, is the foundation of Crop Insurance. Claims can be made, and coverage is dispersed by comparison with this reference and utilizing the government market price of the crops.
Crop hail insurance, which is entirely marketed by private companies and differs from FCIP insurance coverage in that it is not connected to the government, may be purchased at any point during the crop cycle. Contrary to what the name might imply, hail coverage protects crops from threats besides just hail, such as fire, lightning, wind, vandalism, etc. The crops not covered by federal insurance plans may benefit significantly from this choice.
Crop insurance options
Crop insurance generally falls into one of two categories: yield-based crop insurance plans or revenue insurance policies.
depending on yield
Yield-based insurance policies offer coverage if the realized yield falls short of the anticipated outcome. Two different kinds of insurance contracts function on a yield basis:
Crop insurance with many risks:
As was previously mentioned, MPCI offers coverage for various natural occurrences, such as hail, wind, rain, insects, etc., when they cause a loss in agricultural yield after harvest. Farmers decide the volume of the work to be insured (which could range from (50-85)%) and the government protection rates when they enter into a contract with the insurers.
Plan for group risk:
While MPCI calculates the loss using the reference yield derived from the farmers’ historical data, Group-Risk-Plan (GRP) uses a county yield index. National-Agricultural Statistics Service makes the decision (NASS). The time of payment upon claims may take longer than MPCI payments because these computations may take some time.
Revenue insurance: On the other hand, revenue insurance plans offer protection against a reduction in generated revenue that could be brought on by a loss of production, a change in the market price of the crops, or even both.
Coverage of crop revenue (CRC)
It uses two different prices, namely the initial price forecast and the harvest price, which is determined right before harvesting. The crop and the location both affect when the price is set.
Assurance of revenue (RA):
The grower selects a monetary amount to be covered as part of RA, which ranges from (65-75)% of anticipated revenue. But as farmers, you can also choose the harvest-price option, which resembles a CRC, except that, unlike a CRC, it doesn’t have an upward restriction on harvest-price protection. CRC/ RA HPO will be worth more if production declines, prices rise, and vice versa.
GRIP, or group revenue insurance
This insurance policy is built on offering protection if and when the average county revenue of the crop covered by the policy falls below the income the grower has chosen.
The financial viability of any farming depends on crop insurance. Although the fundamentals of crop insurance are as straightforward as they need to be to comprehend, picking the proper kind of Crop Insurance to meet your unique needs from a wide range of insurance products can take time and effort. It would help if you now had a rough notion of the available insurance policies and which could be best for you.
