How livestock insurance can lead to sustainable agricultural development

In 2021–22, livestock contributed 1.90% of Bangladesh's GDP against 16% from agriculture. Seventy percent of rural inhabitants are involved with animal husbandry, the majority of whom are marginal farmers, which is the primary source of revenue for these marginal farmers. 

In Bangladesh, there are three forms of animal husbandry: 1. Dairy production, 2. Meat production, and 3. Poultry production. Animal husbandry provides an ancillary means of earnings for at least 36 lakh families in this country. 

Although marginal farmers are the lifeblood of the livestock industry, a lack of stability and multiple risks in animal husbandry have put them in jeopardy. When confronted with an unforeseen event (animal diseases, natural disasters, theft), they frequently suffer significant losses and, in some instances, forfeit the entire farm. 

The lack of long-term stability precludes marginal farmers from growing their farms and gaining financial independence. A beneficial and tenable livestock insurance scheme for marginal farmers can offer much-needed respite from this issue in such a situation. 

Agricultural insurance can help farmers evade poverty traps by minimising their expenses and safeguarding productive resources in years of severe production losses. There are currently well-established agriculture insurance programs or experimental initiatives functioning in more than 100 countries. 

Even though agricultural insurance markets have developed in the vast majority of high-income countries, only about one-third of middle- and low-income countries currently offer these kinds of services and schemes. Livestock insurance has been effectively embraced since the 20th century in highly developed countries, including the US, UK, and Germany. 

A few NGOs in Bangladesh offer micro-insurance in combination with microcredit, though it is quite painstaking for farmers to access. Although significant progress has been made in the field of credit and insurance for cattle fattening, there is a risk that mandatory insurance schemes bundled with micro-credit or savings schemes will limit low-income families' ability to access credit benefits, as such schemes will increase the cost of credit or reduce income from savings. 

Non-governmental organisations Grameen Bank and ASA supply farmers with mandated microinsurance with their microcredit programs. Even though livestock insurance is deemed inadequate and ineffective in Bangladesh, the basic insurance structure tailored to farmers' needs and capacities can elicit a revolutionary transformation.

The main difference between the animal husbandry system of developed countries and developing countries like Bangladesh is that most farmers in Bangladesh are marginalised. But recently, nations like Mongolia, India, Ethiopia, Nepal, and others have begun to offer livestock insurance. 

India is the most appropriate example in this arena. Since the fiscal year 2008-09, 100 administrative districts in India have employed a unique hybrid approach to execute the Livestock Insurance Scheme, all under the direction of the government. 

Under this framework, the Department of Animal Husbandry, Dairy, and Fisheries appoints public or private insurance companies to carry out insurance activities. Every insurance-insured instalment is partially subsidised by the government and half paid for by the insured. 

The maximum premium rate is set at 4.5% per year, which is equal to 12% per year. A government veterinarian is responsible for selecting animals that are healthy and insurance-suitable, and ensuring the overall success of this insurance operation. 

Similarly, in Nepal, the government subsidises 50% of the insurance premium for farmers covered by the Community Livestock Development Program. About 5,000 animals were successfully covered under the scheme.

Although private insurance is regarded as being more effective in developed nations, it is clear from the examples of India and Nepal that, when considering Bangladesh's socioeconomic condition, the partnership between the government and private enterprises can be a feasible option. We highlight various aspects of whether successful and comparable livestock insurance can be introduced considering socioeconomic status in Bangladesh. 

First, the proposed insurance program will give special attention to marginal farmers. Under our proposal, the government's Department of Livestock would be under the jurisdiction of the insurance program. 

Through the appointment of an Executive Officer (CEO), the department will be in charge of all insurance management. To carry out insurance activities, the Department of Livestock will contact interested public or private insurance organisations. We can adopt the institutional insurance system in this situation. No financial institution or NGO other than specialised insurance companies can participate in this livestock insurance program. It is to be noted that the livestock insurance scheme has been introduced in Nepal following the institutional insurance system. 

The market price of the animal will be determined by the joint decision of the government, farmers, and insurance companies. A quarterly or monthly premium can be set up in addition to the annual payment. 

The annual premium rate will be a maximum of 5% of the market price. The farmer will bear 60% of the premium, with the remaining 40% subsidised by the government or the pilot project. The government would pay a 40% subsidy at the start of this insurance system to encourage farmers. As farmers become more familiar with it and insurance schemes gain popularity, the government may cut the subsidy from 40% to 20%. 

If the insured animal dies for any of the causes stated in the insurance risk list, the farmer will receive 90% of the market value as compensation. The insurance company will fund 80% of this compensation, with the remaining 10% covered by the government or the experimental project. 

For example, a farmer's cow is worth Tk80,000 on the open market. This plan's annual premium will be Tk4,000. The farmer will pay for 60% of this sum, or Tk2,400, while the government or pilot project will pay for the remaining Tk. 1,600. 

For farmers, it will not be too difficult to pay just Tk2,400 as a premium (again, in instalments) instead of Tk. 80,000 for animal safeguards. If the covered animal dies for any cause on the insurance risk list, the farmer will receive 90% of the Tk80,000 or Tk72,000 as compensation. 

This will go a long way toward making up to the farmer for his loss. The insurance company will bear 80% of the total 90% compensation, i.e. Tk64,000, with the government/pilot project bearing the remaining Tk8,000. 

While others advocate for unsubsidised insurance, government subsidies can help ranchers and insurance companies maintain credibility during severe hurdles for marginal producers. Another explanation is that farmers in Bangladesh are inclined to have a positive perception when they receive a subsidy on an agricultural commodity. As a result, it can be a useful and effective tool for encouraging farmers. 

While this subsidy may appear to be a temporary loss to the government, it can be viewed as an investment in the livestock sector that will increase production rapidly, bring stability to farmers' businesses, and increase the scale and size of their farms. 

File Photo: Mumit M/TBS

At the end of the day, implementing this insurance will play a crucial part in meeting Bangladesh's food and protein demands. A government-registered veterinarian and a livestock officer will be in charge of the entire insurance management, and regular physical and ancillary matters for the animals will be checked under their supervision.

However, certain conditions will apply to ensure the transparency of this insurance and the risks covered by it: 1. Death due to disease, 2. Death due to natural disasters (flood, lightning, drought, earthquake), 3. Death due to an accident, and 4. Theft. Because a veterinarian and livestock officer will have direct supervision, the death of animals due to disease or other pre-existing disasters will be significantly reduced, benefiting both the farmer and the company. 

If the animal is killed in an accident or stolen, adequate evidence, witnesses, and certificates must be attached to the local police administration. Only the collective effort of all parties involved may result in an effective and transparent insurance system. 

Indeed, these forms of insurance schemes will benefit both farmers and insurance companies. Farmers will first achieve economic security and gain confidence in the agriculture business. As part of this insurance scheme, a veterinarian will constantly monitor the health, hygiene, and physical growth of the animal. 

A livestock officer will be in charge of the animals' food, nutrition, and management. This will ensure that animals are treated using modern, scientific methods, improving the quality and quantity of animal milk and meat and benefiting farmers even more. 

Insurance companies, on the other hand, will be able to carry out their operations spontaneously, unaffected by any outside force, thanks to the government's direct cooperation and oversight. Insurance companies will also save money because government officials will constantly monitor animal welfare and diet. 

Furthermore, because the government will cover 40% of the premium, farmers will find it easier to pay their premiums on time, and there will be fewer farmers who default on their payments. Furthermore, only one company will operate in a specific geographic area. This will improve the company's performance, make communication with the farmer easier, and reduce ancillary costs. At the end of the day, just as farmers will be risk-free, companies will profit handsomely.

The adoption of livestock insurance in Bangladesh could be a major step toward protecting the livelihoods of millions of farmers. Farmers in Bangladesh face significant risks, such as unforeseen climate change, natural disasters, and animal diseases, all of which can be disastrous to their entities. 

It is high time to recognise the necessity of livestock insurance for safeguarding the farmers. Besides, it could be an intriguing and timely initiative to promote economic transformation, economic stability, and poverty alleviation in rural areas, as well as the country's overall socioeconomic development. 

It has taken a long time to discuss, review, and plan for introducing insurance in the livestock sector. Now it's time to do it. There is no way to ignore the need for long-term structural development in a crucial sector like livestock in order to build a prosperous and smart Bangladesh by 2041. A token budget allocation can be proposed in the forthcoming national budget for FY2023-24. We hope that the appropriate governmental body will take action as soon as possible.

Dr Md Saidur Rahman is a Professor and former Head of the Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh and Vice-President of Bangladesh Economic and Agricultural Economists Association. Md Sayemul Islam is a Department of Agricultural Economics student at Bangladesh Agricultural University, Mymensingh.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.