Speaker
Description
Exposure to weather hazards, pests, crop diseases, and climate change threaten the livelihoods of many smallholder farmers in low- and middle-income countries. Uninsured risks in agricultural production do not only cause severe financial consequences in the aftermath of a shock, but also during years without a shock, by discouraging a risk-averse farmer from investing in profitable agricultural production opportunities, and by limiting the adoption of practices and technologies that would improve a farmer’s expected productivity and income. Many countries are therefore looking at agricultural insurance to reduce farmers’ exposure to production risks and increase investment. This paper describes the findings from an impact evaluation of a novel crop insurance scheme in the state of Haryana, India.
Farmers in Haryana have limited access to instruments for managing agricultural production risks. Although they have access to the Pradhan Mantri Fasal Bima Yojana (PMFBY), which provides subsidized insurance coverage for major crops across India, this scheme provides incomplete coverage since it relies on average yields in an area instead of individual farmer losses. Moreover, the cost and logistical challenges for measuring yields across the country results in long delays in claims assessment and issuing payouts, depriving farmers from supplementary income when needed most. Finally, the scheme provides insurance coverage only for major crops and does not cover farmers for damage to commercial crops grown at a smaller scale.
To overcome these challenges, the International Food Policy Research Institute (IFPRI), HDFC Ergo, and the Borlaug Institute for South Asia (BISA) designed Picture-Based Insurance (PBI), a solution that uses smartphone pictures of insured crops to identify damage and settle claims. PBI aims to bring out the best of both indemnity-based and index-based insurance by offering a new way of managing risk. The product assesses plot-level crop damage from a stream of georeferenced crop pictures taken from sowing to harvest, uploaded by farmers themselves using a dedicated tamper-proof smartphone app. A formative evaluation showed that this approach can reduce basis risk and improve demand for insurance without inducing moral hazard or adverse selection.
We evaluate an intervention that integrates picture-based loss assessment into a weather index-based crop insurance product and provides this product to wheat, tomato, and rice farmers across 4 districts and 100 villages in Haryana. In particular, we assigned 50 randomly selected villages to the treatment group, in which eligible farmers who regularly upload crop pictures received free PBI coverage. The remaining 50 villages were assigned to the control group, in which farmers received cash incentives instead of PBI in return for sending pictures regularly. This design allows us to identify the effect of state-contingent cash transfers versus regular cash transfers, both conditional on sending in pictures of targeted crops. The intervention took place over three years and seven consecutive agricultural seasons, including the monsoon or “Kharif” season focused on paddy, and the winter or “Rabi” season focused on wheat and tomatoes.
The intervention showed moderate take-up rates, with about 22 percent of eligible farmers accepting to participate and send in images of their crops in exchange for free insurance or cash incentives. During Kharif 2022, the last season project season, we asked farmers to co-pay for the insurance products, which reduced take-up in the treatment arm in about half, to 12 percent. However, when we consider the intervention’s reach over the life the of the project, 59 and 51 percent of the farmers invited to participate in, respectively, the treatment and control groups enrolled in the app in at least one season and around two thirds of them enrolled in the insurance product or cash incentives. The moderate take-up numbers are arguably related to a few key implementation challenges, a slow build-up of farmer rapport over time, difficulties gathering sensitive enrolment documents from farmers, and a relatively low number of PBI payouts and substantial delays in disbursing them. Despite these challenges, satisfaction among participating farmers seems high, based on both quantitative and qualitative data, and we observe relatively high take-up intentions of PBI into the future, particularly if the timeliness of payouts is improved.
To assess the effects of the intervention on our primary and secondary impact variables, we administered an endline survey with both the primary male and female decision-maker in a household. We find large effects of the intervention on insurance uptake and perceptions of insurance, and small effects on investments in the extensive margin (i.e. types of crops produced, acreage and number of seasons over which target crops are produced). However, we find very limited or no effects on investments in the intensive margin (i.e. input usage), or other agricultural, economic, and wellbeing outcomes. We believe these findings have separate implications for the private and public sector.
Our findings suggest that PBI is a useful innovation for the private sector and insurers to provide more tangible and trusted insurance coverage to farmers and increase demand for their services. However, the limited impacts on agricultural outcomes or household wellbeing suggest that – at least in the Haryana context – there is little justification to be using public funds for fostering private sector efforts to incorporate PBI in their product portfolios. Instead, many of the challenges that we faced in implementing this impact evaluation point at the need of investing in digital infrastructure, particularly for the poor and marginalized, in order to create a more enabling environment in which insurers can provide PBI and other commercial solutions in an economically viable way.
Finally, during recent seasons incoming pictures have been used to provide tailored, interactive picture-based advisories (PBA) remotely and at a low cost. Crop agronomists can review incoming pictures, together with any farmer-submitted questions or concerns, through a dedicated web platform and provide personalized text- or audio-based advice within a short time frame (usually under 24-48hs), allowing for unprecedented levels of tailoring and timeliness of remote advisories. We are in the process of concluding a second impact evaluation, assessing the effects of PBA on farming practices and other outcomes of interest, and preliminary results will also be shared in the presentation.
