World agriculture is facing thesevere problems due to climate change as well as it cannot provide enough highquality food for the world population. According to the Food and AgricultureOrganization (FAO), globally, agricultural output is a need to increase by 1.6percent annually until 2015 and 1.4 percent until 2030 (BMELV, 2008).
As aresult, it is clear that there is a strong dependence of agriculture on thenatural environment and which makes it risk prone sections (Kurukulasuriya etal., 2006). In Asia, Sub-Saharan Africa, Latin America and the Caribbean partof the world have started crop insurance as an adaptation tool for weatherinduced risk in agriculture sector there are some countries and manyinternational organization such as Netherlands, European Union, and Japanprovide aid to them (Zant, 2008). In many developing countries,the government and NGOs have started crop insurance as a primary program forthe benefit of the farmers and save agricultural output to insure the nationalfood security of these nations (Clarke et al., 2012).
In India, farmers dealwith some insurance company as an experimental evidence against agriculturalrisk and they get much more motivation to increase investments in higherriskfor higher-return in agricultural production and where crop insurance has beenavailable since 2004, 12.7 million farmers bought the insurance between 2007and 2011 (Cole et al., 2011).
On the other hand, many African countriesrigorously introduce agricultural insurance for the poor farmers over the lastfew decades and almost 1,000,000 farmers in Africa are engaged throughgovernments, Non-Governmental Organizations (NGOs) and commercial unsubsidizedprograms (Greatrex et al, 2015). 2.5 Crop Insurance inBangladeshAlthough crop insurance is oneof the best policy to adapt weather risk and to reduce venerability there ishardly available in risk sharing institutions.
As a result in developingcountries like Bangladesh farmers need alternative ways to defend themselvesfrom weather risk (Zant, 2008). According to World Bank report in Bangladesh, there is small number ofagriculture insurance programs at present and some NGOs operate this types ofprograms like livestock insurance and crop insurance scheme (World Bank, 2010).Zant (2008) also added that developing country cannot take this opportunitieswidely than the developed nations. But now many countries try to run thisinsurance program. World Bank states that more than hundred countries dealswith crop insurance scheme to reduce vulnerability of the poor farmers (WorldBank, 2010). In 1977, Sadharan Bima Corporation(SBC) of Bangladesh has been introduced crop insurance as a pilot program forthe Aus, Aman and Boro rice, jute, wheat and sugarcane and 15,420 farmers werecovered by this program. But due to lack of support, expertise, monitoring andsystemic problem this project did not run smoothly. As a result this projectwas closed in 1996 with almost 500 % loss (Mainuddin, 2011).
As well as many NGOs starts cropinsurance for the poor farmers like Brac is the first non-governmentorganization in Bangladesh which introduce crop insurance program and to makethe program effective Brac consult with Green Delta Insurance Company Limitedand both sign a deal for the betterment of the farmers and launch the riskreduction policy jointly (Rahman, 2016). On the other hand, IFC is a member ofthe World Bank Group which sign with Bangladesh’s leading private insurancecompany Green Delta Insurance Co Ltd to develop a crop insurance as anadaptation tool to protect the rural economy they have recently arranged aworkshop titled ‘Agriculture Insurance in Bangladesh’ to create awareness onagriculture insurance among the farmers and try to incorporate crop insuranceinto the agricultural sector of Bangladesh (World Bank, 2011). Government plays an important role to developagriculture insurance. Sometimes government subsidies the insurance programswhich is now a common adaptation tool in many countries (Ke et al., 2011). Cropinsurance exists in some countries, but with government subsidy. LikeBangladesh have signed with ADB to launch crop insurance program for $2.
5million with the help of Japanese organization and left amount subsidies byBangladesh government (Hossain, 2013). On the other hand, in United States,government provide support to the farmers in the form of premium subsidies (apercentage of total premium) with legal amendments started in 1980 (Gardner andKramer, 1986; Glauber, 2004; Barnett, 2007). Besides, the Bali Action Plan atCOP13 in 2007 provisions the government to consider crop insurance as an adaptationtool for reducing loss of agricultural sector. So a well-planned crop insurancesystem can save a large number of poor farmers from weakness and uplift theirconfidence to increase crop production (Bhende, 2002). But lacking ofconsciousness among farmers is a big challenge for the application of thescheme (Cain, 1981).
On the other hand government programs and privateinsurance are formal replies to the risks associated with climate change andinfluence farm-level risk management strategies (Smit and Skinner, 2002). So,private insurance play a vital role in adaption to climate associated risks. In Asian countries likeBangladesh, farmers are self-insured and they share their risk among themselvesas well as informal risk copping tools such as savings, loans and gifts areless used in the absence of well-established crop insurance market and theformal insurance markets are not almost disappear and their function is notclear among the farmers (Clarke et al., 2012). On the other hand without crop insurancecommercial banks are indifferent to provide loan to the farmers for theirproduction purpose (Zant, 2008). Cropinsurance in Bangladesh is not a sustainable process for the poor farmersbecause it is traditional system. But recently a few number of weather-indexinsurance starts work.
In traditional system, farmers are compensated for thewitnessed losses on their production (Hazell, 1992). As a result there occuradverse selection, moral hazard, and insurance fraud which incur higher costfor the insurer of detecting dishonest behavior by farmers make these insuranceproducts more costly to provide. This problem is significantly reduced by indexinsurance where the payout is based on a tamper-resistant index such as totaldays of extreme temperatures or monthly rainfall. Therefore, index insurancelightens concerns about information problems, farmers’ concealed actions andexpensive verification costs (Clarke et al.
, 2012). Countries like India,Ethiopia and Malawi also have started index-based crop insurance targeted atpoor farmers.