AJAERD

Journal of Agricultural Economics and Rural Development

Vol. 4(1), pp. 365-371, March, 2018. © www.premierpublishers.org, ISSN: XXXX-XXXX

Review Article

Importance, Scope and Status of Agriculture Insurance

in Nepal
*Thapa Praseed1 and Adhikari Anju2
1
Agriculture and Forestry University, Rampur, Nepal
2
Food and Agriculture Organization of the United Nations, Nepal
In Nepal, agriculture sector plays a pivotal role for the overall development of a country as it
contributes 31.6% to its Gross Domestic Product and employs more than 60% of the population.
However, this sector is highly vulnerable to climate change as it is mostly rain-fed and relies
mostly on weather patterns revealing higher climate related risks. To study an important measure
to adapt the risks in agriculture, various literatures and studies that focused on importance, scope
and status of agriculture insurance in Nepal were reviewed. The study showed that the impact of
climate change is increasing day-by-day hampering the productivity and affecting smallholders’
livelihood. Results highlighted that agriculture insurance maybe an important strategy in adapting
climate and other associated risks. Further, it was observed that the present status of insurance
in Nepal covers almost all the major crops and livestock products with significant subsidy in the
premiums and compensation in case of complete/partial commodity loss or damage. Also, the
study pointed out that there is a tremendous market scope for the policy to flourish in present as
well as future. In this limelight, agriculture insurance scheme should be promoted significantly
by the government if climate and associated risks are to be managed and livelihood of
smallholders be ensured.

Key Words: agriculture, climate associated risks, risk management, insurance, Nepal

INTRODUCTION
Nepalese Agriculture, Climate Change and
Agricultural Insurance
Nepal, lying in Southeast Asia, is a developing country
where one-fourth of the population lives below the poverty
line. Agriculture is the mainstay of her economy that
contributes 31.6% to its real Gross Domestic Product
(GDP) (Economic Survey, 2015-16). More than 60% of the
population depends on agriculture for their livelihood
(Ministry of Agricultural Development [MoAD], 2013). The
farming system in Nepal is an integrated type i.e. includes
both the crops and livestock components. About 87% of
the total population (26.6 million) lives in rural area and
more than three-fourths of the population still engage in
subsistence farming (Central Bureau of Statistics [CBS],
2011) with an average landholding of 0.8 hectare (ha) per
household (MoAD, 2012b). This indicates that the
agriculture development plays a vital role for stepping-up
Nepal’s economy, but the workload of agriculture is borne
mostly by the rural poor smallholder who practices
subsistence farming.
Undoubtedly, agriculture development is crucial for the
economic development of Nepal. But, attaining this
scenario is not so straightforward due to various
challenges (before, during, and after production). Some of
these include, but are not limited to, majority of farmers
practicing subsistence farming traditionally, lack of easy
access to quality inputs (seed, fertilizer, labor, etc.) and
extension services, lack of markets and marketing,
financial risk, etc. Keeping these challenges aside, other
crucial factor is weather as agriculture in Nepal is mostly
rain-fed and relies heavily on weather patterns (Shrestha
and Aryal, 2011). Miranda and Vedenov (2001) also
supports that weather is the most important factor for
agriculture. It is because weather plays vital role in
agricultural production risks of crop and animal failure or
decreased yield (Sadati et al., 2010).
*Corresponding author: Thapa, Praseed, Agriculture and
Forestry University, Rampur, Nepal. E-mail:
Praseed.Thapa@gmail.com, Co-author E-mail:
2anjuadhikari33@gmail.com

Importance, Scope and Status of Agriculture Insurance in Nepal

Thapa and Adhikari 366
Unfortunately, weather is experiencing a long-term change
in patterns, known as “Climate Change (CC)” that is
threatening and continuing to have an impact on
agricultural productivity around the world (You et al., 2005;
Slingo et al., 2005). Since agriculture in Nepal is rain-fed
and depends highly on suitable climatic conditions, it is
thus vulnerable to any change in climatic patterns
(Government of Nepal [GoN], 2004). The country has
already been experiencing direct impacts of CC
(temperature rise, flood, drought, incidence of disease,
pests, and insects, etc.) on agricultural economy (Malla,
2008; CBS, 2017). This is corroborated by the evidences
of rain deficit in eastern Terai region in 2005-06 by early
monsoon declining crop production by 12.5% on a national
basis (Regmi, 2007) and winter drought of 2008-09 that
resulted in huge loss of agricultural production (Mishra and
Tripathi, 2010; Sheikh et al., 2014). Likewise, the recent
flash flood of August 2017 damaged around 80% of crops
(Aljazeera, 2017) mostly paddy in southern plain (Nepal’s
breadbasket) may result in food shortages and hamper the
smallholders’ livelihood. According to the data released by
Nepalese Ministry of Agricultural Development in 2016-17,
loss to agriculture sectors (standing crops, food grains and
fisheries) due to this flash flood was worth around 8.11
billion Nepali rupees (US $ 81.1 million). This is why the
economy of Nepal is very sensitive to climatic variability. In
this context, Knox et al. (2012) has highlighted that
developing countries’ economies that rely predominantly
on agriculture are affected due to productivity loss
resulting from CC.
Given the agriculture sector subsistence based, rain-fed,
highly vulnerable to CC as well as significant loss incurred
due to its impacts, agricultural risk management
associated with CC thus had become a major challenge
and priority for the country (World Bank, 2009; Singh,
2011). With this background, management strategies for
CC as well as other event’s risks aversion are crucial not
only to safeguard smallholders, but also to prosper the
country’s economy. As farmers are risk averse in nature
(Binswanger, 1980) and many traditional informal
approaches (crop diversification, mixed farming, inter-
cropping, varietal change, etc.) are available for
withstanding risks, though advantageous are insufficient.
In this limelight, formal mechanism i.e. Agriculture
Insurance (AI) is one of the widely known management
options (Smit and Skinner, 2002; Warner et al., 2013) for
the climate and associated agricultural risks. This
eventually may safeguard smallholders’ livelihood and
contribute to prosper the economy of the country.
The agriculture insurance policy in Nepal was materialized
by the government very recently (2013) despite its crucial
need long ago. As there is still dearth of scientific works
conducted in this area, so this empirical study is conducted
to comprehend the agriculture insurance scenario with
sole objective to review its importance, scenario and
market scope in Nepal.
Importance, Scope and Status of Agriculture Insurance in Nepal
METHODOLOGY
Literatures and related documents were sought from
libraries, online sources and personal contact from May –
September, 2017.However, for online sources the search
terms were limited to “importance” OR “role”; AND
“agriculture insurance”, OR “crop insurance”, OR
“livestock insurance”, OR “crop and livestock insurance”,
AND “Nepal” OR “Asia” OR “Africa” OR “World” OR
“None”. The obtained documents from all sources were
scrutinized and appropriate materials were retained for
further action.
RESULTS AND DISCUSSION
Importance of Agriculture Insurance in Risk
Management
Literally, AI is an agreement between insurance
companies and farmers (smallholders) where the latter
pay risk premiums to the former for insuring their crops
and/or livestock. This way guarantees and safeguards the
farmer for the financial compensation in case the insured
commodity is damaged or destroyed, either from climate
related risks or other that is beyond their control. Such
impacts could be so costly to them that incidence of only
one event is sufficient to turmoil their livelihood. For
instance, Jodha (1978) highlights that drought for only one
single year is enough for long-term consequences by
reducing both consumption and investment expenditures
in following years. As the ex-post coping strategies,
smallholders may be forced to borrow money, sell their
assets to sustain livelihood or to repay debts, pushing
them to poverty trap as shown in Figure 1.
Figure 1: Household (better-off and poorer) response to
shock
Source: Adapted from Carter et al. (2005)
Apart from this, smallholders may also migrate (in- or out)
for better employment opportunities and the migration
figure for Nepal is very aggressive. Up to 2011, out-
migration population was 1,921,494 (CBS, 2011) and in
2013-14 alone, 521,878 Nepalis (mainly youth) took up
 J. Agric. Econ. Rural Devel. 367

foreign employment, excluding India and Korea, of which
492,724 were male (Department of Foreign Employment
[DoFE], 2014). However, this figure includes both
smallholders and non-smallholders. The reasons for
migration are due to poverty, limited employment
opportunities, political instability, deteriorating agriculture
productivity, armed conflict and culture of a community
(Bhattarai, 2006). Whatsoever, migration is contributing
agriculture labor shortage for Nepal (Asian Development
Bank [ADB], 2014, p. 15) leaving land fallow, partly
cultivated by elderly, women, and children; if fully
cultivated, the return is unsatisfying due to impacts of CC,
other factors remaining constant. So, agricultural risk
management associated with the CC in Nepal has been
given a high priority (World Bank, 2009; Singh, 2011) in
order to manage these issues. In this context, AI is one of
the widely known management options (Smit and Skinner,
2002; Warner et al., 2013) for the climate and associated
risks of agriculture. AI improves farmers’ access to credit
(Vandeveer, 2001) and range of financial services for
improving livelihoods (Nepal Agriculture Research Council
[NARC], 2016). Additionally, it provides an incentive for
embracing production activities that are too risky, but
useful (Meuwissen et al., 2001) and technologies that are
capable for better quality and yield (Olubiyo et al., 2009).
Hazell (1992) observed that farmers may adopt the
improved technology, even if it is uncertain, in the
precondition that compensation will be provided in case
crop fails. Horowitz and Lichtenberg (1993) study in the US
Midwest also observed that crop insurance encouraged
corn producers to use pesticide and fertilizer significantly.
It is seen that crop insured household invest more on
improved technologies (seed, fertilizer, pesticides, etc.)
that led to higher output and revenue collection when
compared to their non-insured counterparts (Mishra, 1994;
Mukesh, 2015). This suggests that access to AI by the
farmers will encourage them to adopt technologies and
activities even if they are very risky, resulting in increased
productivity. Thus, AI can increase the productivity by
minimizing the adverse impacts of CC and other events,
and thus promoting the agriculture sector (Ghimire and
Kumar, 2014). It has potential to protect against
agricultural risks for safeguarding smallholder livelihood
and prospering the economy of a country.
Considering these issues, Beema Samiti (Insurance
Regulatory Authority of Nepal) in support of Ministry of
Agriculture Development of Government of Nepal (GoN)
promulgated “Crop and Livestock Insurance Directive
(CLID) - 2013” from January 14, 2013, which is a milestone
step in agriculture sector.
Scenario of agriculture insurance in Nepal – Past and
Present
In Nepal, the insurance history in agriculture goes back to
seven decades ago though it was implemented as a
separate policy from 2013. Before they were executed by
different government projects, cooperatives, non-
governmental organizations, financial institutions, etc. The
following table provides its brief overview.

Table 1: Past scenario of crop and livestock insurance

Particulars Insurance Schemes Remarks
under projects/
program/corporation
• Established in 1974 aiming to insure deposit and lending of bank and financial institutions
Deposit and Credit • 8% premium; 50% of the premium is subsidized by government
Guarantee Corporation • Nepali Rupees (NRs.) 4.48 million loss was compensated to farmers against the 227 cattle
owners out of total 8,166 cattle insurers total amount of NRs. 235.4 million properties
• Implemented by the Department of Livestock with technical support from Food and
Community Livestock Agriculture Organization from 2005 – 2010
Development Project • Farmers who get loan to purchase cattle compulsorily had to insure their cattle
• Established in 1993 as a successor of Small Farmer Development Project run by Agriculture
Livestock
Development Bank since mid-1970
Small Farmers’ • Formed their own livestock insurance committees and provide individual animal mortality
Development Limited coverage and loss of use of the animal to their members since 1987
• 10% premium; 50% of the premium was subsidized by government
Community Livestock • Premium was 5% for goat and 3% for large animal; government subsidized 50% of premium
Development Program value
Centre for Self-Help • Provides credit linked livestock insurance and operated by non-governmental organization
Development • No premium subsidy and no external reinsurance protection
Participatory District • Implemented in Kavre district as livestock insurance schemes since 1998 with financial
Development Program assistance of Local Development Fund Board
• Managed by local cooperatives voluntary basis

Importance, Scope and Status of Agriculture Insurance in Nepal

Thapa and Adhikari 368

Table 1 continue: Past scenario of crop and livestock insurance

Particulars Insurance Schemes Remarks
under projects/
program/corporation
• Local farmers of Chitwan and Nawalparasi districts established Agriculture Insurance
Multipurpose Cooperative in 2006 due to strong wind damaging large area of banana
Banana Pilot plantation in 2005; later scheme was supported by Department of Agriculture Development
Insurance Program since 2007
• Premium of Banana was NRs. 2 per banana plant for compensation of NRs. 15 per plant @
Crop 13.33% premium rate
• Vegetables farmers of Ramnagar VDC of Nawalparasi district supported by the government
with insurance schemes against comprehensive hail, drought, flood, landslide and wind
coverage for their vegetables and cereal crops
Vegetables Pilot • Premium of vegetable NRs. 100 per 0.033 ha for compensation of NRs. 1,500 per 0.033 ha
Insurance Program @ 15% premium rate and premium for paddy/maize NRs. 50 per 0.033 ha for compensation
of NRs. 750 per 0.033 ha @ 15% premium rate
Source: Authors’ construct adapted from Ghimire and Kumar (2014)

After implementation of CLID – 2013 as a separate policy,
various additional commodities are covered to manage the
types of risks common in Nepal (Annex 1) under
production cost basis for crops and estimated value for
livestock, poultry and fishery (Annex 2). For that, the
government has set premium rates and provided subsidy
on the premium amount (Table 2). However, this subsidy
is paid directly by government to respective private non-
life insurance company (insurer) because the only state-
owned insurance company i.e. Rastriya Beema Sansthan
does not offer any agricultural insurance products. The
value of each product is estimated based on its maturity
stage for crops and age, type of breeds, and purpose for
livestock and poultry (Annex 2).
The following table provides other detail information on
existing agriculture insurance in Nepal.

Table 2: Current scenario of agriculture insurance

Insured crop/livestock/poultry/fishery Premium rate (% of Premium Compensation (% of Total insurers available for
total value) subsidy (%) total value) agricultural commodities
Crops (Rice, Vegetables, Fruits and 5 75 Up to 90
Potato)
Livestock (Cattle, Buffalo, Yak/Naak, 5 75 90 (death), 50
Sheep, Goat, Pig) (permanent disability) 17
Poultry (Duck and Chicken) 6 (commercial) 75 Same as livestock
5 (domestic) 75
Fishery 2 75 90
Note: If insurance is done through the member organization, there is a provision to provide 15% rebate on total premiums.
Source: Authors’ construct adapted from Krishi Diary (2016)

It is inferred from the above (Table 2) that the GoN has
well covered the major commodities under insurance
scheme that includes crops (rice, vegetables, fruits and
potato), livestock (cattle, buffalo, yak/naak, sheep, goat,
pig), poultry (duck and chicken), and fishery. Further,
significant subsidy (75%) has been provisioned and
compensation of up to 90% of total value (Annex 2) is
given depending upon the case. Additionally, many
insurers (17 for now) are given authorization to sell
insurance schemes throughout Nepal, reaching every
farmer where possible. However, the premium rate differs
for the type of business insured. For instance, premium
rate is cheaper (only 2% for fishery) in comparison to
others (crops, livestock, and poultry) which is 5% but 6%
for poultry if raised for commercial purpose.
Scope of Agriculture Insurance in Nepal
More than 3.7 million households are engaged in some
sort of farming and most of them own some sort of
livestock too (Ghimire and Kumar, 2014). They also
Importance, Scope and Status of Agriculture Insurance in Nepal
reported that insurance penetration and density for Nepal
is only 1.10% and $7.90 respectively, as of 2009-10, which
is lowest in Asian countries revealing that there are ample
opportunities to sell any types of insurance. Likewise, the
data from 1975–2005, according to CBS (2017, p. 1),
revealed that mean annual temperature has increased by
0.06°C while the mean rainfall decreased by 3.7 mm (-
3.2%) per month per decade. Also, predicted mean annual
temperature could increase between 1.3°C - 3.8°C by the
2060’s and 1.8°C to 5.8°C by the 2090’s, while annual
precipitation could reduce by the range of 10 to 20%
across the country. It has been observed that the
frequency of disasters including flash floods were
increased due to change in various climatic variables
(Ministry of Population and Environment [MoPE], 2012).
These verify that the agriculture sector will be in high perils
that eventually may hamper the smallholders’ livelihood.
On this ground, a conclusion can be derived that there is a
tremendous opportunity and scope for agriculture
insurance to flourish in Nepal.

CONCLUSIONS
Agriculture is the backbone of economy of Nepal as it
contributes 31.6% to its GDP and is the main basis for
livelihood of majority smallholders who practice
subsistence farming in a traditional way. This sector is
however highly vulnerable to climate change as it is mostly
rain-fed and relies mostly on weather patterns revealing
higher climate related risks. To minimize the loss incurred
by such risks as well as other associated risks, agriculture
insurance is seen as a crucial factor for not only providing
compensation to the farmers for commodity losses but
also by encouraging them to adopt improved and useful
technologies that eventually contributes to enhance
productivity. The results showed that there is ever
increasing trend of temperatures (0.06°C annually),
decreasing mean rainfall by 3.7 mm and increasing
incidence of floods and other climate related hazards
affecting production, directly or indirectly. Additionally, the
result revealed that prediction of mean annual temperature
could increase between 1.3°C - 3.8°C by the 2060’s and
1.8°C to 5.8°C by the 2090’s while annual precipitation
could reduce by 10–20% across the country. Likewise,
insurance penetration (1.10%) and density ($7.90) being
lowest compared to other Asian countries and more than
3.7 million households engaged in farming activities
revealed that there is golden opportunity for agriculture
insurance to flourish in Nepal. Thus, the government
should continuously keep on prioritizing this policy for
many years to come in order to ensure that each of the
smallholder’s livelihood is protected from the climate and
associated risks arising due to global issue of climate
change as well as others.
ACKNOWLEDGEMENT
The authors are grateful to Ms. Chelsea Johnson for her
support in proofreading this paper.
CONFLICT OF INTEREST STATEMENT
We declare that there is no conflict of interest in relation to
this article.
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Accepted 11 March 2018
Citation: Thapa P, Adhikari A (2018). Importance, Scope
and Status of Agriculture Insurance in Nepal. Journal of
Agricultural Economics and Rural Development, 4(1): 365-
371.
Copyright: © 2018 Thapa and Adhikari. This is an open-
access article distributed under the terms of the Creative
Commons Attribution License, which permits unrestricted
use, distribution, and reproduction in any medium,
provided the original author and source are cited.
 J. Agric. Econ. Rural Devel. 371

ANNEX • When kept for breeding purpose, the maximum value is

NRs. 70,000 (Eligibility age for insurance is between 3
Annex 1: Risks covered by the crop and livestock – 7 years)
policy • When kept for transportation or ploughing purpose, the
maximum value is NRs. 40,000 (Eligibility age for
S/N Risks covered insurance is between 3 - 12 years)
Paddy, vegetables, fruits, potato, livestock and
poultry Yak/Naak
1. Fire, thunderstorm
2. Earthquake S/N Category Sum Assured (NRs.) per
3. Flood, Drought number
4. Landslides, Soil erosion 1. Child yak 12,000
5. Wind storm, hail, snow, fog, frost 2. Young yak (Koreli) 25,000
6. Emergency/Accidents (external reasons) 3. Milking yak 50,000
7. Disease, pests and insects 4. Matured yak 80,000
Fishery (including following points)
8. Loss due to ammonia, less oxygen Sheep/Goat/Pig
9. Any poisonous material
Eligibility age for insurance is after three months until ready
for selling.
Annex 2: Value based on its maturity stage, age, type • Young of sheep, goat and pig raised for meat purpose:
of breeds, purpose, etc. NRS. 8,000 (Maximum)
• When kept for reproduction, the maximum value is
Crops NRs. 10,000 for goat, sheep and pig

Total production cost incurred from planting/sowing until Duck and poultry
harvesting as calculated list (for each individual crop) S/N Category Sum Assured (NRs.)
provided by Ministry of Agriculture Development. per number
However, minimum area under which the crop is to be 1. Broiler for meat (up to 400
insured should be 2,738 sq. ft. in hills and mountains and eight weeks)
3,645 sq. ft. in Terai region. 2. Layers for egg 700
3. Hatchery for chicken 1,200
Livestock and poultry purpose
4. Duck for egg 700
Category Sum Assured 5. Duck for meat 600
(NRs.) per number
Hybrid Local Fishery
Child she cattle (up 30,000 10,000
Cattle* to one year) Pond must be 200 sq. m. with 3 feet water depth (at
Child she (heifer) 75,000 25,000 minimum) but for rainbow trout, structures depend on the
cattle (above one recommendation given by technician.
year)
Milking cattle 150,000 50,000 Source: Adapted from Krishi Diary (2016)
She-buffalo (up to 30,000 15,000
eighteen months)
Buffalo** She-buffalo (above 60,000 30,000
eighteen months)
Milking buffalo 125,000 70,000
* Eligibility age of cattle for livestock insurance: Local and
hybrid breed between 2 or after first birth to 10 years
** Eligibility aged of buffalo for livestock insurance:
Between 3 or after first birth to 12 years

Importance, Scope and Status of Agriculture Insurance in Nepal