Bangladesh: Agriculture Insurance Situation Analysis Table of contents Acknowledgements·················································································· 7 1. Introduction··························································································· 13 1.1. MOF Request to the World bank Group ······························································ 13 1.2. Scope and Objectives of the Agriculture Situation Analysis························· 14 2. Overview of agriculture production, risk exposures and impacts···································································································· 17 2.1. Importance of agriculture in Bangladesh···························································· 17 2.2. Overview of agricultural production and trends·············································· 20 Agriculture - Cereals··················································································································· 20 Livestock and Poultry·················································································································· 21 Fisheries···········································································································································22 2.3. exposure to natural disasters··················································································· 24 Natural Disaster record············································································································· 24 Climate change··························································································································· 26 2.4. Impact of disasters on agriculture (damage & costs)····································· 26 Overall Impact of natural Disasters····················································································· 26 Damage to the agricultural crop, livestock and fisheries sectors······························27 3. Government policies for agriculture and disaster management························································································ 33 3.1. Government policy and expenditure on agriculture ·····································33 3.2. Government policy for disaster management and fiscal costs of disasters····························································································································35 4. Agriculture credit landscape··························································41 4.1. Structure of credit market in Bangladesh··························································· 41 4.2. Access to rural and agriculture credit··································································· 43 BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 3 4.3. Barriers to rural and agriculture credit and potential roles for agriculture insurance·································································································· 45 5. Agriculture insurance landscape················································· 47 5.1. Insurance legal and regulatory framework ······················································· 47 5.2. Insurance market Structure····················································································· 48 5.3. History of agricultural insurance in Bangladesh·············································· 49 Formal Insurance Sector Programs····················································································· 49 Informal Insurance Sector Initiatives····················································································52 5.4. Current initiatives in agricultural insurance························································53 Formal Insurance Sector·········································································································· 54 Informal Insurance Sector········································································································ 56 5.5. Constraints to the development of agricultural insurance··························· 58 5.6. GOB Proposals to Introduce a National Insurance Policy for Bangladesh····················································································································· 59 6. Opportunities for agriculture insurance and potential role of government············································································· 61 6.1. Potential opportunities for agricultural insurance··········································· 61 Dairy cattle insurance················································································································ 61 Fisheries / aquaculture insurance························································································· 62 Crop insurance····························································································································· 63 Fully Subsidized Insurance for the poorest········································································ 63 Annexes········································································································ 67 Annex 1. Form D Assessment of Loss and damage············································· 68 Annex 2. Chronology of Major Drought Events and its impact in Bangladesh···································································································· 69 Annex 3. Crop production and Yields······································································ 70 Annex 3.1. Aman Paddy Area, Production and Yields 2002/03 to 2011/12················· 70 Annex 3.2. Aus Paddy Area, Production and Yields 2002/03 to 2011/12····················· 71 Annex 3.3. Wheat and Maize Area, Production and Yields (2002/03 to 2011/12)····72 Annex 3.4. Boro Paddy Area, Production and Yields 2002/03 to 2011/12··················73 Annex 4. Fisheries and Aquaculture Production in Bangladesh ······················74 Annex 5. Donor Expenditure on Humanitarian assistance by event 2000-2014 US$·······························································································76 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 4 Acknowledgements The technical report on “Bangladesh Agriculture Insurance Situation Analysis”  was co-led and prepared by Shah Nur Quayyum (Finance and Markets Global Practice, World Bank Group) and Daniel Clarke (Disaster Risk Financing and Insurance Program, Finance and Markets Global Practice, World Bank Group) in collaboration with the Ministry of Finance, Bangladesh and with contributions from Frances- ca Lo Re (Finance and Markets Global Practice, World Bank Group), Rachel Sberro-Kessler (Disaster Risk Financing and Insurance Program, Finance and Markets Global Practice, World Bank Group), Vijayasekar Kalavakonda (Finance and Markets Global Practice, World Bank Group ), Charles Stutley and Rim Nour (Consultants, World Bank Group). This non-lending technical assistance (NLTA) report has been pre- pared as part of an NLTA to the Bangladesh Ministry of Finance’s Bank and Financial Institutions Division (BFID) in response to its request for technical assistance in agricultural risk financing and insurance. In preparing this report, the authors acknowledge the data and information provided by BFID, Ministry of Finance, the Ministry of Fisheries and Livestock, Bangladesh Bank, the Insurance Develop- ment and Regulatory Authority and the Bangladesh Bureau of Statistics, as well as insurance companies, banks, research institutes, MFI’s and development partners. We gratefully acknowledge funding support from the Ministry of Foreign Affairs of the Nether- lands and the U.S. Agency for International Development (USAID) through the World Bank’s Agricul- tural Insurance Development Program. The Agricultural Insurance Development Program is part of the World Bank–Global Facility for Disaster Reduction and Recovery (GFDRR) Disaster Risk Financing and Insurance Program. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 7 Executive summary Agriculture is key in Bangladesh but highly exposed to risks. Agriculture is a source of employment and livelihood for nearly 1 in 2 adults in Bangladesh and contributes about 16% to GDP. Contribution to agricultural GDP comes mainly from crop production (63%) but also from fisheries (23%), as well as livestock and poultry (14%). There are about 15 million farm households in Bangladesh and a further 13 million landless households who work as sharecroppers or farm labourers and the most important staple food crop grown is paddy (rice). While Bangladesh has made major progress post-independence in agriculture, it still faces major challenges of maintaining food security due to its high population growth rate and major exposure to natural disasters and climate change. Bangladesh is one of the world’s most exposed countries to natural disasters, including floods, cyclones, and drought which have large impact in agriculture. For instance, Cyclone Sidr of 2007, destroyed 0.69 million hectares of cultivated crop lands and killed over 460,000 head of livestock and poultry. The Government provides significant support to agriculture, but currently provides limited support to the development of agriculture insurance. This year’s budget for the Ministry of Ag- riculture is about USD 1.5 billion, and most of the resources are focused on subsidies for agricultural inputs such as fertilizer, seeds, and irrigation. While the Government and external donors spend large amounts of money in the aftermath of disasters – average annual costs of disasters are US$300 million - the funding gap is still high and can reach more than USD 1.5 billion in bad years. Tropical Cyclones and floods are the major cause of donor post-disaster expenditures, accounting for 40% and 38% of donor expenditure. In spite of Government’s efforts, credit to agriculture is still constrained and represents 3% of total lending. While financial inclusion in Bangladesh is high compared to peers in South Asia and Low Income Countries, 60% of adults are still financially excluded1, most of them in rural areas and involved in agriculture. International experience shows that insurance could potentially help unlock access to agriculture credit. Agriculture insurance provision in Bangladesh is very low: •• Several MFIs are offering micro-insurance products linked to credit including livestock-cred- it insurance, but in the absence of reinsurance agreements, these programs might not be able to cope with shocks that kill large numbers of animals. Some milk cooperatives and social enterprises, have indicated strong interest in developing livestock insurance products for their milk producers. •• The Ministry of Livestock and Fisheries and Department of Fisheries have identified a need to develop suitable aquaculture insurance products. Initial work is being focused on the shrimp sector given its importance to farmers located in the southern coastal regions of Bangladesh and the high risk exposure to tropical cyclone damage and tidal surge. 1 Source: Global Findex 2012 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 9 •• Crop insurance is not currently offered but two donor-supported initiatives are under im- plementation. On the supply side, there is a lack of knowledge and experience of the potential of agricultural services by the insurance companies and thus a lack of technical expertise in the design, rating and implementation of agricultural crop, livestock and fisheries insurance products. Several decades ago the public insurer Sadharan Bima Corporation piloted small crop, livestock and aquacul- ture insurance programs, but these programs were terminated following poor underwriting results. Currently, there are two weather based crop index insurance initiatives under implementation: one is led by the government-owned insurance company Sadharan Bima Corporation, SBC, and supported by the Asian Development Bank, ADB, and the other is led by private-sector company Green Delta and supported by the World Bank Group. •• An innovative flood index insurance program has been piloted by Oxfam, an international NGO, for the past two years in selected villages in Sirajganj District. This fully subsidized index insurance program made claim payments to over 700 households in 2014 following severe floods in August and September 2014. If agriculture insurance programs were to be developed in Bangladesh, the overall legal, regulatory and supervisory insurance environment would require strengthening. Created four years ago with only 45 staff and low actuarial expertise, the Insurance Development and Regulatory Authority of Bangladesh (IDRA) faces capacity constraints to supervise the 77 insurance companies of Bangladesh. Potential WBG support to strengthen the capacity of IDRA and government-owned insurance companies is currently being explored. Based on this preliminary assessment and discussions with key stakeholders, the WBG will prepare a technical report and policy briefing for BFID on four potential types of agricultural insurance programs which have been identified through this situational analysis as priority solutions for further investigation. The four priority areas identified for further investigation are: (1) Livestock insurance for commercial dairy farmers and poultry farmers; (2) Insurance cover for shrimp producers and artisanal fishermen; (3) Crop insurance linked to credit for small and marginal cereal farmers; and (4) Fully subsidized flood-index insurance for the most vulnerable rural households. The diagnostic reports will also analyze potential institutional frameworks that could be considered for ag- ricultural insurance in Bangladesh, paying specific attention to the potential roles for the Government and insurers. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 10 1. Introduction 1.1. MOF Request to the World bank Group In November 2014, the WBG received a letter of request from the Secretary, Bank and Financial Institutions Division (BFID),Ministry of Finance for a diagnostic study to investigate the potential for agricultural insurance to: (1) Reduce the ex-post fiscal burden on the government; (2) Improve farmer’s resilience to shocks; and (3) Support the expansion of agricultural credit. The World Bank Finance and Markets Global Practice is responding to this request by conducting an agricultural insurance diagnostic study led by a team of Bangladesh-based financial sector experts and international agricultural insurance experts, a  nd primarily financed by the Disaster Risk Financing and Insurance Program (DRFIP), a partnership between the World Bank Group and the Global Fund for Disaster Risk Reduction (GFDRR). The mission of the DRFIP is to support financial strat- egies to minimize the cost and optimize the timing of meeting post disaster funding needs without compromising sustainable development, fiscal stability, or wellbeing. The diagnostic team has completed the second of three missions, and on this basis expects to deliver the diagnostic report in May or June 2015 (See Box 1.1). This diagnostic report, or “ Agriculture Insurance Solutions Appraisal” will suggest three to four agricultural insurance options for BFID to consider, and will include fiscal costing and economic impact analysis of each option. This report will build on the comprehensive review of opportunities and challenges for the development of agriculture insurance in Bangladesh conducted by the WBG in 2010. Box 1.1. The 6-month diagnostic phase will lead to the presentation of the Agricultural Insurance Solutions Appraisal to BFID Diagnostic: Agricultural Insurance Solutions Appraisal (AISA) Mission 1 Mission 2 Mission 3 Nov 2014 Jan/Feb 2015 May. Jun 2015 * Data collection • Data collection in order to AISA*: Technical Report * Discussions with Key finalize Situational Analysis AISA*: Policy Note Stakeholders Report • Present potential options to * Present AISA to BFID GoB and identify directions for and seek guidance on in-depth analysis. next steps. * Organize workshop Indentify potential options for with key yakeholders agricultural insurance * AISA: Agricultural Insurance Solutions Appraisal BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 13 This diagnostic phase of work could potentially be followed by preparation and implementa- tion phases of work (See Box 1.2). DRFIP engagement on agriculture insurance are typically structured in three Box 1.2.  phases Phase 1: Diagnostic Phase 2: Preparation Phase 3: Implementation Policy decision to Policy decision to prioritize implement agricultural agricultural insurance? insurance? Refine Implement Stakeholder strategy & Preparation of Yes business workshop to business Agriculture Insurance agricultural plan present plan solutions Appraisal insurance business strategy plan Yes No Ongoing M&E Stakeholder workshop No Suspend TA Suspend TA 1.2. Scope and Objectives of the Agriculture Situation Analysis Before the identification of agriculture insurance solutions, this situation analysis aims at pro- viding an up-to-date overview of the potential for agriculture insurance in Bangladesh. Indeed, this report analyses the impact of agriculture shocks for a variety of stakeholders (see the range of stakeholders in Box 1.3), discusses current opportunities and challenges for agriculture insurance, iden- tifies past and existing initiatives, and describes the broader context of existing programs undertaken by the Government for agriculture development and for disasters. In particular, this analysis focuses on the (1) agricultural production and risk exposures in Bangladesh, (2) Government policies for Agricul- ture and Disaster Management, (3) Agriculture credit landscape, (4) Agricultural Insurance landscape, and (5) Opportunities for agricultural insurance and potential role for Government. Box 1.3. Agriculture shocks generate negative impact for a variety of stakeholders Agriculture shocks Goverment Farmers Most vulnerable Financial populations institutions Contingent Ex-post: Food insecurity Ex-post: liabilities arising Reduced income Non-performing from agriculture Ex-ante: agriculture loans shocks (post Reduced incentives Ex-ante: disaster to invest in seeds Constraints to assistance) and fertilizers expansion of Reduced access to agriculture credit credit to farmers Source: World Bank Group BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 14 2. Overview of agriculture production, risk exposures and impacts 2.1. Importance of agriculture in Bangladesh Bangladesh is a low income country with one of the highest population densities in the world. With land area of 130,170 km² and a 2014 population of 158.5 million, the population density reach- es1,218 persons per km2.2 Bangladesh is classified as a low-income country with GDP of US$ 150 billion and GDP per capita of US$ 958 in 2013.Over the past five years, GDP grew at an average of 4.92% per annum. The poverty head count was 31.5% of population in 20103. The share of agriculture in the overall economy has decreased over the past 20 years, but it continues to be the major source of employment and livelihood for nearly 1 in 2 adults in Ban- gladesh. Agriculture’s contribution to the economy has declined from about 27% of GDP in 1995 to 16.3% of GDP in 2013. In 2013, the rural population was 105.3 million or 67.3% of the total population4. In 1995, a total of 34.5 million adults (over 15 years age) were employed in agriculture or 64% of the total labour force, but this had declined to 25.7 million persons in 2010 or 48% of the labour force. Over this period there has been a corresponding growth in manufacturing, transport and other sectors (BBS 2013). There are about 15 million5 farm households in Bangladesh, most of them with very small farms, and a further 13 million landless households who work as sharecroppers or farm labour- ers.. According to BBS sample survey statistics in 2005 there were a total of 28.2 million rural holdings of which 15.1 million (54% of total) were classified as farm holdings owning more than 0.04 acres and a further 13.1 million holdings (46% of total) classified as non-farm holdings with no land or a maximum of 0.04 acres. The average farm size is small with an average of 1.2 acres (0.51 Ha) per farm household (HH). A very high proportion or 88% of farmers are classified as small, owning less than 2.5 acres (1 Ha); 2 WorldData Bank. http://databank.worldbank.org/ 3 WorldDataBank 4 WorldData Bank 5 BBS 2011, based on 2005 Agricultural Sample Survey Data BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 17 10% of farms are medium owning between 2.5 and 7.5 acres (1 Ha to 3 Ha) and very few or less than 1% of farmers own more than 7.5 acres (BBS 2011) (Table 2.1). Table 2.1. Farm size distribution in Bangladesh (2005) Type of Holding Land holding (Acres) Number Holdings % HHs All Rural Households 28,165,700 100% Non-Farm Holdings No land or < 0.04 Acres 13,076,613 46% Farm Holdings > 0.05 acres 15,089,087 54% Small Farms 0.5 < 2.5 acres 13,361,350 88% Medium Farms 2.5 < 7.5 acres 1,560,774 10% Large Farms >7.5 acres 176,962 1% Total Farm Holdings 15,099,086 100% Source: BBS 2011 Bangladesh experiences a monsoon climate with marked summer season rainfall from May to October, followed by a dry winter season from November to March and crops can be grown in three seasons if irrigation is available. The seasons include: (i) the monsoon Kharif or Aman season from July to October when rain-fed Aman paddy is grown, the winter Rabi or Boro season when a wide range of crops including Boro paddy are grown under irrigation between November and February and then a much shorter pre-Kharif or Aus season from April to July when Aus paddy is grown on a much smaller scale in regions which have residual irrigation at transplanting and which also receive early season rains in April/May (Figure 2.1). Figure 2.1. Bangladesh: Rainfall Distribution and Cropping Seasons 350 300 250 Wheat Rainfall (mm) 200 Vegetables T. Aus Fine rice 150 Mustard 100 T. Aman Bono 50 0 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Source: ADPC & FAO 2007 Paddy (rice) is the most important staple food crop grown in Bangladesh grown by nearly all farmers. Paddy is grown in all three cropping seasons: the summer monsoon or Aman crop is the largest crop which currently accounts for about 13.6 million acres (72 percent of net cultivated area); the winter or Boro season rice crop, which is grown under irrigation accounts for 10.8 million acres (57% of net cultivated area); and finally Aus rice, which is grown on a much smaller scale in about 2.6 million acres (14% of net cultivated area). In the Kharif monsoon season maize and jute are also grown, while in the rabi season irrigated wheat is the second most important crop after Boro rice with an average cultivated area of about 0.94 million acres or about 5% of net cultivated area. Other irrigated Boro crops include potatoes, pulses, barley and horticultural and vegetable crops. About 13.1 million acres or 5.3 million6 hectares are equipped for irrigation equivalent to about 69% of net cultivated area. Livestock including dairy cattle, buffalo, goats and poultry play a very important role in Bangla- deshi mixed-farming systems as a source of employment, assets, cash income, and improved 6 FAOSTAT Economic Indicators for Bangladesh: 2012 irrigated area. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 18 nutrition, particularly for landless households and female farmers. Overall the livestock and poultry sectors contribute about 1.8% of GDP and 14.1% of Agricultural GDP and it is the third largest export earner, mainly in the form of hides (DLS 2013-14 estimates). The fisheries sector also plays a very important role in the economy of Bangladesh contributing 4.4% of GDP and 22.8% of agricultural GDP. Fish provide about 60% of all protein consumed in Ban- gladesh and about 10% of the population (15 million people) depend directly or indirectly on fisheries for their livelihoods (DOF 2014). Bangladesh is among the top ten exporters of shrimps and this is the second largest foreign currency earner after the garment industry with 2009/10 exports valued at US$ 412 million (Worldfish 2010). Agricultural output continues to be dominated by paddy rice production, but non-traditional cash crops such as potato and maize production for poultry and animal feed, milk production and sales (goats and cattle), sales of animal meat and vegetables are now appearing in the list of the top ten commodities produced in Bangladesh. Figure 2.2. shows that in 2012 paddy produc- tion accounted for 69% of total output and 63% of the value of the top ten commodities produced in Bangladesh. This was followed by potatoes (11% of output and 10% of value of production). Figure 2.2. Bangladesh: Top Ten Agricultural Commodities produced in 2012 60,000,000 80% 69% 70% 50,000,000 60% Production (tonnes) 40,000,000 50% 30,000,000 40% 30% 20,000,000 20% 10,000,000 11% 10% 6% 4% 2% 2% 2% 2% 1% 1% – 0% Rice, paddy Potatoes Sugar cane Milk, whole Jute Vegetables, Maize Onions, dry Fruit, tropical wheat fresh goat fresh nes fresh nes Production (t) % Production 10,000,000 70% 63% 9,000,000 60% 8,000,000 Value Production US$ 000 7,000,000 50% 6,000,000 40% 5,000,000 30% 4,000,000 3,000,000 20% 2,000,000 10% 10% 1,000,000 6% 4% 4% 3% 3% 3% 2% 2% 0 0% Rice, paddy Potatoes Milk, whole Mangoes, Meat Meat Jute Fruit, Milk, whole Vegetables, fresh goat guavas indigenous, indigenous, tropical fresh cow fresh nes cattle goat fresh nes Value 000$ % Value Source: FAOSTAT BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 19 Overview of agricultural production and trends 2.2. Agriculture - Cereals Since independence in 1971, Bangladesh has successfully managed to move from chronic food shortages to self-sufficiency and to triple its rice production from 10 million Metric Tons (MT) to about 34 million MT in 2012. It is the world’s sixth largest producer of rice. This has been achieved mainly by productivity gains through irrigation, the adoption of High Yielding Varieties (HYV) of rice and increased fertilizer use. Today, 8.44 million ha of irrigated crops are cultivated annually, which is over 7 times more than in 1990; HYVs have been adopted in 75% of the total rice cropped area (Bishwajit et al 2013) and fertilizer consumption has increased dramatically due to fertilizer subsidies from 0.36 Kg/Ha in 1995 to 298 Kg/Ha in 2007 (Bangladesh Economic Update 2014). Over the past decade the cultivated area of HYV paddy has increased significantly while there has been a corresponding reduction in the area of local varieties. In 2002-03, 65% of the total paddy area of 26.6 million acres was devoted to HYV varieties, but by 2011-12 HYV’s accounted for 88% of total planted paddy area of 26.9 million acres. Over this period the cultivated area of Aman local paddy has shown the greatest decline (Figure 2.3). Figure2.3. Cultivated area of local and HYV paddy varieties by season (Acres) 12000 10000 Cultivated Area (Acres) 8000 6000 4000 2000 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Aman (Local varieties) Boro (Local Varieties) Aus (HYV varieties) Aus (Local varieties) Aman (HYV Varieties) Boro (HYV Varieties) Source: BBS 2014 Average yields of paddy grown in Bangladesh are comparable with other rice producing coun- tries in the region7 and according to BBS 10 year data 2002-03 to 2011-12, range from about 0.5 to 0.75 MT/Acre (1.25 to 1.85 MT/Ha) for local varieties and between about 1.0 to 1.5 MT/Acre (2.5 to 3.75 MT/Ha) for HYV varieties. The highest average yields are achieved in irrigated Boro HYV paddy. Over the past decade average yields of local varieties have hardly changed, but average yields of HYV Boro paddy have increased by about 18% over this period (Figure 2.4 ). 7 According to FAOSTAT data, Bangladesh rice (paddy) yields are however higher than most South Asian Countries. Rice yield in Bangladesh in 2013 is 4,375 kg/ha, compared to 3,659 kg/ha in India, 3,885 kg/ha in Philippines, 3,134 kg/ha in Thailand, and 5,572 kg/ha in Vietnam. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 20 Figure 2.4 . Average Yields in local and HYV varieties of Paddy (MT/Acre) 1.80 1.60 1.40 Cultivated Area (Acres) 1.20 1.00 0.80 0.60 0.40 0.20 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Aman (Local varieties) Boro (Local Varieties) Aus (HYV varieties) Aus (Local varieties) Aman (HYV Varieties) Boro (HYV Varieties) Source: BBS 2014 Other cereals include wheat and maize - this latter crop is increasingly cultivated for poultry feed. The cultivated area of wheat has remained unchanged at about 0.9 million acres over the past decade. Maize which was hardly cultivated 10 years ago has increased to nearly 0.5 million acres in 2011-12. (See Annex 3 for further analysis of paddy, wheat and maize yields). While Bangladesh has made major progress post-independence in agriculture, it still faces ma- jor challenges of maintaining food security into the future due to its high population growth rate and major exposure to natural disasters and climate change. Bangladesh’s population is growing at about 1.8 million people per year requiring an additional 300,000 MT of rice a year (Bishwajit et al 2013). Issues relating to natural disasters and climate change and their projected impacts on crop production and yields are addressed further below. Livestock and Poultry A high proportion of the rural population is involved in small-scale livestock and poultry pro- duction both for on-farm consumption and for sale of meat and hides, milk and eggs. According to the 2009 national livestock and poultry survey, 10.4 million HHs (36% of the 28.7 million total rural HHs) own cattle with a total of 26.8 million head of cattle and implied average of 2.6 cattle per HH owning cattle and on average 1.5 cows per HH (BBS 2010). The study estimated that only 4.06% of the cattle herd was comprised of improved/crossbreed cattle. Goats are owned by 6.4 million HHs (22% of total rural HHs), with a total of 16.248 million goats and implied average of 2.5 goats per HH followed by much smaller numbers of buffalo, sheep and swine. Chicken are owned by 15.5 million HHs (54% of rural HHs) with 2009 estimated national flock size of 112.4 million birds9 (average of 7.2 chicken per HH). Ducks are owned by nearly 30% of rural households (BBs 2010). A large proportion of the rural population are involved in small-scale livestock and poultry production both for on-farm consumption and for sale of meat and hides, milk and eggs. Over the past decade there have been significant increases in goat and poultry production and ownership while the number of cattle has remained constant. Figure2.5 presents Department of Livestock, DLS, statistics for national livestock numbers. Over the past ten years the number of goats has increased from 19.2 million to 25.4 million animals or an average increase of 1.9% per year, while the cattle herd has only increased by about 0.2% per year to about 23 million head of cattle in 2013-14. 8 It is noted, however that the BBS estimate of 16.24 million goats is much lower than the 2008-09 DLS-MOFL estimate of 22.40 million head of goats and reported in BBS 2013 and also much lower than the DLS latest figure for 2013-14 of 25.4 million head of goats as reported in Figure 2.5. 9 This compares with DLS_MOFL’s estimate of 228.0 million chicken in 2008-09 (BBS 2013). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 21 Poultry production and ownership has increased significantly from 184 million birds in 2004-04 to 255 million birds in 2013-14 or an annual average increase of 2.1% (Figure2.6). Figure 2.5. Bangladesh National Livestock Trends past 10 years (Million Animals) 30 25 No. Animals (Million) 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Cattle Buffalo Sheep Goat Source: DLS 2015 Figure 2.6. Bangladesh National Poultry Trends past 10 years (Million Birds) 300 250 200 No. of Birds (Million) 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Chicken Duck Source: DLS 2015 The major challenges for the development of the livestock sector in Bangladesh include lack of feed, incidence of disease and poor genetic stock. The Department of Livestock Services, DLS- MOLF is actively working to address these issues. Fisheries The fisheries sector is very diversified including a marine fishing industry which is dominated by about 60,000 small-scale artisanal inshore fishermen; inland river fisheries (capture) and then a very large aquaculture or fish farming sector including both fresh water pond production of fin fish (carp, tilapia, cat fish and other species) and coastal shrimp and prawn farming. More than 4.25 million HHs are involved in homestead fish pond production. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 22 Over the past decade the fisheries sector has experienced growth rates in production of be- tween 4.8% and 7.3% per year and in 2012-13 the country produced 3.41 million tonnes of fish (DOF 2014) (Figure 2.7). Figure 2.7. Contribution of Inland and Marine Fisheries to Total Fish Production (Metric Tonnes) 4,000,000 3,500,000 3,000,000 Metric Tonnes (MT) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 A. INLAND FISHERIES B. MARINE FISHERIES TOTAL BANGLADESH (A + B) Source: DOF 2014 In 2012-13 the Inland aquaculture or fish farming sector accounted for 1.86 million MT of fish production or 55% of total fish production in Bangladesh. Fish farming has grown rapidly over the past 10 years from 0.91 million MT (44% of total annual fish production) in 2003-04 to 1.86 million MT (55% of total) in 2012-13. The bulk of the farmed fish is fin-fish accounting for 1.65 Million MT or 89% of 2012-13 aquaculture production, while shrimp and prawn production accounted for 0.20 million MT or 11% of farmed fish production (See Annex 4 for further details). Black tiger shrimps (penaeus monodon) known as Bagda in Bangladesh have been cultivated in since the early 1970’s and currently (2012-13 statistics) there are about 300,000 shrimp pro- ducers farming an area of about 210,000 Ha. Salt water shrimp farming is concentrated in the south western coastal regions of Bagerhat, Khulna and Satkhira. Most shrimp are produced in former low lying rice fields (termed Gher) using low cost “extensive” cultivation systems where the shrimps depend on naturally produced organisms for their nutrition and annual yields are low and in the order of 160 to 230 Kg/ha. Some shrimp farmers adopt improved extensive or semi-intensive production systems using certified shrimp larvae which are fed on supplementary feeds and annual yields are between 350 to 500 Kg/Ha. There are currently only a handful of intensive commercial shrimp farmers who adopt aeration and drainage of water between cycles and adjustments to water quality and who achieve av- erage yields as high as 2,000 Kg/Ha. Most of the commercial shrimp hatcheries supplying the industry with larvae are located around Cox’s Bazar in the south eastern Bangladesh. Annual shrimp production is currently about 69,000 MT per year (DOF 2014). In addition, giant freshwater prawns (Macro brachium rosenbergii) known as Golda are farmed in about 65,000 Ha with 2012-13 production of about 44,000 MT (DoF 2014). Frozen shrimps and prawns are very important export commodities accounting for 50,333 MT or 81% of the value of all fish exports in 2012-13 (DOF 2014). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 23 exposure to natural disasters 2.3. Natural Disaster record Bangladesh is one of the World’s most exposed countries to natural disasters, including floods, cyclones, droughts, and earthquakes. According to data collected by the Centre for Research on the Epidemiology of Disasters (CRED), over the past fifty years Bangladesh has experienced 145 storm events causing 525,393 deaths (mainly due to storm surge) and affecting 77.6 million people, followed by flooding with 83 recorded events affecting over 319 million people and with 42,270 reported deaths (Figure 2.8). Figure 2.8. Bangladesh: Reported Natural Disasters and Impacts, 1965 to 2014 Number of Occurences (1965-2014) Average Number of Occurences per Year (1965-2014) Landslide 3 Landslide 0.06 Earthquake 7 Earthquake 0.14 Extreme Temp 22 Extreme Temp 0.44 Expidemic 29 Expidemic 0.58 Drought 5 Drought 0.1 Flood 83 Flood 1.66 Storm 145 Storm 2.9 0 20 40 60 80 100 120 140 160 0 0.5 1 1.5 2 2.5 3 3.5 Number of Deaths (1965-2014) Average Number of Deaths per Event (1965-2014) Landslide 96 Landslide 32 Earthquake 36 Earthquake 5 Extreme Temp 2,440 Extreme Temp 111 Expidemic 10,188 Expidemic 351 Drought 18 Drought 4 Flood 42,270 Flood 509 Storm 525,393 Storm 3,623 0 100,000 200,000 300,000 400,000 500,000 600,000 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Total Number Affected (1965-2014) Average No. People Affected per Event (1965-2014) Landslide 55,280 Landslide 18,427 Earthquake 19,125 Earthquake 2,732 Extreme Temp 414,200 Extreme Temp 18,827 Expidemic 3,042,429 Expidemic 104,911 Drought 25,002,000 Drought 5,000,400 Flood 319,431,163 Flood 3,848,568 Storm 77,611,565 Storm 535,252 0 00 00 00 00 0 000 000 000 000 000 000 0,0 0,0 0,0 0,0 00, 00, 00, 00, 00, 00, ,00 ,00 ,00 ,00 1,0 2,0 3,0 4,0 5,0 6,0 100 200 300 400 Source: EMDat http://www.emdat.be/ Bangladesh faces a very severe flood exposure. Eighty percent of the country consists of low-lying flood plains bisected by three major rivers: the Ganges, the Brahmaputra, and the Megna. Flooding is a recurrent event and up to 30 percent of the country is subject to annual flooding during the summer monsoon season, which is generally beneficial to agriculture (See map in Figure 2.9). Major flood events can, however, affect more than 60 percent of the country and cause extreme damage to infrastructure, loss of life, and loss of crops and livestock and fisheries. Recent major floods occurred in 1988, 1998, 2004, and 2007. The 2007 floods directly affected 46 Districts and over 14 million people, BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 24 caused 970 human deaths, affected 2.2 million acres (0.89 million hectares) of agricultural land, and caused 1,459 livestock deaths and damage to over 1 million houses and to nearly 31,000 km of roads (Disaster Management Bureau, DMB, 2008). Figure 2.9. Flood Map of Bangladesh Source: Banglapedia: National Encyclopedia of Bangladesh Bangladesh is very exposed to tropical cyclones that originate in the Bay of Bengal and that are usual- ly associated with storm surge which can lead to major casualties in the coastal regions as evidenced by the death toll of 300,000 persons in a 1970 cyclone. Over the past 50 years, cyclones have been the major cause of loss of life accounting for 525,393 deaths or 91% of all reported deaths (Figure 2.8). Cyclones also cause major damage to agriculture, and under Cyclone Sidr of 2007, a total of 0.69 million hectares of land were partially or totally destroyed and over 460,000 head of livestock and poultry were killed (DMB 2008). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 25 Bangladesh is also vulnerable to recurrent droughts, and between 1949 and 1991 droughts occurred in Bangladesh 24 times with 11 very severe drought years,  with a worst drought year in 1979 when 42 percent of the area of the country was affected (DMB 2008) According to another source, between 1960 and 1991, droughts occurred in Bangladesh 19 times: very severe droughts hit the country in 1951, 1961, 1975, 1979, 1981, 1982, 1984, 1989, 1994, 1995 and 2000 and droughts have typically affected about 47 percent of the country and 53 percent of the population (ADPC & FAO 2007)10. Reference to Figure 2.8 shows that on average slightly over 5 million people have been affected by each reported drought event over the past 50 years. The western regions of Bangladesh are most susceptible to drought. In addition, there is an appreciable hail exposure to agriculture in much of the country, especial- ly at the time of harvest of winter season (Boro) crops. Other perils include excess temperatures, low temperatures, and crop and animal pests and diseases (World Bank 2010). Shrimp (& prawn) production in Bangladesh is highly exposed to tropical cyclone and associat- ed storm surge, flooding and diseases including since 1993 White Spot Disease caused by White Spot Syndrome Virus (WSSV). WSSV can cause up to 100% mortality in shrimps. Climate change Climate change is identified as a critical factor, which will impact negatively on agricultural crop production and yields in Bangladesh over the next 40 years. In 2009, the World Bank conducted a study into the effects of climate change on the production of aus, aman, and boro paddy crops in Bangla- desh.11 Over the period to 2050, average CO2 levels, temperatures and precipitation will increase in the monsoon season, and this will have positive effects on Aus and Aman paddy yields. However, increased precipitation will result in an increased exposure to catastrophic flood events and the overall impact will be to reduce Aus and Aman paddy cultivated area and rice production. The biggest negative impacts of climatic change will be on the production and yields of boro paddy. Sea level rises will also result in lost crop production particularly in southern Bangladesh. The study estimated that overall agricultural GDP would be 3.01 percent lower each year as a result of climate change (US$8 billion in lost value-added). Sea level rises could have devastating consequences to crop production and fisheries (fish and shrimp production) in coastal regions of Bangladesh. Several recent studies have predicted that sea-level rises of close to 1 meter or more could occur by the turn of the century as a result of, for instance, faster melting of the Greenland ice sheets. A one-meter rise in sea level could, for instance, flood 17% of Bangladesh’s land area and affect at least 15 million people, causing the total loss of the sundarbans or coastal mangroves resulting in river bank erosion, salinity intrusion, flood, damage to infrastructure, crop failure, destruction of fisheries, loss of biodiversity and loss of livelihoods for the affected farmers, fisher- men and salt producers (Mahmood 2011; Hossain & Hossain (undated), Uzzaman undated; IFPRI 2013). 2.4. Impact of disasters on agriculture (damage & costs) Overall Impact of natural Disasters The costs of natural disasters are very high in Bangladesh. Over the past 15 years the annual average total damage to property and infrastructure, agriculture and other productive sectors due to floods, cyclones, storms, earthquakes and other natural perils has been valued at US$ 736 million per year (Air Worldwide and ADPC 2014). Over this period, damage has exceeded US$ 1 billion in four years: in 2001 due to floods, in 2004 due to floods with losses valued at US$ 2.3 billion, in 2007 when the damages from Cyclone Sidr were estimated at US$ 2.7 billion and in 2009 when damages associated with Cyclone Aila amounted to US$ 1.2 billion(Figure 2.10). Between 2000 and 2013 more than 90% of the total value of damage has been caused by floods and cyclones (Air Worldwide and ADPC 2014). 10 The CRED EM-data in Figure 2.7 under-report the true extent of droughts in Bangladesh. 11 World Bank 2009a, Implications of Climate Change Risks on Food Security in Bangladesh, (draft final), South Asia Region, Sustainable Development Department, ARD, 10 June 2009. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 26 Figure 2.10. Natural Disasters in Bangladesh 2000 to 2014: Value of Damages (US$ Million) 3,000 Total Damage (US$ Million) 2,500 2,000 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Air Worldwide and ADPC 2014 Damage to the agricultural crop, livestock and fisheries sectors Crop losses A comprehensive study for paddy and wheat, the two most important crops grown in Ban- gladesh over the 39 year period (1969/70 to 2007/08) estimated that on average almost US$ 375 million or 6.4% of the total value of these crops is lost each year due to a combination of natural disasters including flood, cyclones and droughts. In 2010 the World Bank conducted an analysis of variance in national crop production and yields for paddy (six crops according to variety and season) and wheat for 39 years of crop production data. The study calculated that in a normal or average year the losses in paddy and wheat production and yields due to natural perils are equivalent to 6.4 percent of the value of national production of these crops, or BDT 25.5 billion (US$375 million). In 1988/89 which was the worst loss year in this 39 year time-series, losses due to flooding were as high as 15.5 percent of the value of national paddy and wheat crop production or BDT 62 billion (US$910 million). The study noted that in recent years there had been a slight but statistically insignificant trend for reduced crop losses and which may be related to the major investments made by GoB in improved flood control and drainage and crop irrigation infrastructure (Figure 2.11). Finally, the study estimated that the 1 in a 100 year Probable Maximum Loss, PML, for rice and wheat grown in Bangladesh might be as high as 24% of the value of the national crop, equivalent to a financial loss of BDT 94 billion ( US$ 1.4 billion) (World Bank 2010). Figure 2.11. Bangladesh : Estimates of Annual Value of Crop Losses in Paddy and Wheat (as percentage of Value at Risk) 18.00% Crop Losses (Percentage of VAR) Flood or cyclone year Drought year 16.00% y = -0.0006x + 0.079 14.00% R2 = 0.0193 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 19 /70 19 /71 19 /72 19 /73 19 /74 19 /75 19 /76 19 /77 19 /78 19 /79 19 /80 19 /81 19 /82 19 /83 19 /84 19 /85 19 /86 19 /87 19 /88 19 /89 19 /90 19 /91 19 /92 19 /93 19 /94 19 /95 19 /96 19 /97 19 /98 19 /99 20 /00 20 /01 20 /02 20 /03 20 /04 20 /05 20 /06 20 /07 /08 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 19 Crop Year Source: World Bank 2010 Bangladesh experienced very severe crop losses during the 2007 Floods (See Figure 2.12). Floods occurred in 2 waves from 26 July- 7August and 5 to 15 Sept resulting in major flooding Brahma- putra, Meghna and Jamuna river basin areas . In total, 46 districts were affected with about 16 million people or nearly 3 million HHs affected with 649 deaths. The total value of losses in the agricultural crop, livestock fisheries and forestry sectors was valued at BDT 72.5 billion or about US$ 1.1 billion. In the food and agriculture sector a total of about 1.12 million ha of cropland were either partially or fully BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 27 damaged in this flood with severe losses in Aus paddy harvest and Aman planted paddy jute and veg- etables with losses valued at BDT 42.2 billion or 93.1% of total agricultural sector losses. For the forestry sector estimated damage and losses was Taka 37.80 million (0.1% of total) which included damage of trees, nursery and infrastructures. Additional damages were incurred to irrigation equipment (pumps, wells, canals etc). Figure 2.12. 2007 Flood Losses and Damage to Agricultural Sector (BDT 72.5 Billion; US$ 1.1 billion) 0.1% 1.1% 4.3% 93.1% 1.3% Agriculture (crops) Livestock Fisheries Deep & Shallow Seeds & Irrigation Tubewells Source: DMD/MOFDM 2007 In November 2007, Cyclone Sidr caused major damage to infrastructure (housing and property) and production losses in the agricultural sub-sector. Sidr was a Super Cyclone that at landfall on 15 November 2007 was a category 4 storm, with a diameter of nearly 1000 km and sustained winds of up to 240 km per hour and a storm surge between 3.5 to 6.0 metres at different locations. Cyclone Sidr claimed 3,406 lives and 1,001 people were reported missing (GOB 2008). The Joint Damage, Loss and Needs Assessment (JDNLA) preliminary estimate of the damages and losses from Cyclone Sidr amount- ed to BDT 115.6 billion (US$ 1.67 billion)12. The major damage and losses valued at BDT 73.2 billion (US$ 1.06 billion) or 65% of total values were incurred by the infrastructure sector including housing, transport, electricity and water, followed by the agricultural sub-sector with total damage and losses valued at BDT 30.2 billion (US$ 438 million) or 26% of total values (see Figure 2.13 a and b) (GOB 2008). Figure 2.13. Cyclone Sidr Value of Damage and Losses by Sector 80000 3% 0% 70000 60000 26% 50000 40000 30000 65% 20000 5% 10000 0 ture ctor s or) ors tal struc al Se sect Sect men Infra Soci re ( sub- u c tive E nv iron Infrastructure Social Sectors d cultu r Pro Agri Othe Environmental Other Productive Sectors Damage Losses Agriculture (sub-sector) Source: GOB 2008 12 It is noted that these preliminary estimates of damage and losses from Cyclone Sidr were subsequently revised upwards by US$ 1 billion to US$ 2.7 billion. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 28 The crop-sub sector was severely affected by Cyclone Sidr: 2.2 million families were affected with losses valued at BDT 30.2 million (US$ 438 million) or 94% of the total value of damage and losses in the agricultural sector (Figure 2.14). Figure 2.14. Cyclone Sidr: Damage and Losses in the Crop, Livestock and Fisheries Sub-Sectors (Percent of Total Values BDT 30.2 billion) 26% 2% Crop Livestock Fisheries 94% Source: GOB 2008 Livestock losses Severe losses are also incurred in livestock during major cyclone and or flood events. According to BBS reported data between 1986 and 2007 a total of 1.1 million head of livestock (cattle, water buf- falo, sheep, goats and poultry) were killed by floods while a much higher figure of 3.2 million animals were killed by cyclones and associated storm surge. The largest single loss of livestock was reported under Cyclone Sidr in 2007 with 1.78 million dead animals (Figure 2.15). Figure 2.15. Livestock losses due to Flood and Cyclones (No. of Heads) 2000000 1800000 1600000 Number of Livestock Deaths 1400000 1200000 1000000 800000 600000 400000 200000 0 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 198 198 198 198 199 199 199 199 199 199 199 199 199 199 200 200 200 200 200 200 200 200 Year Cyclone Flood Source BBS For livestock the value of losses includes not only the market cost to replace the dead animal, but also the loss of production and income from sales of output. In the case of the 2007 floods, the livestock losses included deaths of animals and poultry due to drowning and loss of milk, meat and egg production and infrastructural damage to cow sheds etc valued at BDT 609 million (1.3% of the total losses in the agricultural sector (DMD/MOFDM 2007). Under Cyclone Sidr most of the livestock BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 29 losses were caused by tidal surge that drowned the animals and poultry. There was also destruction of animal and poultry sheds and fodder and pasture. The estimated value of damage to the livestock sector was BDT 1.3 billion (US$ 19.3 million) or 4.4% of agricultural sector total losses (GOB 2008). Fisheries sector Cyclones and associated storm result in high losses in the fisheries sector. For example, Cyclone Bhola in 1970 led to between 0.3 and 0.5 million human deaths, while approximately 20,000 fishing boats were also destroyed. Under the 2007 floods the fisheries sector losses were estimated at BDT 1,965 million (4.3% of total) which included losses from fish fingerlings, fishes, shrimp, and fisheries infrastructures (DMD/MOFDM 2007). Cyclone Sidr in 2007 caused extensive damage to southern districts including the most import- ant shrimp producing areas located in the south west of the country. Sidr caused damage and losses to ponds, dighis and ghers, damage to fishing boats and nets and losses of capture fish and fish farmed fish and shrimps. Damages and losses in the ten most badly affected districts were provisionally estimated at BDT 463 million (US$ 6.7 million) or 1.5% of total agricultural sector losses. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 30 3. Government policies for agriculture and disaster management 3.1. Government policy and expenditure on agriculture In order to ensure food security and to reduce poverty, the GOB is committed to achieving self-sufficiency in food through sustainable growth of the agriculture sector as envisaged in the National Strategy for Accelerated Poverty Reduction (NSAPR), the National Agricultural Policy (NAP) and the Millennium Develop Goals (MDGs). Adopted in 1999, the NAP aims at creating an enabling environment for sustainable growth of agriculture and focuses on: (1) Developing and harnessing improved technologies through research and training, (2) Increasing productivity and gen- erating income and employment by transferring appropriate technologies and managing inputs, (3) Promoting competitiveness through commercialization of agriculture, (4) Establishing a self-reliant and sustainable agriculture adaptive to climate change. GOB has taken several steps in order to increase agricultural productivity and to ensure fair price of crops and agro-products. In particular, emphasis has been given to investments in expansion of irrigation facilities, removal of water logging, drainage system in low lying areas (haors), production and supply of high quality and high yielding seeds, fer- tilizers, integrated pest management, mechanization of agriculture, agricultural extension, agricultural marketing, agricultural credit, women’s participation in agriculture sector, agricultural education, and training. The 2014-15 budget for the Ministry of Agriculture is about 1.5 billion USD13, and most of the resources are focused on subsidies for fertilizer, seeds, irrigation and other agricultural inputs. Over the past few years the Ministry of Agriculture budget has been between 5 and 9% of national bud- get, and reached nearly BDT 15,000 Crore or 2 bn USD in 2012 (Table 3.1). For 2014-2015, the proposed allocation to agricultural input subsidies was Tk. 9,000 crore or 1.2 billion USD. Seeds are produced and distributed by the Bangladesh Agriculture Development Corporation (BADC) while fertilizers are distributed through union and block level sales representatives. Over the past year, agricultural input assistance cards have been provided to 15 million farmers which will facilitate the distribution of inputs. 13 In 2014, sectoral allocation to Ministry of Agriculture was 12 390 crore BDT BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 33 Table 3.1. Annual budget allocation to the Ministry of Agriculture   2009 2010 2011 2012 2013 2014 Ministry of 7,350 8,438 9,760 14,822 12,279 12,390 Agriculture Budget (in Crore Taka) Source: Budget 2014-2015, Ministry of Finance Going forward, a 5-year Agriculture Plan for 2016-2019 sets ambitious targets for agriculture production. Indeed, in order to keep pace with the population growth, it is estimated that agriculture must grow at a constant rate of minimum 4-4.5% per year. Rice production is therefore planned to increase by 23% over the course of the five year plan14. Given Bangladesh’s shrinking land resource base, GoB plans to achieve these targets through an increase in agricultural productivity. Particular attention will be given to develop and adopt technologies and improved agricultural practices and make available quality inputs (seed, fertilizer, chemicals and implements) in ecologically vulnerable areas such as saline, flood and drought prone locations. Strategic priorities of the 5-year plan are further described in Box 3.1. Box 3.1. Bangladesh Agriculture Five Year Plan (2016-2020) Bangladesh Agriculture Five (2016-2020) Sustainable Agriculture Integrated pest management (IPM) program will be intensified though pest’s surveillance, monitoring and early warning against pest attacks, advisory service to farmers and quality control of pesticides Crop Zoning and land Focus will be given on comprehensive land use planning through integration of economic, ecological, social and use cultural values in production program. Agricultural inputs Emphasis will be given on creating facilities and infrastructure support for hybrid seed production and marketing (including training for farmers and investment in research). Precision agriculture Precision agriculture will be promoted to ensure optimization of inputs use and maximization of returns while and use of water preserving resources and reducing environmental risk. resources Irrigation efficiency will be ascertained and modern water management technology will be promoted to enhance irrigation efficacy and water productivity through optimal use of available water resources. Good practices Standard setting, certification and accreditation will continue to be the main focus for safe food production and marketing at local and export markets. Farm mechanization GOB will support field demonstration of agricultural tools and machinery, will provide subsidies on key machinery, and training to operators and mechanics. Post harvest GOB will support agro-business facilities for handling, storage, processing and packaging of farm products management Value chain GOB will improve marketing services with a view to ensuring fair returns to the growers for their produces. The establishment of HORTEX, a private board for value chain promotion for high value commodities, is an important institutional development. Agricultural credit Lower interest rate for agricultural credit especially for pulse, oilseed and spice crops will be continued Research Priority will be given to address the problem areas (hills, coastal, haor and barind areas) that are more prone to weather vagaries and that have proportionately hight populations of poor and vulnerable people. Extension Extension services will address skill gap, productivity gap and agricultural diversification. Research-extension- farmers linkages will be further strengthened. Women Access to infrastructure services, information, skill and knowledge development training, credit and other business development services will be promoted for women Source: Bangladesh Agriculture Five Year Plan (2016-2020) 14 Rice production to increase from 43mmt to 53 mmt over the 5-year plan. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 34 Government policy for disaster management 3.2. and fiscal costs of disasters Bangladesh’s natural disaster management system has significantly improved over time, especially since the 1991 cyclone that claimed nearly 140,000 lives. This has been the result of a gradual shift from a response‐based approach to a strategy that incorporates elements of greater emergency preparedness and risk mitigation. Bangladesh’s Poverty Reduction Strategy Paper15 pro- vides for strengthening disaster management and risk reduction, mainstreaming Disaster Risk Man- agement into national policies and developmental processes, and enhancing community capacity for disaster preparedness and risk reduction. However, GOB relies heavily on external assistance to finance post-disaster losses. Bangladesh has developed a National Plan for Disaster Management (NPDM) 2010-2015. The NPDM outlines a model to guide disaster risk reduction and emergency response management efforts and is based on three components: (1) Defining and re-defining risk environments, (2) Managing the risk environment, (3) Responding to the threat environments. In addition to this plan, several Standing Orders have been adopted in 2010 is order to define role and responsibilities of all stakeholders16. The institutional framework for disaster risk management includes a variety of stakeholders both at national and sub-national level (see Box 3.2). At the apex level, the National Disaster Management Council is multi-sectoral and inter-disciplinary, with public, private and civil society participation and provides policy guidance towards disaster risk reduction and emergency response management in Bangladesh. The Ministry of Food and Disaster Management (MoFDM) through the Disaster Management Bureau (DMB), is responsible for coordinating Bangladesh’s national disaster management plans and programs across all ministries, agencies (including NGOs), and sectors. The Directorate of Relief and Rehabilitation (DRR) under MoFDM assists the Ministry of Food and Disas- ter Management on policy formulation and implementation of programs/ policies. At sub-national levels, disaster management activities are coordinated mainly by the District Disaster Management Committee (DDMC), the Upazila Disaster Management Committee (UZDMC) and the Union Disaster Management Committee (UDMC). Government response to disasters is mainly based on assessment of needs collected through the “D form” (See Annex 1). The MoA and MoFL are responsible under their own budgets for providing affected farmers, fishermen, and livestock owners with post-disaster medium- and long-term financial assis- tance after major natural cyclone, flood, or drought events, which are declared a disaster. Field extension staff of these ministries are responsible for assessing damage to crops and livestock, and compensation payments are coordinated through the District administration system. Relief assistance may either be in kind in the form of seeds and insecticides, poultry and livestock, or cash payments. Disasters in Bangladesh place a significant burden on Government budget and external as- sistance. In the aftermath of Cyclone Sidr, recovery and reconstruction needs were estimated at 1.3 bn USD or 28% of Government expenditures17. Each year on average since 2000, the Government of Bangladesh and external donors have spent over US$300 million for natural disasters (See Figure 3.1). Over the same period international donor post-disaster assistance has averaged US$ 46 million per year rising to US$ 306 million in the aftermath of Cyclone Sidr in 2007(See Figure 3.2). Tropical Cyclones and floods are the major cause of donor post-disaster expenditures, accounting for 40% and 38% of donor expenditure. 15 “Bangladesh: Poverty Reduction Strategy Paper”, Planning Commission, Ministry of Planning, Government of the People’s Republic of Bangladesh, March 2013 16 “Standing Orders on Disaster”, Ministry of Food and Disaster Management Disaster Management & Relief Division, Disaster Management Bureau, April 2010. 17 General government final consumption expenditure in 2008 amounted to 4.7 bn USD according to World Bank. It includes all government current expenditures for purchases of goods and services (including compensation of employees). It also includes most expenditures on national defense and security, but excludes government military expenditures that are part of government capital formation. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 35 Box 3.2. Disaster Management Institutions in Bangladesh National Disaster Management Council (NDMC) Ministry of Food and National Disaster Inter Ministerial Disaster Management Disaster Management Management Advisory Coordination Committee (IMDMCC) (MoFDM) Committee (NDMAC) National Platform for Disaster Management and Earthquake Preparedness Food Division Disaster Risk Reduction Relief División (DM&RD) and Awareness (NPDRR)) CPP Implementation Board Disaster Management Bureau Directorate of Relief and Director General of (CPPIB) (DMB) Rehabilitation (DRR) Food (DGFood) District Disaster Management Committee (DDMC) Municipal Disaster City Corporation Disaster Management Management Committee Committee (MDMC) (CCDMC) Upazila Disaster Management Committee (UzDMC) CSDDWS Zone/Upazila FPOCG Union Disaster Management Union Committee (UDMC) NGOCC DMTATF Source: National Plan for Disaster Management (2010-2015), Disaster Management Bureau - Disaster Management & Relief Division Figure 3.1. TOTAl Available Funding for natural disasters 2000-2014 (millions of USD) Total Available Funding (Millions of USD) 1000 800 600 400 200 0 2002 2006 2010 2014 Year Source: Air World Wide and ADPC. Years 2000, 2001, 2013 and 2014 do not include disaster-related foreign aid. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 36 Figure 3.2. Costs of International Donor Assistance by Type of Disaster 2000 - 2014 (US$) 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Floods (& Landslides) Cyclone Cold weather Un-allocated / Other Source: http://fts.unocha.org Post-disaster Government expenses also include support to PKSF, the microfinance apex in- stitution created and funded by GoB18, which provides soft loans to vulnerable families after disasters. PKSF has provided soft term loans for reconstruction and rehabilitation through various pro- grams such as the Disaster Management Fund since 1998, the Southwest Flood Damage Rehabilitation Project (SFDRP) after the 2000 flood, the ‘Special Assistance for Housing’ (SAHOS) and the Rehabilitation of SIDR affected Coastal Fishery, Small Business & Livestock Enterprises (RESCUE) in 2007. A summary of these programs is provided in Table 3.2 . Under the Disaster Management Fund only, PKSF has disbursed an amount of Tk. 97.95 crore (12 million USD) to its POs for 203,946 flood-affected members. These funds have been used for house repairing purposes, reconstruction/repairing of latrines and purchase of productive assets, emergency food and medicine. Post-disaster Government expenses also include waivers of principal and interest after natural disasters. Detailed data on the amount of these expenses has been requested to Bangladesh Bank and will be presented in the technical report. While the Government and external donors spend large amounts of money in the aftermath of disasters, the funding gap is still high and can reach more than USD 1.5 billion in bad years. In- deed, an analysis conducted by AIR Worldwide in 2014 estimated that the funding gap for Bangladesh in 2004 and 2007 was above USD 1.5 billion (See Figure 3.3). Figure 3.3. Natural Disasters and Funding Gap in Bangladesh 2000-2014 (in millions of USD) Funding Gap (Millions of USD) 2000 1500 1000 500 0 2002 2006 2010 2014 Year Source: Asian Development Bank , Air WorldWide, ADPC– Capacity Building for Disaster Risk Finance, 2014 18 PKSF receives grants and loans provided by the Government of Bangladesh and PKSF’s Development Partners through the Government of Bangladesh. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 37 Table 3.2. Government support to microfinance sector (PKSF) after disasters Program/Project Project/Programs Project Budget (up to) October Service charge Size of Objective implementation 2009 loan (Tk) Start End Allocation Expenditure PO Beneficiaries Disaster Management fund Operating vulnerable 1998 Continued 8 Core 0.5% 4% 5000 (DMF) areas to support disaster beneficiaries Socio-economic Reha- Rehabilitation of Flood June June 2004 1.5% 4.5% 3000 bilitation Loan Program 2007 2000 (SRLP) Affected members Livelihood Restoration Rehabilitation of Monga/ 1 Year 10 ml US$ 0.5% 4% 3000 Program (LRP) flood/man made disaster (Tk 70cr) affected members Rehabilitation of SIDR Providing credit to restart Nov Continued 130 Crore 108 Core 1% 4% Up to Affected Coastal Fisheries income generating 2007 Taka 1,50,000 Small Business and Live- activities and self-em- stock Enterprise RRESCUE) ployment opportunities of the cyclone affected members Special Assistance for Providing financial Nov Sep 2008 50 Cr 34 Crore 0% 0% Highest Housing of SIDR affected support for repairing of 2007 15,000/= Borrowers construction house Emergency 2007, Flood Rehabilitation of Monga/ Nov Dec 2010 15 ml US$ 67.75 Crore 0.5% 4% 5,000/= Restoration and Recovery flood/man made disaster 2008 Assistance (EFRRAP) affected members Source: National Academy for Planning and Development, Initiatives and Achievements in Managing Disaster for Micro Finance Sector: Public Sector Stewardship of Palli Karma Shahayak Foundation in Bangladesh BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 38 4. Agriculture credit landscape 4.1. Structure of credit market in Bangladesh Bangladesh is a long-time pioneer in providing financial services to the poor. Financial inclusion activities started before the independence of the country in 1971 with the development of rural co- operatives under the Bangladesh Academy for Rural Development (BARD). After independence, the Bangladesh Rural Advancement Committee (BRAC) started providing microcredit to the poor together with a range of social services, making it today the largest NGO in the world reaching more than 126 million people19. In 1983, Grameen Bank pioneered a microfinance model based on group lending, which has been replicated globally and today reaches millions of people with a particular focus on women. Along with the formal banking sector, a variety of non-banking financial institutions, coop- eratives, microfinance institutions and other government and non-government financial institutions provide financial services to the poor. As can be seen in Table 4.1, banks are the main providers of credit to lower income people covering 85% of total loan outstanding, however microfi- nance institutions, MFIs have the largest networks and covered nearly 24 million clients in 2012. Mobile financial services are rapidly growing in Bangladesh, with main provider bKash reaching currently 14 million customers through a network of 100, 000 agents, after 3 years of operations. Table 4.1. Contribution to Financial Inclusion by types of financial institutions in 2012 Institution/Programme Loan Outstanding Percent of GDP No. of Clients (Millions) (Million USD) Financial Banks 54,960.68 478.54 9.67 Non-banking Financial Institutions 3,308.54 2.86 Microfinance Institutions 2,598.68 2.25 23.82 Grameen Bank 1,038.99 0.89 8.40 Government Programmes 222.0 0.19 0.80 Cooperatives 376.43 0.32 8.50 Mobile Banking 670.01 0.60 2.83 Total 63,175.33 54.64 54.02 Source: MRA-2012, Bangladesh Bank, Grameen Bank, Ministry of Finance 19 BRAC website BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 41 Financial services are regulated by five financial bodies in Bangladesh: Bangladesh Bank (BB); the Microcredit Regulatory Authority (MRA); the Department of Cooperatives; the Insurance Development Regulatory Authority (IDRA); and the Securities and Exchange Commission (SEC). Bangladesh Bank regulates banks and financial institutions and is the lead agency on financial inclusion. The Microcredit Regulatory Authority regulates licensed microfinance institutions (MFIs), as established under an Act of Parliament in 2006. Constraints to the development of agricultural insurance Five key players dominate the micro- finance market, which altogether reaches 25 million clients. Although 649 licensed MFIs are reg- istered, the top ten MFIs account for 87% of total loans by value and just 3 companies, Grameen Bank, BRAC and ASA account for 72% of total loans by value (Table 4.2). The gross loan portfolio amounts to US$ 4 billion, while savings amount to US$ 3 billion. In 2013, microfinance institutions reached 24.6 million clients, including 93 percent of women, through more than 14,000 branches. Table 4.2. Top ten Bangladesh MFIs outreach indicators MFI name Gross Loan Portfolio (USD) Number of active Deposits (USD) Number of depositors borrowers Grameen Bank 1,117,452,369 1,909,329,042 BRAC 992,533,141 4,361,591 384,808,714 6,331,374 ASA 763,555,799 4,444,461 365,462,022 BURO Bangladesh 176,748,360 841,475 57,785,120 1,323,113 TMSS 125,842,031 745,401 42,942,000 907,216 JCF 88,248,949 297,753 32,296,143 406,334 SSS 84,533,954 365,667 44,065,345 474,920 UDDIPAN 59,929,865 280,451 22,032,196 408,371 PMUK 42,442,738 199,419 19,323,307 244,787 Shakti 41,811,668 410,870 12,495,340 651,089 Top Ten 3,493,098,874 11,947,088 2,890,539,229 10,747,204 Total MFIs 4,000,000,000 16,400,000 3,000,000,000 13,800,000 Source: Mix Market, 2014 Figure 4.1. Financial inclusion in Bangladesh in rural and urban areas compared to selected peers Adults with an account at a formal financial institution: by urban/rural recidence (in %) 40 20 0 Formal account. Rural Formal account. Urban Bangladesh Sout Asia Low income Source: Demirguc-Kunt and Klapper, 2012. While financial inclusion in Bangladesh is high compared to selected peers in South Asia and Low Income Countries, 60% of adults are still financially excluded (See Figure 4.1.). According to the World Bank’s Global Financial Inclusion (Global Findex) Database, 40% of the adult population had a formal account with a bank in 2011 and about one-fifth had taken out a loan in the last 12 months. Most of the financially excluded live in rural areas, and are dependent on agriculture for their livelihoods. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 42 4.2. Access to rural and agriculture credit The Government and Bangladesh Bank have introduced several successful initiatives aimed at facilitating rural and agriculture credit. These initiatives range from direct provision of financial services to enabling regulation, target-setting and monitoring and indirect financing (see Box 4.1). In order to serve rural areas, the Government has created two specialized banks: Bangladesh Krishi Bank (BKB) in 1973 and Rajshahi Krishi Unnayan Bank (RAKUB) in 1987. These banks are the main providers of agriculture credit and together account for 40% of agriculture lending20. In addition, non-specialized banks are required to open branches in rural areas, to develop ag- riculture and rural lending and to open bank accounts to farmers with minimal requirements. Private and foreign banks are obliged to disburse at least 2 percent of their total loan portfolio as agri- cultural loans- including 60% to be targeted to crops/harvest sector - and often meet this requirement through onlending to microfinance institutions. The maximum interest rate for loans disbursed under this agriculture and rural credit program is 13%, although there is a concessional rate of 4% for specific crops and activities (pulses/lentils, oil seeds, spice, salt farmers in coastal areas). In 2013, Private and foreign banks accounted for 43% of agriculture lending21. In issuing new branch licenses to banks, BB has been following a policy of requiring at least one in every five new branches to be in rural locations with a view to making banking services physically closer to the rural population. Moreover, in order to cover un-served farmers by the commercial banks, BB has requested state owned commercial banks to open bank accounts for farmers free of charge with minimal requirements (initial deposit of 10 Taka). These accounts are being used to disburse government input subsidies to farmers and also facilitate small savings, revolving loans and remittances. In particular, a refinance scheme of 2 billion taka (25 million dollars) for 10-taka account holders harmed by natural disasters has been set-up. In 2013, about 10 million bank accounts for farmers have been opened22. In addition, BB, has also introduced several customer protection measures such as the simplification of loan application forms, a 10 day maximum period for crop loan applications and the requirement to inform customers on reasons for not granting the loans. Disbursement targets for financial institutions are set on a yearly basis by BB which has allowed 3.31 million farmers to receive agricultural and rural credit amounting to Taka 145 Billion (about US$ 2 billion) in FY2013. This is quite significant compared to a total of 15 million farm households. Among these farmers, 2.44 million were small and marginal farmers, 0.44 million were women and about 6,000 were sharecroppers from less developed and neglected areas (i.e. char, haor, coastal belt etc.). Bank Bangladesh carefully monitors credit disbursement and recovery process, with the mobile phone number of each borrower being collected for direct monitoring. The GoB and BB also support rural and agricultural credit through refinance facilities and budget support to microfinance23. In 2009, Bangladesh Bank launched a re-financing scheme of Tk. 5 billion (US$ 64 million) revolving fund for the neglected sharecroppers in partnership with Bangladesh Rural Advancement Committee (BRAC). This refinancing facility is mainly used for short term crop cultivation loans (Tk. 4.5 billion) but also allows medium term loans for purchasing agricultural equipment (Tk. 0.5 billion). Under this program, Tk. 7.38 billion has been disbursed to 578,210 sharecroppers up to February 2013 at a flat rate of 10 percent per annum, with no collateral requirement. BRAC has been operating this program in 250 upazillas of 48 districts across the country. In addition, two other refinance facilities have been set-up to promote the adoption of high margin crops. The NorthWest Crop Diversification project, financed by the Asian Development Bank, ADB, and disbursed by large MFIs (BRAC, Proshika, RDRS and GKF) aims at alleviating poverty of rice farmers in North West division by promoting credit for high margin crops, vegetables and fruits. As of 2014, 186,000 farmers had received credit through this facility. Similarly, the second crop diversification program is a 26 million USD credit facility aimed at promoting the adoption of high margin crops in Khulna, Barisal and Dhaka. Loan disbursement is 20 Bank Bangladesh Annual report 2013 21 Bangladesh Bank Annual report 2013 22 Transactions of approximately Taka 2.94, 1.06, 0.48 and 0.19 billion have taken place as credit disbursement, savings, inward and outward remittanc- es respectively through these accounts in FY13. 23 Bangladesh Bank, Agriculture and Rural Credit program, 2014-2015 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 43 implemented by Eastern Bank, Basic Bank and BRAC MFI. The GoB has also been providing from annual national budgets lending resources to MFIs through PKSF, the apex financing agency for MFIs for rural on- and off-farm self-employment micro and SME credit. See Box 4.2 for further details on PKSF. Box 4.1. The role of Government and Bank Bangladesh in supporting agriculture and rural credit The Government and Bangladesh Bank support agriculture and rural credit through a range of instruments REGULATION DIRECT PROVISION • 2% of private bank lending • Two specialized rural banks (BKB portfolios to be disbursed in rural and RAKUB) provide 40% of and agriculture sector agricultural and rural credit • 1 out of 5 branches to be open in rural areas FINANCING TARGET SETTING AND MONITORING • 64 million USD refinance facility • Annual credit disbursement for sharecroppers through BRAC targets (˜600 000 farmers reached) • About 2 billion USD disbursed to • Budget allocations to Apex 3.3 million farmers in 2013 institution PKSF wich onlends to MFIs Source: Based on information from Bangladesh Bank, Agriculture and Rural Credit program, 2014-2015 Box 4.2.: The role of PFSK in supporting microfinance and agricultural and rural credit Palli Karma-Sahayak Foundation (PKSF) was established in 1990 by the GoB as a “not for profit company” with the objective of providing funds at subsidized rates to microfinance institutions. It is the leading apex microcredit and capacity development institution in Bangladesh. •• Microfinance: It has lent about US$ 1.5 billion to its 268 Partner Organizations (POs) covering more than 8 million borrowers of which 91% are women •• Agricultural and Rural Finance: PKSF started its first Micro Finance for Marginal and Small Farmer Project in 2005. The success of this project led PKSF to design and introduce its Agriculture Sector Microcredit Program in 2008. Under this program PKSF disbursed US$ 46 million (BDT 3.62 billion) to concerned POs during FY 2012-13. In addition to lending, technical capacity is provided to farmers and staff of the MFIs. In particular, attention is given to research, innovation of high-yielding seed, management of irrigation, optimum use of pesticide, mechanized and technology-based farming and vocational education to produce skilled human resources and increased productivity. •• Disaster Management Fund: PKSF also provides funds to POs operating in designated vulnerable areas for supporting to disaster beneficiaries (see more details in section 2). PKSF provides loans to POs at the interest rate of 0.5% per annum and a repayment period of 24 months in two yearly installments. The POs assess the needs of the affected or vulnerable families and provide loans for disaster preparedness and post-disaster rehabilitation at an interest rate of maximum 4 percent and with the typical loan term between 12 to 24 months. The recovery rate of these loans is 1OO%, and funds recovered are remitted back to PKSF for revolving in subsequent years. Source: National Academy for Planning and Development, Initiatives and Achievements in Managing Disaster for Micro Finance Sector: Public Sector Stewardship of Palli Karma Shahayak Foundation in Bangladesh BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 44 4.3. Barriers to rural and agriculture credit and potential roles for agriculture insurance In spite of Government’s efforts, credit to agriculture is still constrained and represented only 3% of total lending in Bangladesh in 201324. Increasing access to agriculture finance is often the last frontier for financial sector development in developing countries. Financial institutions aiming to develop their agriculture portfolio have to develop expertise in agriculture; address challenges associated with small-scale lending in remote areas; adapt products to agriculture cycles and more importantly deal with related agriculture production shocks and price risks. The exposure of agriculture to a variety of natural disasters—including floods, droughts, and cyclones—is a key constraint to the expansion of agricultural credit. While GoB policy has allowed the development of bank branches in rural areas, rural credit remains limited, as banks transfer 0.5 taka to urban areas for each 1 taka in de- posits collected in rural areas25. In addition, the expansion of agricultural credit by the largest providers of agricultural loans, BKB and RAKUB, is constrained by the high levels of non-performing loans faced by these institutions. Repeated waivers of interest after natural disasters and before elections have jeopardized the banks’ profitability and undermined the repayment culture. While the agriculture and rural credit program of Bangladesh Bank aims at promoting credit to vulnerable areas such as char, alluvial land, haor and coastal areas, exposure to disasters is still an obstacle to the achievement of agriculture and rural credit disbursement targets. In January 2015, 12 banks had disbursed below 25 per cent of their agriculture loan targets as 21 districts in the country had faced flood between July and October of 2014.26 Finally, while the microfinance sector is a key provider of small loans in rural areas, rural microcredit has remained focused on weekly repayment group loans to the landless poor, which is not adapted to the agriculture crop cycle. International experience shows that agriculture insurance can help unlock access to credit for farmers. In India, financial institutions are required to bundle rural loans with agriculture insurance as a way to secure repayments in case of agriculture shock. Today, agriculture insurance in India covers 34 million farmers or 20% of total farm households. Similarly, in Mexico, credit institutions that receive public support are required to bundle agriculture insurance with their rural loans. Today, this subsi- dized insurance program covers 300 000 farmers on an area of 2 million ha, with agriculture insurance premiums amounting to US$ 200 million. However agricultural insurance cannot deliver its benefits when basic agricultural services are not in place. Such services include timely availability of seeds and fertilizers, extension services, and efficient marketing channels so that farmers can sell their products. Agriculture insurance can therefore play a role in unlocking access to credit when integrated in a broader farmer development framework. In Bangladesh, initial discussions between the World Bank Group team and lending institutions such as BKB and BRAC have shown that financial institutions are interested in agriculture insur- ance as a way to better protect their borrowers and their lending portfolios against agriculture shocks. As a first step, the WBG will conduct a credit risk analysis of the two agriculture development banks’ crop loan portfolio against weather risks. 24 Bangladesh Bank Annual Report 2013 indicates that rural and agriculture lending amounts to Taka 146.67 billion compared to total lending amounts to Taka 4482.15 billion 25 Between 1996 and 2005 the proportion of loans to deposits in rural branches deteriorated sharply as banks increasingly drained deposits from rural areas to finance urban loans. Source: A. Ferrari.2007.” Increasing Access to Rural Finance in Bangladesh: The Forgotten Missing Middle”. World Bank. 26 Source: New Age, January 24th 2015 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 45 5. Agriculture insurance landscape 5.1. Insurance legal and regulatory framework The Bangladesh insurance industry is supervised and regulated by the Insurance Development and Regulatory Authority, IDRA, which was recently established under the Insurance Develop- ment and Regulatory Authority Act 2010. IDRA replaced the former Department of Insurance under the Ministry of Finance. IDRA’s mission is to protect the interests of policyholders and other stakeholders, supervise and regulate the insurance industry effectively and ensure orderly and systematic growth of the insurance industry. The IDRA is funded by all the life and non-life companies through a levy of 0.35% of the amount of gross premium written. IDRA’s budget has to be approved by MOF and as such it is not free to act as a truly independent regulator (Axco 2014). In Bangladesh, public and private insurance companies are legally bound to operate within the terms and conditions of the Insurance Act 2010 which replaces the former Insurance Act 1938 and subsequent amendments to the Act, most notably, in 1973 and 1990. The Insurance Act 2010 represents a major attempt by GOB-MOF to strengthen the legislation regarding insurance provision in Bangladesh. The Act does not, however, specifically address agricultural insurance as a class of non-life insurance nor does it address the specific issues relating to index insurance in agriculture. The IDRA has identified 50 rules and regulations which need to be passed by parliament in order to enforce the provisions of the Insurance Act 201027. According to a recent Axco report only 11 of these new rules have been implemented up to now. Enactment of rules requires approval from IDRA, MoF, and parliament (Axco 2014). Bangladesh is a tariff market and Insurers are obliged to follow the rates set by the Central Rating Committee, which apply to the principal classes of business: fire, motor, workers’ com- pensation, marine hull and marine cargo. Other classes, including agricultural insurance, are not subject of tariff rating. The committee operates under the auspices of the IDRA and is headed by its chairman (AXCO 2014). In Bangladesh insurance legislation requires that private non-life insurers must place 50% of their reinsurance with the SBC and they are free to place the remaining 50% with international reinsurers. In accordance with Section 6 of the Insurance Act 2010, every insurer will be obliged to provide a minimum percentage of business in the rural or social sector. Section 6.26 of the “IDRA (Obliga- tions of Insurers to the Rural and Social Sectors) Regulations 2011” obliges life insurers to underwrite 27 For further details of the new Insurance Rules and Regulations which have been drawn up for Bangladesh see Maxwell Stamp 2011 BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 47 between 2% (year 1) and 10% (by year 5) of all their policies with rural people involved in crop, livestock, poultry, fisheries and in the social sector (self-employed persons) In the case of non-life insurance com- panies must insure 5% (by year 5) of all their policies with rural and social sectors (Maxwell Stamp 2011). In the last quarter of 2013, the IDRA issued a circular which required non-life insurers to write policies is this sector for a minimum of 0.1% of their gross written premium. This is likely to have a significant impact in forcing insurers to develop products and services for the rural population and to consider their distributional strategies (Axco 2014). Bangladesh also has a growing microinsurance sector, but in this case the products and schemes are not subject to supervision by the IDRA. Under the terms of the Micro-Credit Regulatory Authori- ty Act 2006, microfinance institutions, MFIs, have been permitted to offer credit linked micro-insurance products to their members including life, health and livestock mortality insurance. GOB is keen to promote microinsurance products for the rural community and for example since 2012, has provided counterpart funding to the Japan Fund for Poverty Reduction, JFPR, funded Developing Inclusive Insur- ance Sector Project, DIISP which is being implemented by the government backed Palli Karma-Sahayak Foundations (PKSF). The major drawback of these microinsurance programs is that because they are not supervised by or approved by the IDRA they are not eligible for formal reinsurance and instead PSFK has established a catastrophe insurance fund to protect the microinsurance programs against catastrophe losses28 (Axco 2014). PKSF is currently working with the Micro Credit Regulatory Authority, MCRA to draft new mi- cro-insurance legislation which is designed to strengthen the rules and regulations governing microinsurance provision in Bangladesh. WBG has not had access to the draft microinsurance legislation and we are not able to advise whether there is an attempt to bring microinsurance more into line with mainstream commercial insurance activities. The Bangladesh Insurance Association (BIA) represents the interests of all the private insurance companies in the market and it works closely with IDRA on all matters relating to the Bangla- desh insurance industry. The BIA does not, however, represent the two state-owned companies, the non-life insurer, Sadharan Bima Corporation, SBC, and the life insurer, Jiban Bima Corporation, JBC. Insurance market Structure 5.2. In 2014 there were 77 insurance companies in Bangladesh divided into 46 general or non-life insurance companies and 31 life only insurance companies (GOB 2014). Most of the companies are private limited companies, but there are two state owned companies, one life (Jiban Bima Corpo- ration, JBC) and one non-life (Sadharan Bima Corporation, SBC) In 2012 the total market insurance premium volume was BDT 88.68 billion (US$ 1,058.77 million). Non-life gross premiums amounted to BDT 21.48bn (USD 262.33mn), which was an increase of 11.57% compared to 2011. This compares with life premiums of BDT 65.20 billion (US$ 796.44 million). Given today’s very small insurance market in Bangladesh, the total number of 77 insurance companies is considered far too high by many local practitioners (AXCO 2014). Insurance penetration is very low in Bangladesh in comparison with other South Asian coun- tries. In 2007, the insurance premium in Bangladesh was slightly less than US$3.0 per capita (0.51% of GDP) and although this had risen by 2012 to US$ 6.84 per capita, this still represents only 0.94% of GBP. This compares with 1.15% of GDP in Sri Lanka, 3.46% of GDP in India and a high of 4.51% of GDP in Malaysia (Table 5.1 As the urban middle-class in Bangladesh continues to grow, there is the possi- bility for greater insurance penetration, but with most of the population living on minimal incomes, or outside of the cash economy, the best chance for development may lie with microinsurance products (Axco 2014). 28 The PKSF fund is BDT 50mn (USD 641,025). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 48 Table 5.1. Insurance Penetration in Bangladesh and other selected Asian countries Life including riders Non-life (P&C) Personal Accident & Healthcare Total % of GDP US$ / Capita % of GDP US$/Capita % of GDP US$/Capita % of GDP US$/Capita Bangladesh 0.71% 5.15 0.23% 1.7 n/a n/a 0.94% 6.84 India 2.86% 43.44 0.45% 6.81 0.15% 2.24 3.46% 52.49 Malaysia 2.89% 299.66 1.40% 145.1 0.22% 22.64 4.51% 467.39 Sri Lanka 0.49% 13.92 0.66% 18.45 n/a n/a 1/15% 32.37 Source: AXCO 2014 The top 5 non-life companies by premium volume in 2012 included Green Delta, SBC, Pioneer, Reliance and Pragati. Green Delta overtook SBC as the largest non-life insurance company in 2010 and in 2012 it had a leading 12.1% of the non-life insurance market. In 2013 the International Finance Corporation, part of WBG, purchased a small shareholding in Green Delta. SBC is in second place with 10.3% of market non-life premium. These five companies were the only companies to generate more than BDT 1 billion (US$ 12.2 million) non-life premiums and they accounted for 43% of total non-life premium in 2012 (Axco 2014). History of agricultural insurance in Bangladesh 5.3. Formal Insurance Sector Programs Agricultural crop insurance was first introduced into Bangladesh on a pilot basis in 1977 by the state-owned insurance company, Sadharan Bima Corporation (SBC). SBC offered an individu- al-grower multiple peril crop insurance, MPCI, product. SBC subsequently introduced livestock mortality insurance in 1981 and then aquaculture insurance (in the mid-1990s). However, on account of poor underwriting results and lack of demand, SBC had terminated these programs by the turn of the century. There has been no history of private sector commercial agricultural insurance prior to 2014. SBC crop insurance: Starting in 1977, SBC introduced a conventional individual-grower multiple-peril crop insur- ance (MPCI) yield-shortfall policy that provided coverage against a wide range of climatic perils, including the potentially catastrophic climatic perils of floods, droughts, and winds and biolog- ical perils of pests and diseases. The program was launched on a pilot basis to individual farmers who were members of cooperatives with linkage to public sector crop credit albeit on a voluntary basis Insured crops included rice (Aman, Boro, and Aus), wheat, sugar cane, and jute. The sum insured was set at 80 percent of the past three-year average yield for each crop on each farm (as declared by the farmer) and valued at the government intervention price for the crop, or in other words a reve- nue-based valuation. Premium rates were calculated on an actuarial basis, but as these were deemed to be unaffordable for poor farmers, actual premium rates were capped at between 3 percent for wheat and jute and Boro paddy, 4% for Aus paddy and a maximum of 5 percent for Aman paddy and sugar cane29. These single premium rates for each crop operated throughout all districts and regions of the country. Loss adjustment was based primarily on “eye estimation” techniques30. The amount of indemnity payable was adjusted according to the stage of growth of the crop and amount invested in the crop at the time of loss ranging from 20% for early season sowing losses up to 100% of the sum insured for losses immediately pre harvest. From 1977 to 1995, the individual grower MPCI programme was insured exclusively by SBC, which retained 100 percent of the losses without any external reinsurance protection, and there was no premium subsidy or other financial support from the government. 29 The actuarially determined rates for paddy were: 6% Boro, 9% Aus and 15% Aman 30 Loss adjustment was conducted by a team consisting of three officials one each from SBC, the agricultural credit agency concerned and the thana extension officer (TEO) BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 49 SBC’s budget for the crop insurance program was very limited and it never achieved scale or sustainability. The annual average MPCI policy sales were only 989 insured farmers with insured area of 1,252 Acres, and the maximum sales in 1980 were again only 1,969 policies and 3,246 ha insured area (Figure 5.1.a). Over the 19 years (1977 to 1995) the crop insurance program experienced very poor underwriting results with a long term average loss ratio of 499 percent: in no year were paid premiums adequate to cover the value of incurred crop losses (Figure 5.1.b.) Figure 5.1. SBC Crop Insurance Program Results 1977 to 1995 (a) No. insured Farmers / Insured Area (Ac) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 No. of Farmers Insured Crop Area Insured (Ac) (b) Premiums and Claims and Loss ratio 3,500,000 1200% 3,000,000 1000% 2,500,000 800% 2,000,000 600% 1,500,000 400% 1,000,000 200% 500,000 0 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Premium (BDT) Claims Paid (BDT) Loss ratio % Source: SBC results reported in World Bank 2010 On account of the very poor financial performance the SBC Crop Insurance Program was ter- minated by government in 1995. Some of the key reasons which led to the failure of the SBC MPCI program appear to have been (i) low demand for the voluntary program and problems of adverse section and moral hazard, (ii) technical drawbacks of the policy design including the setting of insured yield coverage levels too high and the capping of premium rates at well below the actuarially required levels, (iii) operational issues including poor control over loss assessment and loss assessment proce- dures and high administrative costs, and (iv) lack of financial and other support to the program from the Government to effectively market and promote the program, to conduct farmer education and awareness programs and to implement effective control over loss assessment (World Bank 2010). SBC livestock (Cattle) insurance: In 1980 SBC launched a livestock insurance pilot project for cattle, using a traditional individual animal indemnity-based cover. The policy was linked to cattle loans financed by BKB and other State Commercial Banks. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 50 The policy insured against accidental mortality and diseases in cattle, but excluded epizootic or Class A epidemic diseases, catastrophes, poisoning and starvation of animals and theft. The sum insured was based on the value of the loan and the policy carried a flat premium rate for all insured’s that varied over time from a low of 3.0 percent to a high of 5.0 percent. In common with the crop insurance program, SBC did not receive any form of financial support from GOB and the livestock insurance program was not reinsured. Over the 24 years of operation of the livestock insurance programme (1981 to 2008) the SBC livestock insurance program also failed to achieve commercial scale. SBC issued a total of 1,026 livestock insurance policies with a total of 7,591 head of cattle insured, representing an average of only 45 livestock policies and 330 insured cattle per year (Figure 5.2.a), and generated an average annual premium of slightly below BDT 239,000 (about US$3,500). Over the same period the program gener- ated underwriting profitability with an annual average loss ratio of 56%. However, in 2002, the worst year the loss ratio was as high as 1200 which demonstrates the catastrophe loss potential on a small livestock insurance program. (Figure 5.2.b). By the early-2000s SBC had effectively ceased underwriting the livestock insurance program. Figure 5.2. SBC Livestock Insurance Program Results 1981 to 2008 (a) No. Insured Producers / No. Insured Cattle 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 No. of policies No. of Insured Cattle (b) Premiums and Claims and Loss ratio 1,800,000 1400% 1,600,000 1200% 1,400,000 1000% 1,200,000 1,000,000 800% 800,000 600% 600,000 400% 400,000 200% 200,000 0 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Premium (BDT) Claims Paid (BDT) Loss Ratio % Source: SBC results reported in World Bank 2010 SBC Shrimp Insurance Shrimp production in Bangladesh is concentrated in the southern coastal region and is highly exposed to floods, tropical cyclones and tidal surges, and diseases of shrimp. The SBC shrimp policy was introduced in the 1990s as a named-peril cover restricted to floods, cyclones and tidal BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 51 surges, and diseases were specifically excluded. The policy covered both loss of fish stock (shrimp and prawns) and loss or damage to the shrimp farm installations, buildings, ponds, and feedstock on site. The policy was marketed on a voluntary basis with a fixed premium rate of 0.99 percent of the sum insured, which was based on the input costs (stock, feed, etc.) for each 120-day shrimp production cycle. The programme never achieved the required sales levels, the fixed premium rate was far below the correct technical rate(s), and in the absence of a conventional deductible the product was exposed to first loss. On account of the very poor underwriting results, SBC withdrew this cover in2004. Informal Insurance Sector Initiatives Starting in the early 1990s several of the large MFIs began offering livestock-credit insurance to their members, including Grameen and Proshika31. To date, however, neither BRAC nor ASA which are the largest MFIs have offered livestock insurance to their members. Furthermore, up to now, none of the MFIs have provided any form of crop insurance to their borrowing members as they deem agriculture (crop) insurance too risky. Proshika Livestock-credit insurance Proshika was the first MFI to introduce a livestock mortality loan protection scheme in 1990 under its Participatory Livestock Compensation Fund (PLCF). The PLCF was linked on a compul- sory basis to Proshika’s revolving credit fund for cattle, sheep/goats, and poultry-rearing projects. The PLCF policy compensates against the “sudden death” of insured livestock and poultry during the loan repayment period (usually 12 to 24 months), and it is in effect an all-risk livestock accident and disease policy. The policy did not, however, compensate poor management practices or negligence on the part of the insured. The rates charged by the PLCF were between 3 percent and 5 percent of the purchase price (or loan amount) for cattle and sheep/goats and 10 percent for poultry. Between 1990 and 2009 Proshika achieved significant coverage under its livestock-credit insur- ance program and positive underwriting results. A total of 11,739 livestock producer groups par- ticipated in the program with 140,439 insured cattle and goats (figures exclude poultry). On account of the MFIs ability to exert tight control over risk acceptance and livestock husbandry and sanitation, claims and loss assessment the program experienced sound underwriting results with overall loss ratio of 68% from 1990 to 2006. (Table 5.2). It is therefore surprising to learn in 2015 that Proshika’s microcre- dit and microinsurance operations have been suspended due to severe financial losses32 Table 5.2. Proshika Livestock Credit Underwriting Results 1990-2009 Item Results from inception in 1990 up to 21/03/2009 Number of Livestock Producer Groups participating in Livestock Compensation Fund 11,739 Total Sum Insured (Amount of credit disbursed for purchase of livestock) (BDT) 597,735,561 Number of Insured Livestock 140,439 Average Sum Insured per Animal (BDT) 4,256 Subscription (Premium income) (BDT) 31,392,787 Average Premium Rate (%) 5.25% Number of Dead Animals compensated 4,855 Mortality rate (%) 3.46% Claims Paid (BDT) 21,300,186 Loss cost (%) 3.56% Loss Ratio (%) 68% Source: World Bank 2010 reporting PROSHIKA 2007 31 In 2009, three other MFI’s also offered livestock credit insurance to their members including Pallid Bikes Kendra (PBK) Dust Sashay Kendra (DSK) Gina Unnayan Kendra (GUK) 32 Personal communication by Micro Credit Regulatory Authority, MCRA BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 52 Grameen Livestock-Credit Insurance Starting in 1999, the Grameen Fisheries and Livestock Foundation (Grameen Moshto Pashusam- pad Foundation, GMPF) introduced a livestock-credit compensation scheme for members of its Community Livestock and Dairy Development Project (CLDDP). Livestock producers who ac- cessed dairy cattle investment loans were protected under a livestock mortality compensation scheme provided by the Livestock Insurance Fund (LIF). The LIF programme insured against death of the dairy cow where this was “outside the control of the owner”, and was an all-risks livestock mortality policy. The sum insured was equivalent to the amount of loan taken out to purchase the cow and premium was charged at a rate of 3 percent of the value of the loan. Coverage terminated once the loan had been repaid (usually over a maximum of two years). In addition, a fee of 2.5 percent of the value of the loan was levied to cover the cost of veterinary services, vaccinations, and technical assistance. Between 1999 and 2006 the Grameen Bank livestock insurance program insured a total of slightly more than 7,000 dairy cows with an average mortality rate of 2.8 percent and insurance loss ratio of 75%. The LIF liability was totally retained within GMPF, and the programme did not carry any form of catastrophe reinsurance protection. A key operational feature of both the Proshika and Grameen micro-level livestock mortality insurance programs was the presence of village-level para-veterinarians who received training in basic animal health, in providing vaccinations and in artificial insemination. The para-vet- erinarians performed a central and low cost role in facilitating livestock insurance provision because they were contracted to ensure animals were properly registered and ear-tagged, they conducted pre-inspections to verify each animal was in sound health and its vaccinations were up to date before insurance cover was granted and in the event of a claim against the policy (accidental injury or death of the insured animal) they were employed to inspect the loss and confirm the cause of death. As such these MFIs faced much lower costs of implementing traditional individual animal livestock mortality in- surance schemes for small holder producers, than the formal private commercial insurance companies. The main drawback of these early MFI implemented micro-livestock insurance programs is that they did not carry any form of reinsurance protection and they were therefore very exposed to catastrophe events resulting in the death of the livestock (epidemic disease, cyclone and flood). 5.4. Current initiatives in agricultural insurance Following the termination of the SBC agricultural crop insurance program in 1995 on account of very poor underwriting results no public or private insurance company in Bangladesh was willing to underwrite this class of business for nearly two decades. Several agricultural (mainly crop) insurance initiatives were carried out between 2005 and 2013 in Bangladesh including (i) a na- tional commission led by SBC into alternatives to the former indemnity-based MPCI crop insurance program including the option with ADB of developing weather index-based crop insurance, WIBCI; (ii) two crop insurance studies conducted by the North South University, NSU, (iii) Oxfam UK’s research starting in 2009 into flood index insurance for poor households living in flood prone chat areas of Bangladesh; (iv) a major 2008-09 World Bank technical study which identified potential opportunities for crop hail insurance in hail prone areas, area yield index insurance, AYII for paddy and major cereals, rainfall deficit WII cover in drought prone areas and possible opening for livestock and aquaculture insurance (World Bank 2010); (v) starting in 2011 IFPRI has conducted research, in collaboration with PKSF, in Bogra district to introduce index based insurance, IBI, against rainfall deficit (drought) in aman rice and as a starting point to this work IFPRI conducted an experimental insurance demand-elicitation exercise with more than 300 farmers in Bogra and Maninkganj which found that because farmers are subject to a variety of risks they do not focus on one type of insurance product only, but evenly split their endowment between life insurance, disability insurance and crop insurance (Ahmed 2013; Clarke et al. 2014) and finally (vi) since 2013 the IFC has been working closely with Green Delta Insurance Company to introduce weather index-based crop insurance, WIBI, for selected perils starting with rain- fall for selected crops (IFC 2014). Of these initiatives only the Oxfam flood index insurance program is currently operational and in its second full year of implementation as a Meso-level aman season river BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 53 flood index insurance program - this program is currently offered as a consequential loss or business interruption cover, but in future might be adapted to cover direct losses in specific crops such as aman paddy (Oxfam 2013). The MFI or informal insurance sector has also been active in promoting microinsurance in re- cent years. Research has been led by PKSF which has assisted its MFI Partner Organizations, POs to develop micro life, health and livestock insurance products and programs. Key features of these current formal and informal insurance sector initiatives are reviewed further below. Formal Insurance Sector IFC-Green Delta weather index based crop insurance Since 2013 IFC has been working closely with Green Delta Insurance Company to design the first commercial insurance company WIBCI product for Bangladesh. The focus of IFC’s work is on partnering with interested insurance companies and in developing their internal capabilities to design, rate and underwrite crop insurance products and programs. As a starting point, in 2014, IFC has contracted Skymet weather services, India’s first private sector meteorological and weather forecasting entity and also a specialist in the design and rating of WIBCI products to develop a historical gridded rainfall database in order to address the constraints with the current rainfall and temperature data avail- able from the Bangladesh Meteorological Department. The gridded data will be used subsequently for weather index insurance product design and pricing as well as loss estimation. As part of this work, Skymet is working closely with BMD to design a rainfall gridded index for all of Bangladesh. WBG will provide technical support across the entire value chain including designing and developing the product, training underwriters within Green Delta who will be responsible for pricing and contract design, facilitating access to reinsurance, developing a retail/distribution strategy, providing support to partner financial institutions primarily Banks (incl. development banks) and MFIs in agriculture credit risk tools to help mitigate the risk of lending to agriculture/farm sector among others. SBC-ADB-Basix weather index based crop insurance ADB in 2014 has entered into a three year agreement with GoB and SCB the state insurance company to develop a pilot weather index based crop insurance, WIBCI, project initially to cover excess rainfall or rainfall deficit for selected crops and districts in Bangladesh. Key com- ponents of this project include: (i) assistance to the Insurance Development and Regulatory Authority, IDRA, to draft a regulatory framework for implementing index insurance-WIBCI, (ii) financial assistance to Bangladesh Meteorological Department, BMD to finance the purchase and installation of at least 20 Automatic Weather Stations, AWS, to provide timely and reliable data for insurance purposes. (iii) collaboration with agricultural research institutions, BMD and BWDB to provide training and capacity building in the design of WIBCI products, (iii) training for SBC (which will assume responsibility as the lead implementing agency) in the design and implementation of WIBCI products and programs and (iv) provision of WIBCI training for sales and administration staff and staff from the commercial insurance companies and also farmer training programs (Ahmed 2013; ADB 201433). ADB note that the project is designed to reach at least 12,000 farming households during its lifetime. In 2014 ADB has contracted BASIX, an Indian MFI, and specialist in the design and implementation of WIBCI programs to assist SBC in the design and implementation of the Bangladesh WIBCI pilot projects. ADB is in discussion with GoB to provide 50% premium subsidies on this WIBCI project in order to make crop insurance more readily accessible and affordable to small and marginal farmers in Bangladesh. If approved, this will be the first time that GoB has provided agricultural insurance premium subsidies. 33 ADB personal communication November 2013 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 54 Oxfam-Pragati insurance company Flood Index Insurance As noted in Chapter 2, flooding is a recurrent problem in Bangladesh and 30% of the country experiences annual flooding while extreme floods affect up to two thirds of the country and can cause severe losses to the agricultural crop, livestock and fisheries sectors. Over the past 35 years Bangladesh has experienced eight major flood events including the floods of 1988, 1988, 2004 and most recently 2007 with estimated losses to these sectors of US$ 648.39 million (World Bank and ADB 2007). Although agricultural insurance is widely available in more than 50% of countries, public and private insurers have traditionally shied away from offering flood insurance protection to the crop, livestock and fisheries sectors. Agricultural flood insurance is very difficult to design and implement for a number of reasons including: challenges over defining and measuring direct flood damage (each crop has a different tolerance to flood according to the stage of crop growth, depth of flooding and duration) and indirect damage/loss arising from business interruption; flood risk mapping and modelling place very high requirements on time series local river flow and flood data which are often not available in developing countries; flood insurance is difficult to operate and traditional vol- untary farmer schemes suffer from problems of moral hazard and adverse selection and prohibitively high costs of accurate in-field flood loss assessment and finally flood insurance is difficult to manage financially (Lotsch, Dick and Manuamorn 2010). Many of the challenges to traditional indemnity based agricultural flood insurance could be overcome by an index-based insurance approach. Key advantages of index-based insurance include the minimising of moral hazard, elimination of the need for costly and time consuming in-field loss as- sessment and replacement by timely and objective index-based triggers and payouts (CIRM undated; Lotsch, Dick and Manuamorn 2010). Applications of flood index insurance have, however, until recently lagged behind weather index pilots with the notable exceptions of: (i) Vietnam: a Ford Foundation funded, GlobalAgrisk designed meso-level river-level gauge flood index providing business interruption insurance for banks lending to paddy producers located in the Mekong Delta, which has not yet been commercially launched (GlobalAgRisk 2010); (ii) Indonesia: a river-level gauge flood index for individual urban house- holds, designed by GIZ and MunichRe and underwritten by Wahana Tata insurance company in 2010 (GIZ 2010) and (iii) Peru: Meso level ENSO index designed to capture catastrophe flooding related to the El Nino phenomenon and marketed as a bank assurance business interruption cover to banks lending to farmers located in flood prone coastal regions of Peru and which was launched in 2012-13 (Skees & Murphy 2009). The Oxfam-GB, flood index insurance initiative for Bangladesh represents a major breakthrough in catastrophe flood risk insurance for very poor rural households (including landless house- holds) located in river flood prone areas. Starting in 2009, OXFAM, GB and the Centre for Insurance and Risk Management (CIRM) have collaborated in a pilot project to design and distribute a CAT Flood meso-insurance product in Bangladesh. The Bangladesh Institute of Water Modeling (IWM), was con- tracted to conduct the flood hazard modelling and flood risk mapping for the selected pilot project area, Sirajganj District through which the Jamuna river drains southwards. The main exposure to river- ine flooding is in the monsoon season (mana) from July to September and the index was designed to cover this period. The biggest challenge faced by IWM was to develop a flood model that could relate historical (35 year daily) river-level gauge data from the Jamuna River to predict flooding (water depth and duration) in the selected villages / flood plain areas bordering the river. The predictive flood hazard model was tested on the ground and refined by IWM in 2011 and 2012. SwissRe, a leading reinsurer and specialist in agricultural index insurance was appointed to design the flood index contract design parameters. Pragati Insurance company, a leading non-life commercial insurance company agreed to underwrite the flood index insurance program. From the outset, the Oxfam flood index insurance policy was planned as a meso-level cover with the Insured being a local microfinance institution Manab Mukti Sangathi, MMS and the benefi- ciaries being poor vulnerable households in selected villages as defined by Oxfam-MMS. MMS works very closely in Sirajganj District with poor and extreme poor mainly female landless households living in char areas of the River Jamuna and whose main source of income and livelihoods is working as agricultural labourers. Pragati Insurance Company does not have either the local infrastructure or local knowledge to promote, market and administer flood micro-insurance to individual households in remote rural areas of Sirajganj District hence the early decision to implement a meso-level program. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 55 The Oxfam meso-level flood index cover is a business interruption policy that makes payouts according to the duration of flooding in each defined flood risk zone. In the event of prolonged monsoon season river flooding in the zone/district the vulnerable households cannot obtain daily wage labour from agriculture, or in other words they face a major business interruption exposure. The sum insured was therefore based on the value of hired labour with a maximum sum insured of BDT 8,000 per household (about US$ 120). The policy was designed so that progressive payouts started to be triggered if continuous flooding exceeded 10 days with the maximum payout of BDT 8,000 being paid out if continuous flooding exceeded 26 days. Pragati Insurance Company is responsible for mak- ing payouts to MMM in each risk zone/village and MMM then distributes the payouts to the affected beneficiaries according to their needs (Desai 2013; Oxfam 2013)34. The Meso-level Flood Index Insurance program was launched in 2013 with 1,661 poor house- holds identified as the beneficiaries in 14 villages in Sirajganj District with Pragati Insurance Lim- ited acting as the local insurer and with reinsurance protection from Swiss Re. In 2013 total sum insured amounted to BDT 13.3 million with total premium of BDT 1.73 million (approximately US$20,000) with implied premium rate of 10.3%. Oxfam financed 100% of the premium costs. Pragati Insurance purchased quota share reinsurance protection (80% cession) with SwissRe, one of the world’s largest reinsurers and a specialist in index insurance for the agricultural sector. The policy cover period was from 15/08/2013 to 30/09/2013 to coincide with the main monsoon season rains and peak period of river flood exposure in Sirajganj. In 2013 the program was free of any flood payouts (Desai 2013; Oxfam 2013). The policy was renewed in 2014. Severe floods in August and September led to significant damage in Sirajganj District and the Pragati insured flood index program triggered payouts in 4 villages (Boro Chouhali, Choto Chouhali, Fulhara East and Muradpur): more than 700 families benefited from the payouts of BDT 1,982,400 (US$ 2,500) (SwissRe 2014)35. Going forward, Oxfam and its partners, Pragati Insurance Company and SwissRe are examining the feasibility of scaling up the flood index insurance program for vulnerable rural households in other flood prone areas of Bangladesh. The partners are currently reviewing options significantly to scale up the program in other riverine flood prone areas of Bangladesh. One key challenge to scal- ability will be to obtain detailed flood data and to conduct the necessary risk modelling for these new areas. In the development of the Sirajganj pilot Oxfam, CIRM and the Institute of Water Modelling spent two years calibrating their flood model for the 10 villages. A further key challenge to be addressed is whether the product can be adapted to provide flood coverage for aman paddy crops: the issue of basis risk is, however, likely to be a major potential problem for any crop insurance application of the product. Finally careful consideration will need to be given going forward as to who pays for the pre- miums: in the pilot phase Oxfam agreed to finance premiums in recognition that these poor and very poor landless households could not afford to pay for their flood premiums: however, if the program is to scale up in future alternative premium financing arrangements may need to be secured. Informal Insurance Sector The MFIs have continued to offer and expand livestock microinsurance provision to their mem- bers, but to date no MFI is implementing any form of crop insurance. This section describes the recent innovations in livestock microinsurance. PKSF-DIISP Livestock microinsurance. Since 2010 the Palli Karma-Sahayak Foundation (PKSF) has been assisting a group of 40 MFIs distributed throughout Bangladesh to design, rate and pilot test a range of microinsurance products including life, health and livestock insurance. PKSF’s assistance is being provided through the Developing Inclusive Insurance Sector Project, DIISP, (2010-14) which is funded by a grant of US$ 2 million from the Japan Fund for Poverty Reduction (JFPR) and administered by the Asian Development Bank (ADB). The project aims to reduce the vulnerability and improve welfare of the poor through 34 available at: http://oxfamblogs.org/bangladesh/wp-content/uploads/2013/08/Product-Brochure1.pdf 35 http://www.swissre.com/global_partnerships/Bangladesh_flood_victims_benefit_from_first_index_insurance_payout.html BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 56 improved access to reliable and affordable risk mitigation services (microinsurance), building on the existing microinsurance services offered by MFIs. The DIISP livestock insurance policy is a livestock-credit insurance policy specifically designed for MFI’s to protect their loans to members under a beef fattening program. Livestock insur- ance is mandatory for any borrower. The insurance policy protects against death of the animal due to conventional mortality or natural catastrophes and epidemic diseases and the sum insured is based on the value of the loan and in the event of the death of the animal 100% of the loan amount of the borrower with the MFI is waived. The DIISP designed policy carries a flat premium rate of 0.7% for a six month cover period and given the high level of insurance protection provided this premium rate is very competitive when compared with the earlier annual policies for mainly dairy cattle offered by SBC, Proshika and Grameen. The borrower can also purchase life insurance on the livestock loan for a further 0.3% premium payment (PKSF 2014). 28 out of the 40 selected MFIs are currently offering livestock (cattle) insurance to their mem- bers and in 2014 343,508 cattle were insured up to October 2014. The program has generated premium of BDT 52.4 million (about US$ 0.70 million) against paid claims of BDT 19.4 million with implied loss ratio of only 37.1%. The livestock mortality rate of 0.28% is much lower than the mortality rates experienced on the earlier Proshika (3.5%) and Grameen (2.8%) programs. With an average pre- mium of BDT 153 per insured animal (about US$ 2.00 per animal) there is a major challenge for the MFIs to keep down their administration and operating costs. Table 5.3. DIISP Livestock (Cattle) Insurance interim results 2014 (January 2014 to October 2014) Number of Insured Cattle Total Premiun (BDT) Total Number of Cattle Total Paid Claims (BDT) Loss Ratio (%) (2014) Claims 434,508 52,393,410 953 19,445,282 37.1% Source: PKSF December 2014 One of the major issues facing the MFIs in Bangladesh is that their life, health and livestock microinsurance portfolios are not reinsured against covariant or catastrophe risk. As the MFIs are not registered with Insurance Regulator and are not regulated under the Insurance Act, they do not qualify for access to reinsurance. The livestock insurance program is very exposed to epidemic disease outbreak which might result in widespread death of insured cattle: the WB estimate the total 2014 liability (total sum insured) to be in the order of BDT 7.5 billion (US$ 100 million) and un-reinsured financial losses could therefore be very high. PKSF, in recognition of this problem, has established a Covariant Risk Fund (CRF), initially with its own funds and this fund is available to compensate any MFI under DIISP which incurs catastrophic insured losses. The MFI has to pay the required fees and charges to obtain access to CRF services. (PKSF 2014). Sajida Foundation Livestock Insurance Program Under the DIISP program individual MFIs insuring small numbers of cattle are very exposed to first loss. In 2014 the Sajida Foundation insured a small portfolio of 566 beef cattle linked to its 6-month beef cattle fattening loans. With the fixed 0.7% premium rate the collected premium amounted to BDT 107,880. Seven animals died equivalent to a mortality rate of 1.2% resulting in total claims payouts of 173,842 (an average claim payout of BDT 24,835 per animal or US$ 331 per animal) and a loss ratio of 161%36. As such Sajida lost money in 2014 on this very small livestock insurance portfolio. Table 5.4. 2014 Sajida Foundation 2014 Livestock Insurance Results (at Dec 2014) Number of Insured Cattle Total Premiun (BDT) Total Number of Cattle Total Paid Claims (BDT) Loss Ratio (%) (2014) Claims 566 107,880 7 173,842 161.1% Source: Sajida Foundation 2015 36 The loss ratio is the ratio of claims paid to premium earned: a loss ratio greater than 100% implies that the insurer has paid out more in claims than it has collected in premiums, or in other words it has incurred a net financial loss on its underwriting business. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 57 5.5. Constraints to the development of agricultural insurance In spite of the initiatives highlighted in the preceding Section, agricultural insurance provision in Bangladesh is still extremely low and very few farmers have any knowledge or understanding of, or access to, crop, livestock or fisheries insurance. A national microinsurance demand assessment survey implemented by PKSF in 2010 with 3,500 poor and low income households under the DIISP Project showed that only 1% of respondents had access to livestock insurance and that very few had any form of coping mechanism to deal with major floods or other shocks which cause the death of their animals; no respondents had access to crop or aquaculture insurance and the majority of them whether ultra-poor, poor or non-poor were unable to cope with large production shocks (PKSF undated). The formal and informal agricultural insurance market in Bangladesh has shown modest develop- ment in recent years, but less than 1% of agricultural producers currently benefit from agricultural insurance. Beyond these pilot programs insurers identify a series of key constraints to their entry into agricultural insurance provision including lack of access at affordable cost to data and statistics (climate, hydrological, crop and livestock production data etc.) with which to conduct risk assessment and rating, lack of technical knowledge and expertise to design and rate crop and livestock insurance products, and lack of rural distribution channels through which to market and administer such programs cost effectively. International experience suggests that there are core reasons for the failure of agricultural insurance markets and for the failure of pilots to scale up. Most of these are equally applicable to Bangladesh: •• Lack of time-series data to design and rate crop, livestock and fisheries insurance products. In Bangladesh it appears that for major crops such as paddy and wheat, crop area, production and yield data have been systematically recorded for many years by the Bangladesh Bureau of Statistics and the Department of Agricultural Extension, DAE and that this data could be used for the design on crop insurance policies. Such data is not, however, available for cash crops, horticulture and minor crops. The density of weather stations which can provide time-series daily rainfall and other meteorological data is however, relatively low and investment is required in new AWS if weather index insurance is to be developed in future. The development of livestock and fisheries insurance products and programs is severely constrained by the lack of time-series production and mortality statistics at the individual house-hold level. •• Lack of technical know- how on the part of the insurance companies in the design and rating and implementation of crop and livestock and aquaculture insurance. Although the Insurance Act 2010 obliges non-life insurance companies to underwrite a significant portion of their portfolios with the rural and social sectors, to date only 3 (Pragati, SBC and Green Delta) of the 46 non-life insurers have started to develop suitable non-life insurance products to meet the needs of the rural and social sectors. In these exceptional cases, the local insurers have lacked technical know-how and expertise to design and rate in- dex-based programs for excess or deficit rainfall and or flood and have had to rely on development partners and NGOs to bring in international design specialists. There is an important need to build local technical capacity in the design and rating of crop, livestock, poultry and aquaculture insurance in Bangladesh. •• Lack of insurance capacity especially for catastrophe risk. Insurers do not have the financial capacity to cover catastrophe risk associated with drought, flood and other typical agricultural risks, and similarly SBC the national non-life insurer and reinsurer also has a relatively low ability to retain catastrophe risk. Access to international reinsurance capacity is apparently very low for agricultural insurance and it is expensive, particularly where there is a lack of data. In this context it is important to note that IDRA in conjunction with the insurance sector is currently conducting a feasibility study into the formation of a national reinsurance company for all classes of life and non-life business. •• High distribution costs. Given that farms tend to be small and spread over wide areas, agricultural insur- ance typically carries very high distribution costs. These are exacerbated by the lack of established insur- ance branch or agent networks in the rural areas: in Bangladesh few of the private insurance companies have well established branch networks and sales agents in rural areas. Conversely in Bangladesh the rural MFIs and NGOs and cooperatives have very well established organisational and administrative systems for their members and these institutions could provide low-cost, effective distribution channels for the private commercial insurance companies if an enabling system could be created that provides incentives to the MFIs to act as agents to the insurance companies (under some form of partner-agent agreement). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 58 •• High loss assessment costs. In relation to traditional indemnity insurance, the costs of assessing crop and livestock and fisheries losses are usually extremely high, particularly in relation to small insured farm units, where the premium volume generated is usually very low and insufficient to cover the costs of the loss assessment. This is one of the main reasons that private insurance companies in Bangladesh have been reluctant to provide indemnity-based crop and livestock and aquaculture insurance. •• High development costs. Index insurance, although lowering the transaction cost, carries extremely high development and other start-up costs. These start-up costs cannot usually be justified by com- mercial insurers, especially on an individual basis. In Bangladesh, it is notable that all the pilot index insurance initiatives in recent years have relied heavily on funding by international donors or NGOs in the development phase. Issues also need to be addressed of who will fund the implementation costs of these programs after the pilot projects have been completed and while the programs have yet to reach scale and financial sustainability and here there may be important roles for GOB to play. •• Low affordability of premiums. Small farmers are unwilling, and may be unable, to pay for com- mercially priced agricultural crop and livestock insurance. The problem of affordability was one of the main reasons why premiums were capped at well below actuarially determined rates under the former SBC crop and livestock insurance programs. Under most of the large-scale agricultural insurance programs in South Asian countries such as India, Vietnam, China, South Korea and Japan, governments provide major premium subsidy and or reinsurance support to agriculture insurance. •• Poor understanding of insurance by farmers. This reduces the demand for agricultural insurance and may lead to farmers buying, or being sold, inappropriate products. •• Lack of an enabling legal and regulatory framework. As noted in the introduction to this Chapter, in Bangladesh the Insurance Act does not support crop or livestock index insurance and a regulatory framework for microinsurance is still being developed. Furthermore, the design of post-disaster relief often results in the crowding out of insurance. If farmers expect post disaster relief from government, development agencies or NGOs, they have little incentive to purchase insurance. GOB Proposals to Introduce a National 5.6. Insurance Policy for Bangladesh GOB identifies the lack of a national policy for insurance as a major reason for the lack of development of insurance in Bangladesh. GOB recognises that one of the major reasons for the fragmented insurance market and lack of insurance development and penetration of all classes of life and non-life insurance has been due to the lack of a national policy for insurance. For this reason, BFID- MOF-GOB have in 2014 produced a document titled National Insurance Policy- 2014. This document highlights the great many problems facing the insurance industry both in terms of demand and supply constraints, the measures government has already taken since 2010 to strengthen the legal and reg- ulatory and supervisory framework though the passing of the IDRA Act 2010 and Insurance Act 2010 and then presents GOB’s vision for transforming the insurance sector and details 50 specific measures which would be implemented under this National Insurance Policy (GOB 2014). In the case of the agricultural sector the same report proposes to introduce crop, livestock and fisheries insurance on a massive scale. The report states: “Massive development occurred in agricultural sector of Bangladesh due to use of scientific tech- nology, fertilisers, high yielding seeds, insecticides etc. But still how huge harvest get damaged due to natural disaster. So we can introduce massively corn insurance, fisheries insurance, cattle insurance etc. to ensure continuation of development in the field of agriculture, fisheries and ani- mal resources.. In the past, such non-traditional insurances were introduced through pilot program in small scale. But due to unwillingness about insurance, small number of policy, non-existence of area based weather forecasting centre, the agricultural insurance did not get success. Agricul- tural insurance is widely seen in developed countries. There is scope to extend insurance service through creating separate insurance company for agriculture. If the agriculture, fisheries and animal resources are brought under insurance, the farmers would have no fear to be ruined” (GOE 2014). BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 59 6. Opportunities for agriculture insurance and potential role of government The final section of this Situation Analysis Report presents a series of opportunities for agricul- tural insurance market development identified by the WBG Team in consultation with the Bank and Financial Institutions Division (BFID) of the Ministry of Finance, and which will be investi- gated further through a diagnostic report. The WBG team has also consulted with the Ministry of Livestock and Fisheries, and other key public and private sector stakeholders during our two mission visits in November 2014 and again in January 2015. The diagnostic report will also present options for government support roles and the fiscal costs for GOB to consider. During the preparation of the Diagnostic Report, the WBG will closely appraise the institutional framework options for possible public-private partnership options for agricul- tural insurance in Bangladesh as well as the potential support functions and roles of GOB and to also present the fiscal cost implications of such support and the potential economic benefits from such interventions. This Section also briefly addresses the potential important roles that GOB could perform in order to promote the development of agricultural insurance in Bangladesh in future. 6.1. Potential opportunities for agricultural insurance Dairy cattle insurance At the Request of the Secretary, Ministry of Fisheries and Livestock the WBG is exploring op- portunities to develop suitable insurance cover for the dairy cattle sector. This work is being conducted in conjunction with the Department of Livestock Services, DLS. Dairy cattle insurance is seen by DLS as part of a package of measures designed to increase investment in improved cattle breeds and in increasing milk production and incomes for small dairy producers. In Bangladesh, there are about 11 million dairy cattle. About 10% of the national dairy business is managed by commercial diary producers owning between 10 and 50 head of cattle and in rare cases, even larger herds. The bulk of production is, however, in the hands of small scale emerging dairy cattle producers typically owning about five dairy cows and then resource poor house- holds with 1 or 2 animals and whom own very little or no land and whom are often women headed BANGL AD ESH : P O L I C Y O P T I O N S F O R A G R I C U L T U R E I N S U R A N C E 61 households. From a national economic perspective the demand for fresh milk and milk based products is increasing by about 5% per annum and although major investment is being made in developing the livestock sector, supply is currently lagging behind demand. Dairy cattle insurance provided as part of a package of value added services could unlock credit to enable small-scale producers to invest in high milk yielding cross-bred cows as well as to protect the owner against catastrophe natural events and disease outbreaks leading to the death of their animals. Index-based livestock insurance will not fit the needs of the dairy cattle sector in Bangladesh and therefore the WBG is exploring opportunities to develop traditional indemnity-based livestock accident and mortality cover which can either be marketed on an individual animal basis, or for larger dairy enterprises on a herd basis. Insurers usually set a series of pre-conditions that must to be in place before implementation of a dairy cattle insurance program, including: 1. all insured cattle must be registered and individually identified by ear tagging (and in future, possibly by micro-chip); and 2. before being insured each animal must undergo a pre-inspection to certify that the animal is in sound health and that its vaccination record is fully up to date. The very high costs for an insurer of conducting these pre-inspections means that discussions are necessary to seek the collaboration of DLS and the cooperatives/social enterprises and other delivery channels to carry out these procedures / pre-conditions. Equally under this initiative options for developing community-based dairy livestock insurance building on success stories from other Asian countries is being explored. The development of a sustainable dairy cattle insurance program in Bangladesh will require the active collaboration of not only the MFIs, but also the formal commercial insurance sector. The Situation Analysis presented in Chapter 5 shows that although the MFI’s have considerable expe- rience with individual dairy and beef cattle credit guarantee insurance, to date the private commercial insurers have not provided any livestock insurance. The dairy cattle insurance initiative is built on the recognition that livestock insurance faces catastrophe exposures (e.g. in the form of epidemic disease and/or cyclone and storm surge/flood) and that the formal insurance sector will need play a leading role in any program in Bangladesh, or the cooperatives/social enterprises will be exposed to the risk of catastrophic insurance losses. Any dairy cattle insurance program is probably most cost-effectively promoted and imple- mented through the leading milk cooperatives and social enterprises in Bangladesh, several of whom have indicated that they have considerable potential demand from their milk producing members for such a cover. These dairy cooperatives could potentially enter into partner-agent, PA, relationships with the formal commercial insurance companies to market dairy cattle insurance to their members, to assist in the pre-registration animal health inspection and certification process; in the col- lection of premiums on behalf of the insurers and then in claims notification. Such a PA model would reduce the administration and operating overhead costs for the insurance company to manageable levels. A series of data and information requests were prepared by WBG in the January 2015 Mission for the DLS and Cooperatives to collect and collate by end February 2015. On the basis of the information provided a set of options for a dairy livestock insurance program will be analysed and presented in the Diagnostic Technical Report which will be presented to BFID-MOLF in May/June 2015. Fisheries / aquaculture insurance The Ministry of Livestock and Fisheries and Department of Fisheries has identified a need to develop suitable aquaculture insurance products for the sector. DOF is keen to introduce aqua- culture insurance both for the 4 million or more smallholder fresh water fin-fish producers of carp, tilapia etc. and for the shrimp and prawn producers. On the basis of the discussions between DOF and WBG it has been agreed that shrimp insurance potentially offers an easier entry point to developing aquaculture insurance in Bangladesh in a first phase. Another option which might be considered is cover for the 60,000 artisanal fishermen who are registered with DOF. Initial work is being focused on the shrimp (& prawn) sector given its importance to farmers located in the southern coastal regions of Bangladesh and the high risk exposure to tropical BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 62 cyclone damage and tidal surge and fact that shrimp exports are a very important source of foreign exchange for Bangladesh. SBC tried unsuccessfully to introduce shrimp insurance into Ban- gladesh in the 1990s. Shrimp insurance is a recognised class of aquaculture insurance internationally: countries which have developed commercial shrimp insurance include Mexico, China and Thailand. This WBG-DOF initiative will aim to draw on this international experience. Diseases in shrimps (including white spot virus disease) are a major challenge not only for the industry, but also for insurers and their reinsurers. Research is at an initial stage into the cover design options for a dedicated shrimp insurance cover for Bangladesh. WBG is working closely with DOF and aquaculture research institutes including World Fish Bangladesh to understand the terms and conditions under which diseases in shrimps might be considered under any insurance program for the shrimp sector. Crop insurance This Situation Analysis has shown that crop production in Bangladesh is very exposed to ca- tastrophe drought, flood and tropical cyclones and which cannot be managed by farmers and governments alike but that currently in 2015 there is no commercial crop insurance program operating in Bangladesh. Chapter 5 showed that in the late 1970s SBC, a state insurance company, attempted to introduce an individual farmer multiple peril crop insurance, MPCI, program but that this program incurred heavy underwriting losses and was withdrawn by the 1990s. Since then no insurance company has offered crop insurance products or programs. There are, however, currently two import- ant crop weather index insurance, WII, initiatives under development: (a) an IFC funded collaboration with Green Delta Insurance company which as an entry point is designing a gridded-rainfall index program for Bangladesh; and (b) an ADB-financed rainfall index program which is being developed by SBC with an Indian WII specialist and which will use individual ground-based weather stations to trigger payouts. WBG identify potential to develop Area Yield Index Insurance, AYII, in Bangladesh for important cereal crops such as paddy/rice, wheat and maize, and which would lend itself to specific linkage to crop-credit provision. Any AYII program would be designed to complement the current weather based crop index insurance initiatives being developed by Sadharan Bima Corporation supported by ADB and Green Delta supported by IFC. Area yield index insurance could be developed as a retail prod- uct relatively quickly and at low start-up cost which could be linked to crop-credit provision through the state banks and commercial banks, thereby leveraging farmer’s access to credit and contributing towards stabilising of farm production and incomes in times of major catastrophe losses in the crop sector. Area-Yield Index Insurance, AYII, has a lengthy history in West Bengal and other Indian states and merits further investigation as a potential option for Bangladesh. Seasonal crop cutting is at the heart of an AYII system, and Bangladesh benefits from a highly developed system of seasonal crop production and yield reporting based on sample crop-cutting jointly led by the BBS and the Department of Agriculture, DAE. Fully Subsidized Insurance for the poorest Given the current level of government post-disaster expenditures, Government of Bangladesh might consider to offer fully-subsidized insurance to particularly vulnerable farmers who might face severe stress in times of a disaster, but who may not be able to purchase insurance them- selves. Potential benefits of such an option are enhanced timeliness, discipline and better targeting. In the technical report, the costs and benefits of this option will be compared to the existing mechanisms of ex-post disaster expenditures. Fully-subsidized insurance built potentially on the existing flood index could be explored. Some 5.4 million Bangladeshi families live in the low lying flood and erosion prone areas in or adjacent to major rivers known as Char lands and they are subject to major floods every three to five years which can threaten their livelihoods. Chapter 5 showed that over the past five years Oxfam UK in conjunction BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 63 with Pragati Insurance Company has developed a unique fully subsidised flood index insurance pro- gram that is designed to protect the livelihoods of vulnerable families living in the Char areas against extreme monsoon season river flooding. The program was launched two years ago in selected villages in Sirajganj District, with technical and financial support from an international reinsurer Swiss Re and in 2014 flood payouts were triggered and promptly settled. The flood index insurance partners are seeking to scale up the fully subsidised index insurance program to cover 500,000 flood prone households over the next five years. They are therefore interested to seek technical and financial assistance from interested parties (government, development partners etc.) to scale-up this program. Options appear to exist to develop fully subsidised index insurance in Bangladesh as part of Government’s disaster risk financing strategy cum social protection strategy for the poorest segments of the population and whom often live in the flood prone Char areas. While such a cover would not fall strictly under agricultural insurance, the WBG has a great deal of experience in supporting governments in making informed decisions about such products and if requested by BFID we would be pleased to assist them to investigate this option further. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 64 Bibliography Agricultural Policy Reforms and Structural Adjustments in Bangladesh, MPRA Paper No. 46540, April 2013 Asian Development Bank , Air WorldWide, ADPC– Capacity Building for Disaster Risk Finance, 2014 Ahmed, T. 2013. Scoping report: current status of index-based insurance in Bangladesh. Worldfish, Penang, Malaysia. Project Report 2013-38. 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The Process Note. CIRM Advisory Services. Disaster Management Bureau - Disaster Management & Relief Division, National Plan for Disaster Management (2010-2015) DMB/MoFDM, May 2008, National Plan for Disaster Management 2008-2015 GlobalAgRisk 2010. GlobalAgRiskProjects in Vietnam, Peru, and Mongolia: Four Case Studies. Innovation in Catastrophic Weather Insurance to Improve the Livelihoods of Rural Households. GlobalAgRisk, Inc, Lexington, KY 40504, USA GOB 2014. National Insurance Policy -2014. Government of People’s Republic of Bangladesh, Ministry of Finance, Bank and Financial Institution Division GTZ (2009). Development of an index-based micro flood insurance product in Indonesia: a public-private partnership Mu- nichRe & GTZ - Lessons Learnt. GTZ 2009 Hossain, Md. L, and M. K. Hossain (undated). Climate Change, Sea level Rises and Coastal Vulnerabilities of Bangladesh with Adaptation Options. IFPRI 2013. Agriculture and Adaptation in Bangladesh -Current and Project Impacts of Climate Change. International Food Policy Research Institute Discussion Paper 01281, July 2013. Khan, M. R., S Roddick and E. Roberts. 2013. Loss & Damage: Assessing Microinsurance as a Tool to Address Loss and Damage in the National Context of Bangladesh Lotsch, A., W. Dick and ).P. Manuamorn (2010). Assessment of Innovative Approaches for Flood Risk Management and Financ- ing in Agriculture. Agriculture and Rural Development Discussion Paper 46, The World Bank, Washington DC. Maxwell Stamp Limited 2011. Final Report: Volume 3 Draft Rules and Regulations. Improvement of Capital Marker and Insur- ance Governance Project, Sub-Project 2, Enhancement of Governance and Capacity of the Insurance Sector. Prepared for BFID-MOF. Prepared by Maxwell Stamp Ltd. Ministry of Agriculture, Seventh Five Year Plan (7FYP), FY2016-2020 National Academy for Planning and Development, Initiatives and Achievements in Managing Disaster for Micro Finance Sec- tor: Public Sector Stewardship of Palli Karma Shahayak Foundation in Bangladesh Oxfam 2013. Sirajganj Meso-Level Flood Index Insurance Product. http://oxfamblogs.org/bangladesh/wp-content/up- loads/2013/08/Product-Brochure1.pdf PKSF (undated). Findings of the Microinsurance Market Assessment Survey: A Brief Summary Developing Inclusive Insurance Sector Project (DISP). A project of Palli Karma-Sahayak Foundation. PKSF 2014. Developing Inclusive Insurance Sector Project (DIISP). Activity Report dated 24/12/2014. Proshika 2007. Activity Report. July 2006 - June 2007. Skees, J.R., & A. G. Murphy 2009. ENSO Business Interruption Index Insurance for Catastrophic Flooding in Piura, Peru. GlobalA- gRisk, Inc, Lexington, KY 40504, USA Uddin, M.M., M.N. Sultana, O.A. Ndambi, O. Alquasi, T. Hemme and K.J. Peters, 2011. Milk production trends and dairy develop- ment in Bangladesh. Outlook on Agriculture, Vol 40, No 3, pp263 - 27. Uzzaman, Md, A. (undated). Impact of Sea level Rise in the Coastal Areas of Bangladesh: A Macroeconomic Analysis. World Bank & ADB, 2007. 2007 Floods in Bangladesh: Damage and Needs Assessment and Proposed Recovery Program - a joint report by the World Bank and the Asian Development Bank, November 2007. World Bank 2010. Agricultural Insurance in Bangladesh. Promoting Access to Small and Marginal Farmers. Report No 53081-BD. The World Bank, Washington DC. BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 65 Annexes Annex 1. Form D Assessment of Loss and damage BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 68 Annex 2. Chronology of Major Drought Events and its impact in Bangladesh Year Details 1791 Drought affected Jessore district, prices doubled or tripled. 1865 Drought preceded Dhaka famine. 1866 Severe drought in Bogra, rice production of the district was hit hard and prices tripled. 1872 Drought in Sundarbans, crops suffered greatly from deficient rainfall. 1874 Extremely low rainfall affected Bogra, great crop failure. 1951 Severe drought in Northwest Bangladesh substantially reduced rice production. 1973 Drought reponsible for the 1974 famine in northern Bangladesh, one of the most severe of the century. 1975 Drought affected 47 percent of the country and more than half of the total population. 1978-79 One of the most severe droughts in recent times with widespread damage to crops reducing rice production by about 2 million tonnes, directly affecting about 42 percent of the cultivated land and 44 percent of the population. 1981 Severe drought adversely affected crop production. 1982 Drought caused a loss of rice production of about 53 000 tonnes while, in the same y ear, flood damaged about 36 000 tonnes./ 1989 Drought dried up most ofd the rivers in Northwest Bangladesh with dust storms in several districts, including Naogaon, Nawabganj, Nilpahamari and Thakurgaon. 1994-95 and The most persistent drought in recent times, it caused immense crop damage, especially to rice and jute, the main crops of 1995-96 Norhtwest Bangladesh and to bamboo clumps, a main cash crop in the region Source: ADPC & FAO 2007 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 69 Annex 3. Crop production and Yields Annex 3.1. Aman Paddy Area, Production and Yields 2002/03 to 2011/12 Aman Paddy Local Variety, Area, Production & Yield 8000 0.70 7000 0.60 Area (000 Acres) & Production (000MT) 6000 0.50 Average Yield (MT/Acre) 5000 0.40 4000 0.30 3000 0.20 2000 1000 0.10 0 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Aman Paddy HVY Variety: Area, Production & Yield 12000 1.10 Area (000 Acres) & Production (000MT) 10000 1.05 Average Yield (MT/Acre) 8000 1.00 6000 0.95 4000 0.90 2000 0.85 0 0.80 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Aman Paddy All Varieties: Area, Production & Yields 16000 1.00 0.95 14000 Area (000 Acres) & Production (000MT) 0.90 12000 Average Yield (MT/Acre) 0.85 10000 0.80 8000 0.75 0.70 6000 0.65 4000 0.60 2000 0.55 0 0.50 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Source: BBS 2013 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 70 Annex 3.2. Aus Paddy Area, Production and Yields 2002/03 to 2011/12 Aus Paddy Local Variety: Area, Production & Yield 2500 0.54 0.52 Area (000 Acres) & Production (000MT) 2000 0.50 Average Yield (MT/Acre) 1500 0.48 0.46 1000 0.44 500 0.42 0 0.40 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Aus Paddy HVY Variety: Area, Production & Yield 2500 1.00 0.90 Area (000 Acres) & Production (000MT) 2000 0.80 0.70 Average Yield (MT/Ha) 1500 0.60 0.50 1000 0.40 0.30 500 0.20 0.10 0 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Aus Paddy All Varieties: Area, Production & Yields 3500 0.90 0.80 3000 Area (000 Acres) & Production (000MT) 0.70 2500 Average Yield (Kg/Acre) 0.60 2000 0.50 1500 0.40 0.30 1000 0.20 500 0.10 0 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Source: BBS 2013 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 71 Annex 3.3. Wheat and Maize Area, Production and Yields (2002/03 to 2011/12) Wheat Area, Production and Yield 1200 1.2 1.1 Area (000 Acres) & Production (000MT) 1000 1.0 Average Yield (MT/Acre) 800 0.9 600 0.8 0.7 400 0.6 200 0.5 0 0.4 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) MaizeArea Production and Yield 1600 3.00 1400 Area (000 Acres) & Production (000MT) 2.50 1200 Average Yield (MT/Acre) 2.00 1000 800 1.50 600 1.00 400 0.50 200 0 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Source: BBS 2013 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 72 Annex 3.4. Boro Paddy Area, Production and Yields 2002/03 to 2011/12 Boro Paddy Local Variety: Area, Production & Yield 600 0.86 0.84 Area (000 Acres) & Production (000MT) 500 0.82 0.80 Average Yield (MT/Acre) 400 0.78 0.76 300 0.74 0.72 200 0.70 100 0.68 0.66 0 0.64 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Boro Paddy HVY Variety: Area, Production & Yield 18000 1.60 16000 1.55 Area (000 Acres) & Production (000MT) 14000 1.50 Average Yield (MT/Ha) 12000 1.45 10000 1.40 8000 1.35 6000 1.30 4000 1.25 2000 1.20 0 1.15 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Boro Paddy All Varieties: Area, Production & Yields 20000 1.80 18000 1.60 Area (000 Acres) & Production (000MT) 16000 1.40 Average Yield (Kg/Acre) 14000 1.20 12000 1.00 10000 0.80 8000 0.60 6000 0.40 4000 2000 0.20 0 – 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Area (000 Acres) Production (000 MT) Average Yield (MT/Acre) Source: BBS 2013 BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 73 Annex 4. Fisheries and Aquaculture Production in Bangladesh Table A4.1. Annual Fish Production in Bangladesh (Metric Tons) Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 A. Inland 1,646,819 1,741,360 1,848,735 1,952,573 2,065,723 2,381,917 2,381,916 2,515,354 2,683,162 2,821,266 Fisheries (A) Inland 732,067 859,269 956,686 1,006,761 1,060,181 1,029,937 1,029,937 1,054,585 957,095 961,458 Open Water (Capture) (B) Inland 914,752 882,091 892,049 945,812 1,005,542 1,351,980 1,351,979 1,460,769 1,726,067 1,859,808 Closed Water (Aquaculture) Ponds/Lakes 800,092 761,381 764,126 816,652 870,827 1,206,395 1,196,113 1,275,830 1,529,761 1,653,573 (Fin Fish) Shrimp/ 114,660 120,710 127,923 129,160 134,715 145,585 155,866 184,939 196,306 206,235 Prawn Farms B. Marine 455,207 474,597 479,810 487,438 497,573 517,282 517,282 546,333 578,620 588,988 Fisheries Industrial 32,606 34,114 34,084 35,391 34,159 34,182 34,182 41,665 73,386 73,030 Artisanal 422,601 440,483 445,726 452,047 463,414 483,100 483,100 504,668 505,234 515,958 Total 2,102,026 2,215,957 2,328,545 2,440,011 2,563,296 2,899,199 2,899,198 3,061,687 3,261,782 3,410,254 Bangladesh (A +13) Annual growth rate % 5.42% 5.08% 4.79% 5.05% 7.3% 7.32% 5.60% 6.54% 6.13% Source: DOF 2013. Annual Report Figure A4.1. Inland and Marine Fish Production (Metric Tons) 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 A. INLAND FISHERIES B. MARINE FISHERIES TOTAL BANGLADESH (A + B) BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 74 Figure A4.2. Breakdown of Inland Aquaculture Production (Metric Tons) 2,000,000 1,500,000 1,000,000 500,000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (b) Inland Closed Water (Aquaculture) Ponds/lakes (fin fish) Shrimp/Prawn Farms BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 75 Annex 5. Donor Expenditure on Humanitarian assistance by event 2000-2014 US$ Table A5.1. Bangladesh: Donor expenditure on humanitarian assistance 2000 to 2014 Year Floods (& Cyclone Cold weather Un-allocated / Total Comment Landslides) Other 2014 3,817,756 1,272,169 0 16,017,735 21,107,660 2013 4,388,493 3,736,572 30,211 18,184,259 26,339,535 2012 17494232 0 265252 14025225 31,784,709 2011 9,242,607 15,028,713 296,697 41,735,349 66,303,366 2010 14,024,577 14,024,577 2009 0 14,647,744 1,255,095 21,345,872 37,248,711 TC AI LA 2009 2008 1,979,015 27,368,272 0 13,607,152 42,954,439 2007 84,504,963 215,695,722 39,388 6,278,188 306,518,261 TC SI DR 2007; Floods 2006 10417624 0 0 1800000 12,217,624 2005 1,281,577 0 0 5,066,950 6,348,527 2004 106,343,540 0 0 2,565,863 108,909,403 Major floods 2003 308,148 0 191,598 3,102,135 3,601,881 2002 1,468,536 610,851 0 4,179,536 6,258,923 2001 1,906,163 1,906,163 2000 4,836,236 0 0 0 4,836,236 Total 260,107,304 278,360,043 2,078,241 149,814,427 690,360,015 37.7% 40.3% 0.3% 21.7% 100.0% Ann Average 18,579,093 21,412,311 159,865 10,701,031 46,024,001 Source: UNOCHA. Financial Tracking Service, FTC, http://fts.unocha.org Cost of Humanitarian Assistance following natural disasters (Tropical Cyclone, Floods, Cold Weather, Other) US$ 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Floods (& Landslides) Cyclone Cold weather Un-allocated / Other BANGL AD ESH : A G R I C U L T U R E I N S U R A N C E S I T U A T I O N A N A L Y S I S 76