Is Crop Insurance a Possible Solution for Climate Change Mitigation of Myanmar Farmers?

Is Crop Insurance a Possible Solution for Climate Change Mitigation of Myanmar Farmers?

Published: 2024.08.26
Accepted: 2024.08.14
66
Professor
Department of Agricultural Economics Yezin Agricultural University, Myanmar
1Research fellow
Department of Agricultural Economics, Yezin Agricultural University, Nay Pyi Taw, Myanmar
Demonstrator
Department of Agricultural Economics, Myanmar

ABSTRACT

Agriculture plays a major role in Myanmar's economy. Despite the country's strong reliance on it, Myanmar's agriculture confronts a significant degree of uncertainty due to climate change. Moreover, it is impossible for farmers to predict agricultural hazards or take on the associated risks and uncertainties on their own. Crop insurance is one of the various risk management techniques used in the agriculture sector to prevent or mitigate the consequences of weather-related disruptions and other hazards. Crop insurance has a significant potential to boost investor inflow into the agriculture industry and raise farmers' incomes. Crop insurance also helps farmers adopt new and improved farming practices, increases their access to formal credit, and, most importantly, provides financial support in the form of indemnity, which guarantees the continuation of their farming operations. Therefore, one potential way to help Myanmar's farmers lessen the effects of climate change is through a crop insurance program. Due to the fact that crop insurance program is yet unfamiliar to farmers in Myanmar, building farmers' trust and increasing their level of awareness prior to the program implementation are crucial for crop insurance programs to be highly successful and efficient for farmers. Due to the possibility that farmers' attitudes on crop insurance may evolve over time and that the benefits of crop insurance may become apparent gradually. Furthermore, it will help farmers bounce back more quickly from Myanmar's long-standing issue of poor agricultural production.

Keywords: Agriculture, Climate Change, Risks, Crop insurance, Myanmar

INTRODUCTION

Myanmar's economy depends heavily on agriculture, regarded as the country's lifeblood. Despite the nation's strong reliance on agriculture, Myanmar's agriculture faces a great deal of uncertainty because of climate change and the possibility of its endangering the lives of farmers. In modern agriculture, risk management comes in a variety of forms. By using these risk management techniques, the negative effects of natural catastrophes and other catastrophic events are lessened. Notably, the increased unpredictability of the sector's vulnerability to several kinds of agricultural risks is largely a result of climate change. These risks could have an impact on the farming sector's finances and output including price, production, and other hazards. These dangers impede increases in agricultural output and deter new investment in the field.

The agriculture sector is often believed to be particularly vulnerable to climate change (Oo et al., 2023). Owing to their extreme reliance on the weather, farmers in Myanmar are especially susceptible to dangers associated with agriculture, including fluctuations in temperature, variations in rainfall, droughts, and floods. Natural calamities such as droughts, floods, and pest assaults pose a yearly challenge to Myanmar's agriculture. Due to the increased yield/price volatility caused by the unpredictability and unequal distribution of monsoon rains, farmers were exposed to greater risk and insecurity.

One of the many risk management strategies used in the agriculture industry to avoid or lessen the effects of weather-related disruptions and other hazards is crop insurance. Similarly, insurance for agriculture is seen as an addition to credit. Therefore, it is anticipated that the use of crop insurance will increase along with improvements in the availability of formal credit and financing. In this sense, crop insurance is thought to serve two purposes in terms of risk management for the agricultural industry (Balcita, 2015).

Historically, the absence of agricultural insurance has hampered farmers' capacity to lessen the financial burden of natural disasters. Farmers struggle with insect and disease-related crop damage in addition to unpredictable weather. Their predicament is made worse by low rice prices and inadequate infrastructure. The most famous instance happened in May 2008 when Cyclone Nargis, a tropical storm that killed over 138,000 people and ruined over 600,000 hectares of farmland with powerful winds and pouring rain, devastated the nation (Oxford Business Group, 2019).

Furthermore, in the case of crop loss, crop insurance can be seen as a useful risk management strategy. In fact, Hill et al., (2014) noted that agricultural insurance has a high potential to increase the income of farmers as well as improve the inflow of investments in the agriculture sector. Similarly, they contended that successful crop insurance policies increase lenders' readiness to participate in agricultural loans while also motivating farmers to take calculated risks by planting high-yielding, disaster-resistant crops.

In Myanmar, the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) revealed a multi-stakeholder task force to initiate weather index insurance based on rainfall. This weather index insurance is widely practiced in agricultural-producing countries. At present, Myanmar plans to implement this weather index insurance. A public-private partnership task force led by Myanmar Insurance under the Ministry of Planning and Finance is trying to help manage risk triggered by climate change with the weather index insurance for vulnerable farmers (MOI, 2023). Since 2016, the Syngenta Foundation for Sustainable Agriculture (SFSA) has been in discussions with the Ministry of Agriculture and Irrigation on how insurance products can be scaled to reach a greater percentage of the farming population (SCBF, 2022).

LESSONS LEARNT ABOUT FARMERS’ RISK MANAGEMENT

It has been opined by Oyinbo et al., (2013) that farmers are unable to foresee agricultural hazards and to assume the risks and uncertainties on their own. In this regard, they are faced with the alternative of transferring or sharing the risks involved in the daily management of their farms with other entities (Oyinbo et al., 2013). As a result, farmers employ a wide range of risk management techniques to lessen the negative effects of crop output or revenue unpredictability (Sherrick et al., 2004). These risk mitigating tools may include crop insurance ailment, crop diversification, livestock and poultry farming, membership to a union or farmers’ organization, pooling of resources with other farmers, and having job other than farming (Tsikirayi et al., 2012).

Given the range of hazards associated with the agriculture industry, farm insurance has been identified as a useful tool for risk management. Oyinbo et al. (2013) regarded agricultural insurance as one of the prominent risk transfer tools that are used by farmers to share or transfer the risks and uncertainties associated with their farming enterprise. He further noted that agricultural insurance not only lessens the negative effects of weather-related disasters, but it also boosts capital investment in agricultural production, gives farmers confidence to implement new, improved farming techniques, makes formal credit more accessible to them, and above all provides financial support in the form of indemnity, which ensures the continuation of their farming operations.

These motivational incentives using agricultural insurance were also highlighted in the study of Nahvi et al., (2014). Remarkably, these studies emphasized that farmers' income is stabilized by agricultural product insurance, particularly in cases where crop loss occurs as a result of natural disasters and other calamitous events. Although crop insurance can stabilize farmers' incomes, it may prompt farmers to increase the amount of agrochemical inputs, which causes the deterioration of the ecological environment (Chang & Mishra, 2012; Lai, 2017). It can thus be seen that by altering farmers' expected income, crop insurance modifies their behavior regarding agrochemical inputs, which may have positive or negative effects on the environment (Möhring et al., 2020; Urruty et al., 2016).

Furthermore, the influence of crop insurance on farmers' behavior of agrochemical input also depends on the insurance terms. Specifically, compared to insurance with lesser coverage and a higher deductible, crop insurance with higher coverage and a lower deductible spreads more risk and offers farmers a greater level of protection (Belissa et al., 2019). In turn, farmers tend to consider the coverage level when participating in crop insurance, which influences their production behavior (Mol et al., 2020). The higher the coverage level of crop insurance, the more it helps to stabilize farmers' output expectations (Urruty et al., 2016; Yu et al., 2021).

PERCEPTIONS OF MYANMAR FARMERS ON CROP INSURANCE SCHEME

Weather index-based crop insurance, based on rainfall and widely practiced in agricultural-producing countries, was introduced to protect farmers from risk triggered by climate change with the weather index insurance as pilot projects in Yangon, Bago and Ayeyawady regions in 2023 (Global New Light of Myanmar, 2023). A public-private partnership task force led by Myanma Insurance under the Ministry of Planning and Finance launched the pilot project by covering loan to farmers by government with insurance. The Task Force includes Myanma Insurance, experts, UMFCCI, Myanmar Rice Federation, and Myanmar Pulses, Beans, Maize and Sesame Seeds Merchants Association.  The weather index insurance, when it operated full swing, was based on the amount of money invested for cultivation by farmers or the loan to farmers by the government. The government will also take steps not to lose the loans to farmers by Myanma Agricultural Development Bank and the State economic promotion fund. Buying crop insurance may become mandatory for farmers and the authorities expect them to buy the crop insurance for one to two per cent of the loan provided by the government.

According to the implemented pilot project of crop insurance, awareness and perceptions of the Myanmar farmers are promptly inquired in Nay Pyi Taw in November and December, 2023. Farmers are facing climate change such as heavy rain, drought, uneven rainfall, and flood in Myanmar. However, among the 255 farmers, 96% of farmers don’t know about crop insurance system, and they usually manage to mitigate the risk of crop losses by climate change as replanting, change the sowing time, and use the alternative crop varieties in their crop farming. Nevertheless, most of the farmers (63%) don’t want to participate in the crop insurance scheme. The reasons behind of are the farmers were less trust to insurance system, and compensation is less than actual loss (Pilot project of crop insurance in Nay Pyi Taw, 2023).

CONCLUSION

The potential and actual risks of climate change could be managed by an effective mechanism of crop insurance (Taylor, 2016). The risks and burden of the crop losses would be transferred and distributed to the third party who pays a particular amount by way of a fixed premium. The crop insurance is a possible tool that assures the farmers from uncertainties of crop losses due to the natural causes of climate change which are beyond the farmer’s control.  In Myanmar, the agricultural-activity dependent population is highly and constantly vulnerable to weather uncertainties and income instability. Therefore, agricultural insurance would serve as a financial grantee for the farmers by ensuring yield risks of crop production (Goodwin & Mahul, 2004; Rao, 2002; Clarke et al., 2012).

According to the lessons learnt from various literature and perception of Myanmar farmers, the study concludes that crop insurance scheme is exactly one of the possible solutions for mitigating the impact of climate change for the Myanmar farmers. Prominently, before implementing the program, awareness raising and building the trust of the farmers are the highest reliability to making crop insurance schemes quite effective and efficient for the benefit of farmers. Because farmers' perceptions toward crop insurance may change over time, and the effect of crop insurance may be felt or seen only gradually. The need of the time is to develop an appropriate and energetic evaluation method that would make a significant contribution to the agricultural sector and this activity should be taken up intensely and immediately. It will assist farmers in recovering faster from perennial problem of poor agricultural production seen over the years in Myanmar.

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