Welcome To The Presentation On

Welcome to the presentation on Feasibility study and

product development of weather insurance products for plantation crops of Kerala Abhilash G Nambudiri

INTRODUCTION • Kerala – 50% of population depending on Agriculture • The total value of the plantation crops produced in the State is about Rs 3,375 crore • Almost all plantation crops in Kerala have the threat of crop loss from weather uncertainties • Opportunity to study the feasibility of weatherinsurance products for plantation crops

SL No

Crop

Area under

Major cultivating

% of net cropped

cultivation (ha)

districts

area (%)

1

Coconut

9.0 lakh1

All over Kerala

40

2

Coffee

0.84 lakh1

Wayanad & Idukky

3.7

3

Pepper

1.84 lakh1

All over Kerala

8.2

4

Tea

0.37 lakh1

Wayanad & Idukky

1.6

5

Cardamom

408671

Wayanad, Ernakulam, Idukky

0.2

Kottayam, 6

Rubber

4.76 lakh1

Ernakulam, Thrissur,

21.2

Kozhikkode, Palkkad 7

Arecanut

0.73 lakh2

All over Kerala

3.2

Wayanad, 8

Banana

279003

Malappuram, Palakkad, Thrissur,

0.1

Ernakulam 9

Vanilla

8124

10

Cashew

0.88 lakh1

Ernakulam, Wayanad, Idukky, Thrissur Kollam

--3.8

OBJECTIVES # To Study the feasibility of weather-based insurance product for plantation crops of Kerala # To Assess the acceptance and demand for weatherbased insurance products # To develop a weather-based insurance product for a specific plantation crop # To identify and evaluate the efficacy of various distribution channels for weather-based insurance products

DATA COLLECTION 1. Secondary Sources o Kerala Agricultural University database o Agricultural department (GOK) data base o Extensive internet search

2. Primary Sources o Interviews with scientists, farmers and farmers’ associations

CRITERIA FOR RISK ANALYSIS 1. Spread of risk The time period available for the farmer to get back his investment. Higher the time period lesser the risk associated. 3. Value-At-Risk (Rs/ha/year) The revenue a farmer is getting from a unit area of crop. Higher the value at risk higher is the feasibility of an insurance product.

CRITERIA FOR RISK ANALYSIS •

•

Cost burden (Rs/ha/year) The average annual investment a farmer has to make to build and maintain a plantation. Higher the cost burden higher is the feasibility of insurance in that crop. Opportunity Total value at risk for that particular crop existing in the state (taking into account the area coverage also)

RISK ANALYSIS

Pepper Coconut

High

Cashew Rubber

Vanilla Banana Rubber

Low

Vanilla Tea Banana Cardamom Coffee

Output risk (Value-at-risk) High Low

Weather risk*

High Low

Output risk (Value

-at -risk)

Input risk (Cost burden) High Low

Cashew Cardamom Tea Coffee

Pepper Coconut

Premium Value-At-Risk Cost burden Area coverageOpportunitypotential Crop Spread of risk (output value (Rs/ ha/ year) (ha) (Crores) @ 5% in Rs/ ha/ year) (Crores) Arecanut Long duration 46718 NA 73000 341 17.05207 Banana Short duration 91663 69250 27900 256 12.78699 Cardamom Long duration Cashew Long duration

65417 25585

34358 6210

40867 88000

267 225

13.36698 11.2574

Coconut Long duration Coffee Long duration

29475 50652

10030 21750

900000 84000

2653 425

132.6375 21.27384

Pepper Rubber

Long duration Long duration

18150 50000

17719 19102

184000 476000

334 2380

16.698 119

Tea Vanilla

Long duration Long duration

120000 720000

48586 22058

37000 812

444 58

22.2 2.9232

Premium Value-At-Risk Cost burden Area coverageOpportunitypotential Crop Spread of risk (output value (Rs/ ha/ year) (ha) (Crores) @ 5% in Rs/ ha/ year) (Crores) Banana Short duration 91663 69250 27900 256 12.78699 Cardamom Long duration 65417 34358 40867 267 13.36698 Coffee Rubber

Long duration Long duration

50652 50000

21750 19102

84000 476000

425 2380

21.27384 119

Tea Vanilla

Long duration Long duration

120000 720000

48586 22058

37000 812

444 58

22.2 2.9232

CROP DETAILS OF BANANA • No: of plants per acre: 650 – 900 (for calculations it’s been taken as 800) • Water requirement: 2 irrigations per week, each of 45 liters = 400 mm • Average farm gate price: Rs 10/- per Kg • Average bunch weight: 10 Kg (8 to 12)

PLANT • Herbaceous monocots, reaching around 2-3 m tall at maturity in cultivation • A banana plant bears fruit 10-12 months after planting • Maturity of fruits occurs 75-80 days after opening of the first hand

SOILS AND CLIMATE • Deep, well-drained alluvial soils are best • Drainage or raised beds are necessary if area is prone to water logging • Temperature range of 10° C to 40° C and an average of 23° C is ideal • Plants require about 9 cm of rain/month, with dry seasons no longer than 3 months

BANANA CULTIVATION IN KERALA • ‘Nendran’ is the preferred variety among Kerala farmers • In Kerala Banana cultivation is mainly focused on the season of ‘Onam’, which comes in the month of September • Onam is the time where the demand for this local variety ‘Nendran’ goes up and also the farmers will fetch good price for their produce

BANANA CULTIVATION IN KERALA • Banana is cultivated both in low lands like paddy fields and in midland areas • Practice of lease cultivation of Banana is prevalent in Kerala. Usually the leased land will be the low-lying paddy fields

District Thiruvananthapuram Kollam Pathanamthitta Alappuzha Kottayam Idukky Ernakulam Thrissur Palakkad Malappuram Kozhikkode Wayand Kannur Kasargode State

Land utilization (ha) 2496 1800 2055 470 3394 1602 6410 2844 8155 9804 1963 11466 2445 764 55668

Production (kg) 16739 14596 18389 3815 32373 13608 46806 19974 65005 67931 16640 77963 20280 7690 421809

Productivity (Kg/ha) 6706 8109 8948 8117 9538 8494 7302 7023 7971 6929 8477 6799 8294 10065 7577

CROP STAGES AND WEATHER PERILS FOR BANANA Jan Feb Mar Apr May Jun Jul Aug Sep Dec 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 123 4

Perils

Deficit of Rainfall - Bunch formation stage High wind speed - Topling/Breakage hazard Excess Rainfall - Water logging

• Dec 15th to May 31st: Deficit Rainfall, Water required 400 mm • Apr 15th to Sept 14th : Wind, >15 starts affecting, >40 causes heavy damage (50% - 100%) • Jun 1st to Aug 31st: Water-logging, Continuous three days of rainfall > average

Stage 1: Deficit rainfall Strike & Exit: 167 & 29 mm Pay-out chart for stage-1, Deficit rainfall (Dec 15th to May 31) 120

29 100

Pay-out (%)

80

60

40

20

0 0

50

100

150

167

Cummulative rainfall (mm) -20 Pay-out chart for stage 1

200

250

300

Stage 2a: Water logging peril (June) Strike & Exit: 102 & 184 mm Pay-out for stage 2a, Waterlogging peril (J une) 120

184

1/3rd of Total pay-out (%)

100

80

60

40

20 102 0 0

50

100

150

Three day cummulative moving rainfall (mm) -20 Pay-out for june

200

250

Stage 2b: Water logging peril (July) • Strike & Exit: 92 & 167 mm Pay-out chart for stage 2b, Waterlogging peril (J uly) 120

167

1/3rd of total payout (%)

100

80

60

40

20

92

0 0

50

100

150

Three day cummulative moving rainfall (mm) -20 Pay-out for J uly

200

250

Stage 2c: Water logging peril (August) • Strike & Exit: 66 & 129 mm Pay-out chart for stage 2c, Waterlogging peril (August) 120

129

100

1/3rd of totsl pay-out (% )

80

60

40

20

0 0

20

40

60 66

80

100

120

Three day cummulative moving rainfall (mm) -20 Pay-out August

140

160

180

200

Stage 3: Wind peril • Wind is a totally uncontrollable phenomenon • From April first week to harvest (mid Sept) the crop is vulnerable to wind hazards • Wind speed from 15 to 25 Kmph causes breakage, twisting and tearing of leaves, which can be directly mapped to the reduction in yield (around 10%) • High amount of basic risk

Stage 3: Wind peril • The loss that a heavy wind of above 40 Kmph can make is dependent on the width of tract through it moves • Difficult to predict the expected loss • The value of total crop at its maturity is around Rs 80,000/- per acre • Above 25 Kmph, the loss is going exponentially high w.r.t wind speed

Wind speed (Kmph) Strike

Exit 0 to 15

Type of pay-out

Full pay-out as % of insured amount

---

0

Linear

10

25 - 40

Step pay-out

30

> 40

Step pay-out

100

15

25

Stage 3: Wind peril (June 1st – Sept 14th) Pay-out chart for stage-3: Wind peril (J une 1st to Sep 14th) 120

100%

Pay-out (% of insured sum)

100

80

60

40 30% 20 10% 0 0

10

20

30

40

Wind speed (Kmph) -20 0-25 Kmph

25-40 Kmph

>40 Kmph

50

60

DISTRIBUTION SYSTEM Various distribution channels identified • Vegetable and Fruit Promotion Council, Keralam’s (VFPCK) Self Help Groups (SHGs) • NGOs working in the area of promoting income-generating activities through SHGs. E.g. ESAF, START etc…

Various points of distribution identified • Distributors of props • Krishi Bhavans/nearby areas • Farm input dealers

OPTIONS FOR THE COMPANY TO DEVISE A DISTRIBUTION SYSTEM • OPTION A: Enter the market by tying up with Vegetable and Fruit Promotion Council, Keralam (VFPCK) and expand the reach by increasing the distribution points. • OPTION B: Enter the market by tying up with NGOs and expand the reach by increasing the distribution points. • OPTION C: Launch and expand purely based on company’s independent distribution system.

CRITERIA TO EVALUATE EACH OPTION (as per rating) •

Reach of the selected partnering agency This means the geographical spread and penetration into the farming community.

• • •

Sales force needed Visibility of products and company Scope for expansion Scope for expanding across the state as well as our product range

EVALUATION OF OPTIONS

Options OPTION A OPTION B OPTION C

Criteria Reach

Sales force

Visibility

High Medium High

High Low Low

High Low Medium

Scope of expansion Medium Low Medium

DISTRIBUTION SYSTEM VFPCK

Margin approx 10%

SHGs

SHGs

SHGs

SHGs

FARMERS

Through prop distributors

Through point near Krishi Bhavans

Through company’s channels Margin approx 10% - 15%

Through farm-inputs distributors