The Bhutanese Leading the way.
The Ministry of Agriculture and Livestock (MoAL) has outlined an updated action plan to establish a national crop and livestock compensation scheme. This follows a resolution passed by the National Assembly on 17th June 2024 during the First Session of the 4th Parliament, where the government was urged to set up a compensation trust fund for crop and livestock loss and damage.
MoAL has emphasized the importance of the scheme, acknowledging that agriculture remains a crucial part of Bhutan’s economy, with over 60% of the population depending on farming. Furthermore, agriculture employs 43.5% of the country’s workforce, emphasizing the necessity of boosting this sector against unpredictable challenges.
The aim is to provide a financial safety net for farmers, enabling them to continue their agricultural activities despite crop and livestock losses.
The idea of a compensation scheme was first introduced in 2016 under the Ministry of Agriculture and Forests (MoAF), prior to its restructuring into the Ministry of Agriculture and Livestock. The proposal, which aimed to offer financial compensation for crop and livestock losses, was submitted to the Ministry of Finance (MoF) in 2017. However, it was not approved due to concerns over limited government resources.
In 2021, MoAL re-submitted a proposal for a crop and livestock insurance scheme to the Cabinet, but once again, the MoF declined the proposal, citing the high financial implications for the government and a lack of clarity in the scheme’s administrative structure. The complexities of managing such a scheme, especially with regard to which crops and livestock would be covered, led to further delays.
Lyonpo Younten Phuntsho said, “Unlike earlier proposals that were broad and included all agricultural commodities, the latest proposal by MoAL narrows the scope to seven primary commodities: paddy, maize, potato, orange, cattle, poultry, and piggery. This targeted approach is designed to make the scheme more financially viable and administratively manageable.”
One of the key features of the updated proposal is its cost-effectiveness. The ministry has carefully calculated the financial implications of the scheme, including the government’s subsidy share for the insurance premiums. The proposal outlines a system where the government will subsidize 50% of the insurance premiums for farmers, thereby, reducing the financial burden on them.
The current proposed premium rates for crop and livestock insurance are significantly lower than those suggested in previous plans. For crops, the rate is set at 5.8% in the first year and 10% in subsequent years. Livestock insurance premiums are proposed at 15% for the first year, with a reduction to 10% in subsequent years. This is a reduction from the earlier suggested rates of 8% for crops and 15% for livestock.
According to Agriculture Minister, MoAL has worked in close collaboration with insurance companies to develop a financing model that ensures sustainability and fairness. The proposal also addresses the challenges of funding and administering the scheme, providing clear guidelines on how the government will allocate funds annually for insurance premium payments.
While the idea of a compensation trust fund was initially considered, MoAL has prioritized the establishment of an insurance scheme for several key reasons: one of which is insurance allows farmers to transfer the risk to insurers, ensuring that they have a safety net even in the event of large-scale disasters. In contrast, a trust fund might be depleted in such situations, limiting its ability to fully compensate farmers.
Likewise, insurance premiums provide a steady, predictable source of funding, which is essential for ensuring timely payouts to farmers. A trust fund, on the other hand, could face shortages in the event of widespread losses, potentially causing delays or reductions in compensation. Insurance schemes often encourage farmers to adopt better risk management practices, such as investing in crop protection or improving livestock management. This proactive approach can lead to better agricultural productivity and sustainability.
Insurance schemes are easier to scale up as the agricultural market evolves. The growing insurance market can adapt to new challenges, while a trust fund may require additional funding and administrative efforts to expand. Insurance companies provide farmers with access to expert tools for risk assessment and loss prevention, whereas a trust fund would only offer compensation after losses have occurred.
MoAL has worked closely with MoF to refine the proposal, seeking their expertise on the financial aspects of the scheme. The Technical Working Group has met multiple times to discuss the details of the insurance scheme, and their recommendations have been incorporated into the final proposal.
The next step is for MoAL to finalize the subsidy share and premium rates in consultation with the MoF.
MoAL remains hopeful that the National Crop and Livestock Insurance Scheme will be implemented soon, providing farmers with the financial support they need to cope with the increasing threats posed by climate change and wildlife depredation. The scheme promises to enhance food security and encourage agricultural productivity, ultimately strengthening country’s self-sufficiency in food production.
During deliberations, seven Members of Parliament (MPs) expressed concerns about the affordability of premiums for farmers, suggesting the creation of a trust fund as a potential alternative. Some MPs also proposed expanding the coverage to include additional commodities and highland livestock. The Minister addressed these concerns, assuring that the proposed insurance scheme would strike a balance between government support and farmer contributions.
The house voted in favor of the insurance scheme over the trust fund, with 29 out of 40 MPs supporting the decision. The Minister was tasked with submitting a follow-up report during the Summer Session.
