NOTE: pls explain what’s on the image attached The Role of Crop InsuranceIn principle, crop insurance is a simple and humanitar-ian concept. It aims to help the small farmers in bad years andto let him pay back in good ones. However, putting suchconcept into action or reality is not as easy as it appears. Forinstance, the cost of administering a crop insurance programis very high ia relation to the benefits received by the farmers.Also, the feasibility of insuring crops is only confined to fewones.About three years ago, an international conference onagricultural risks and crop insurance was beld in Costa Rica toevaluate the merits of crop insurance as a development policyRepresentatives from the Latin countries, the United States,India, and several international agencies like FAO and theWorld Bank participated in the conference. They discussed gov-eroment subsidies for insurance, the impact of insurance onfarm resource allocation and farm income stability, as well asthe effect of insurance on the lending policy of agriculturalbanks. Their conciusions include, among other things:I x 94AGRICULTURAL KOONOMICS1. Agricultural production has always been a riskybusiners due to droughts, volatile prices, and other naturaland economic uncortaintios. This situation has made farmersconservative in their farm operations. They diversify theirerops and postpone adoption of improved toethods of produc-tion. The etfects of such behaviar can include lower farmincomes, and small supplies of riskier crops. Furtherniore,market prices, consumer welfare, and agricultural trade bai-ances are affected as a consequence. Moreover, risks also in-crease the possibility that the farmers will default on their bankloans.2.In stabilizing farm incomes, governments usuallyhave a wide range of policy options, depending on the risksinvolved. For example, production losses due to unreliablefertiliter deliveries can be remedied by consistent import poli-cies and improved transport and storage systems. Someweather-related risks can be minimized through investment inirrigation which also contributes to increased output. In caseof price fluctuations, price support or price atabilization schemesmay be the firet approach. However, many risks are beyondgovernment control. These ean only be offiet by compensatingthe farmers in years of low income.3.Most crop insurance schemes focus on insuringspecific crops aguinst natural hazards, It is difficult to providecomprehensive farm insurance. Insurable rieks have to be well-documented over time for purposes of actuarial calculations.They need to be accessible to monitoring and inspection atreasonable cost,4.It has been generally recognized that crop insuranceis unlikely to be a value to marginal or subsistence farmers.They are the least able to pay a cash premium for their cropinsurance. Direet food subsidies may be a botier alternativein helping the marginal farmers in bad years. The subsidybenefits of crop insurance tend to favor the larger farmsbecause they are the ones that use bank loans. This is thecase in Costa Rica and Mexico, while in Japan, the insuránceprogram results in large income transfers to farmerseven though their incomes are higher than those of urbanworkers.I x

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Crop insurance aims to help small farmers in the event of crop loss. The feasibility of crop…