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Andhra Pradesh Priorities: Poverty - Sulaiman

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Andhra Pradesh Priorities: Poverty - Sulaiman

  1. 1. Cost-Benefit Analysis of Crop Insurance and Graduating Ultra-poor Munshi Sulaiman Research Director Save the Children International Michael Murigi Research Associate University of Sydney Andhra Pradesh Priorities Conference, Vijayawada June 18-20
  2. 2. The problem • Smallholder farmers are vulnerable to crop and income loss • Invest in less risky but low return crops • Costly coping strategy • Distress sale of limited productive assets • Borrow at high interest rates - further indebtedness and poverty • Higher rural poverty (11%) than urban (6%) across all districts • Extreme poverty leads to multiple deprivations • Growth alone is inadequate to eliminate extreme-poverty • Targeted and sustainable solutions
  3. 3. Andhra Pradesh • The 8th largest state in size and 10th in population • Poverty declined from 45% in 1990s to 9% in 2016 - rural poverty is higher(11%) than urban’s (6%). • Over 78% of the poor reside in rural areas and dependent on small-scale agriculture for livelihoods
  4. 4. 1st analyzed solution Subsidized Crop Insurance
  5. 5. Description of the solution • An unlimited comprehensive coverage for farmers. • Heavy subsidization with farmers only paying 2% of the insured sum in the main Kharif season; 1.5% and 5% respectively for rabi and horticultural crops; or actuarial rate if it is lower than the cut off. • Unlike other schemes e.g. NAIS, this scheme does not have a cap on the sum insured per farmer. • A wider range of calamities is covered. • Administered on smartphone platform to enhance efficiency. • Implemented as a public-private partnership with insurance companies bidding at state level.
  6. 6. Costs • The cost of subsidy payable by the state and central governments is the balance from the 1.5% to 5% that the farmers pay. • In the fiscal year 2016-2017 the actuarial premium cost was Rs. 3877 per hectare for 17.17 lakh hectare covered. • We project an increase in the premium subsidy per hectare and an increase in insurance coverage of cultivated land. • The total cost will be an estimated Rs. 212 billion at 5% discount rate for a scheme that will run until 2032.
  7. 7. Benefits • There are two main observable benefits; Income from crop production and health benefits. • Increase in income comes as a result of; Farmers cultivating higher-risk crops with higher return on average Investing more on improved technologies Increasing the amount of cultivated land • Alternatively, farmers who suffer from crop loss benefit from payments made by the insurance companies. • Health benefits • Lives saved ( 5 per 100,000 farm households annually) • Reduced malnutrition for children.
  8. 8. Benefit, cost and BCR table Intervention Discount rate Benefit (bn INR) Cost (bn INR) BCR Quality of Evidence Crop insurance 3% 342.5 249.1 1.38 Medium5% 288.1 211.9 1.36 8% 227.2 169.3 1.34
  9. 9. Sensitivity analysis of crop insurance Discount rate Base estimate Changes from base estimate Project for 10 years No health benefit No change in gross cropped area 3% 1.375 1.324 1.293 1.370 5% 1.359 1.312 1.288 1.355 8% 1.342 1.299 1.280 1.337
  10. 10. 2nd analyzed solution Intervention 2: Graduation of the Ultra-Poor
  11. 11. Description of the intervention/solution • Create a pathway out of extreme poverty • Sequencing of a set of interventions - asset transfer to promote self-employment, social support, and food subsidies. • A time-bound exit path through self-employment • Strict targeting criteria to reach the extreme-poor. • Series of evaluations showing sustainable impacts on food consumption, income, savings and assets.
  12. 12. Components of the graduation model
  13. 13. Impact evidence of graduation 0 0.2 0.4 0.6 0.8 1 1.2 Year 2 Year 3 Year 7 ImpactEstimates(Standardized) HH Assets Per capita consumption Food security
  14. 14. Costs • Rs. 25,000 per beneficiary household over 2 years • Half of it goes directly to asset transfer while the other half goes towards provision of other services. • We estimate the intervention to cost Rs. 11 billion assuming over 30% of the poor households will be reached.
  15. 15. Benefits • Main benefits of the intervention include: Increase in annual household consumption. Increase in amount of savings. Increase in assets acquisition.
  16. 16. Benefit, cost and BCR Table Interventions Discount rate Benefit (bn INR) Cost (bn INR) BCR Quality of Evidence Graduation for ultra-poor 3% 43.7 11.6 3.76 Strong5% 39.6 11.2 3.54 8% 34.3 10.6 3.25
  17. 17. Sensitivity analysis of graduation for ultra-poor Discount rate Existing Evidence Changes from base estimate Consumption gain for 10 years Consumption gain for 15 years Asset gain is Rs 7000 3% 3.763 5.512 7.021 3.502 5% 3.542 4.987 6.120 3.290 8% 3.253 4.347 5.092 3.015

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