Andhra Pradesh Priorities: Poverty - Sulaiman

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. 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. 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. 1st analyzed solution
Subsidized Crop Insurance

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. 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. 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. 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. 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. 2nd analyzed solution
Intervention 2: Graduation of the Ultra-Poor

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. Components of the graduation model

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. 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. Benefits
• Main benefits of the intervention include:
Increase in annual household consumption.
Increase in amount of savings.
Increase in assets acquisition.

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. 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