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Rajasthan priorities poverty, sulaiman

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Rajasthan 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
  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 (16%) than urban (11%) across all districts • Extreme poverty leads to multiple deprivations • Growth alone is inadequate to eliminate extreme-poverty • Targeted and sustainable solutions
  3. 3. Rajasthan • Poverty level moved from 38% in 1990s to 15% in 2012 • 75% of the population live in rural areas • Land fragmentation has contributed to increased overreliance on marginal farming • Landless ~4%
  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. • Subsidy paid in 2016-2017 fiscal year was Rs. 2885 per hectare for 74.4 lakh hectare covered in Rajasthan. • The coverage for the gross cropped area is 28.6% • For a scheme that runs to 2032 and at 5% discount, we project an increase in premium subsidy per hectare to Rs. 511 billion and an increase in coverage of cropped area.
  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 (1.5 pp decline)
  8. 8. Benefit, cost and BCR Table Intervention Discount Benefit (Billion Rs.) Cost (Billion Rs.) BCR Quality of Evidence Crop insurance 3% 929.3 600.3 1.548 Medium 5% 782.8 511.4 1.531 8% 618.2 409.6 1.509
  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% 1.548 1.477 1.510 1.514 5% 1.531 1.463 1.500 1.497 8% 1.509 1.447 1.485 1.476
  10. 10. 2nd analyzed solution Graduating Ultra-Poor
  11. 11. Description of the 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 0.5 1 1.5 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 (asset transfer, food, stipend). • We estimate the intervention to cost Rs. 11.33 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 Benefit (Billion Rs.) Cost (Billion Rs.) BCR Quality of Evidence Graduation for ultra- poor 3% 44.3 11.8 3.763 Strong5% 40.1 11.3 3.542 8% 34.8 10.7 3.253
  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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