by Dennis Mombauer
As a developing tropical island nation, Sri Lanka is severely at risk from the impacts of climate change. This makes effective risk management and risk transfer mechanisms a high priority for the country, particularly regarding the agriculture sector. Effective crop insurance schemes could play a big part in protecting the livelihoods of Sri Lanka’s population as well as its national food security.
Out of Sri Lanka’s total labour force of almost 8.6 million people, more than 2.1 million are working in the agriculture sector. Roughly one in four Sri Lankan workers is employed in agriculture, and around 90% of poor households earn their living from the rural agricultural economy.
Even if the GDP contribution of the agriculture sector is smaller than it used to be, a vast number of people directly depend on it. They are threatened by increasingly erratic rainfall patterns, soil degradation, salinisation, prolonged droughts, and intense floods, storms, and landslides. To alleviate these risks, the government has been providing insurance schemes to transfer risk away from farmers and enhance their resilience to climate change-induced shocks.
Agricultural insurance in Sri Lanka started in 1958 and was provided with a legal framework by the 1961 Crop Insurance Act. In 1999, the Agriculture and Agrarian Insurance Board (AAIB was established, and in 2006, the government created the National Insurance Trust Fund (NITF), the main bodies responsible for government-run crop insurance schemes in Sri Lanka.
However, despite this long history, adoption rates of crop insurance have plummeted until it became mandatory in 2013. According to studies, many farmers are not aware of crop insurance or have little trust in their effectiveness; other problems revolve around the indemnity-based nature of the insurance schemes and the fact that they only cover certain types of events and losses.
Effective risk transfer instruments will be crucial to support and protect Sri Lanka’s agricultural sector and its food security in the face of increasingly frequent and devastating climate change impacts. The policy brief published by SLYCAN Trust expands on this topic and provides an in-depth analysis of Sri Lanka’s existing agricultural insurance policies, the gaps in awareness, institutional framework, and coverage, and possible ways forward into the future.
Further information on climate change and agricultural insurance could be accessed through our latest research and policy publication, Climate Change and Agricultural Insurance in Sri Lanka.