Agriculture and livestock insurance in Nepal: A path to sustainable development

Field trip of the ICII 2024 hosted by Shikhar Insurance - Exploring the success of inclusive insurance in Nepal's Gagalphedi region

25 October 2024

By Antonia Witthoff, Rishi Raithatha and Dirk Reinhard

Nepal has made significant strides towards sustainable development in recent years. A critical aspect of this journey has been the growth of an inclusive insurance sector, which has the potential to protect the country's most vulnerable populations from unforeseen risks. ICII 2024 participants met with members of a 500-member dairy cooperative in Kageshwori Manahara Municipality, north-east of central Kathmandu, to learn about agricultural and livestock insurance in Nepal, its background, key components and challenges.

Gagalphedi: A model for rural insurance and cooperative trust

Friday 25 October was the last day of the 2024 International Conference on Inclusive Insurance in Kathmandu, Nepal. It was an optional field trip to meet local microinsurance clients in Gagalphedi, about an hour northeast of Kathmandu. Several years ago, small dairy farmers in the area formed a cooperative to share the cost of collection and distribution of milk and milk derivative products and also insuring their cows and buffaloes. From this introduction to insurance, they have expanded their use of insurance to include other livestock (goats and chickens), property and crops. While we were there, one of the young cows was ear-tagged by the vet, who came with the insurance representative (a value-added insurance service) and the farm owner added home insurance to her account. Insurance has been widely adopted in this area; the industry is now working to spread understanding and coverage to more rural areas of Nepal. The ICII 2024 field trip was organised by Shikhar Insurance. Around 50 participants attended the field trip and were exposed to Nepal's rural inclusive insurance practices and their impact on local agriculture and rural communities.

Box 1: Background on agricultural and livestock insurance in Nepal

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Inclusive insurance in Nepal is broadly categorized into two classes: Agriculture Insurance and Micro Insurance. The Agriculture Insurance Directive, issued by the Insurance Regulator in 2013, marked the beginning of a new era in agriculture insurance. Prior to this, non-insurance organizations, such as NGOs, INGOs, and village communities, provided agriculture insurance services. Nepal has also been practicing the 'Guthi System,' a community-based sociocultural group that provides insurance-like benefits to its members. The Agri Insurance Directive provides the terms and conditions for insurance policies, including premium rates, insurable livestock types, age bars, sum insured limits, and claim procedures. Initially, only seven agri insurance policies were allowed in 2013. Today, there are 32 agri-insurance policies, including:

· Livestock Insurance policies (7)

· Crop insurance policies - input value basis (6)

· Crop insurance policies - Yield value basis (17)

· Herbs Insurance Policies - Yield value basis (2)

Premium rates for agriculture insurance policies vary across different categories, ranging from 1.25% for poultry (broiler only) to 7.00% for goat (up to 90 days and above 5 years), vegetable (yield value), fodder grass, ginger, and walnut (yield value).

The government offers premium subsidies to farmers, with the following rates:

· 50% for insured values above NPR 10 million

· 65% for insured values above NPR 5 million and below NPR 10 million

· 80% for insured values below NPR 5 million

· 0% for Nepali pheasant, Sechuan seed, and mint, index-based flood insurance

Agriculture insurance policies cover various perils, including fire, acts of God (AoG) perils (earthquake, flood, landslide, drought, storm), accidents, wild animal damage, disease, and damage by insects. However, certain exclusions apply, such as late claim reporting, identification of tag missing, accident beyond 5 km from the shed, and use for other purposes. All 77 districts in Nepal are allocated to insurance companies, with each company responsible for 3 to 20 districts. After mergers, 6 merged companies now have 7 to 8 districts.

Nearly 99% of the cooperative's members have insured their livestock - mainly cattle. This high uptake reflects the strong trust the community has in the cooperative. Such high levels of trust can lead to high levels of insurance take-up, as farmers are made to feel confident about investing in policies that can protect them from unexpected risks. The cooperative helps its members manage risk by providing a range of useful insurance options and assisting farmers with claims. In doing so, the cooperative actively reinforces the importance of insurance for resilience.

Participants learning how to make “barfi” and “pedas” (milk-based sweets) with milk supplied by local farmers at the Kageshwori Milk Production Cooperative — Participants learning how to make “khuwa”, “barfi” and “pedas” (milk-based sweets) with milk supplied by local farmers at the Kageshwori Milk Production Cooperative

Encouraged by the positive experience with livestock insurance, many farmers have since extended their insurance cover to include home and personal accident insurance. This has improved the overall financial security of many farmers. The cooperative's support system and use of insurance have made Gagalphedi a model for how inclusive insurance can improve rural communities in Nepal

The dairy cooperative has become an important source of income in Gagalphedi. With around 500 farmer members, the cooperative receives around 2,000 litres of milk every day. Farmers earn about US$1,500 (NPR 200,000) per cow per year, with payments made weekly - usually in cash - to ensure a steady income.

“It is their daily go-to bank, so they have trust in it.” Farmer and member of the Kageshwori Milk Production Co-operative, Gagalphedi

Insurance awareness is significantly higher in Gagalphedi than in many other rural parts of the country due to initiatives by providers such as Shikhar Insurance and the support of local co-operatives. While most cattle are insured, around 45% of goats are covered too. Poultry insurance was recently introduced, though its adoption currently remains low. Despite these successes, overall insurance coverage and awareness generally remain low in the rural areas of Nepal.

A farmer in front of her poultry farm with around 2000 birds. "I would also like to insure my house," she said when the insurance representatives visited her.

The community is committed to environmental sustainability through reforestation. For every tree cut down, five to six are replanted, demonstrating a commitment to conservation. A typical South Asian cultural tradition adolescent daughters of local farmers 'marrying' plants further reflects the community's relationship with their environment and commitment to conservation. Farmers in Gagalphedi have adapted their farming practices to cope with changing weather patterns, such as earlier monsoon rains. This includes adjusting their crop calendars, for example planting rice 15-20 days earlier than usual. However, there are concerns about hybrid seeds and livestock, which may be more productive but are considered less resilient than traditional breeds.

Sarthak Raj Pandey of Shikhar Insurance explains how cattle are insured. The animals are given an ear tag and their birthmarks are videotaped so that they can be identified for re-tagging even if the ear tag is lost. The value of the cow is assessed by a veterinarian, which is equal to the sum insured. Insurance is on an annual basis.

Digital opportunities and protection gaps beyond agriculture

Most farmers in Gagalphedi have smartphones and are aware of digital payment services such as eSewa, Namaste Pay and IME Pay. However, many still use cash for their daily payments and to receive their agricultural income. Although there is no formal bank in the district, the cooperative fulfils this role by providing loans at interest rates of 6-12%. This financial support has helped farmers to manage their finances effectively and has improved their financial access to products such as insurance.

Participants also heard first-hand experience from women in Gagalphedi who were able to confidently demonstrate significant financial autonomy. One woman in particular explained that she had been able to save US$300 (NPR 40,000) every month. Their independence has enabled women in the district to contribute significantly to and manage household finances, highlighting the cooperative's role in promoting gender financial equality in the community.

While livestock insurance is widespread, health insurance coverage, is still limited. Farmers pay US$26 (NPR 3,500) per year for policies that can provide hospital cash benefits of up to US$750 (NPR 100,000) for treatment for a family of five. However, limited healthcare facilities mean that many residents of Gagalphedi often rely on personal savings for medical expenses - highlighting a gap in healthcare access.

Members of the cooperative share their views and insights on the impact of insurance on independence and resilience, especially for women.

Future outlook

The ICII 2024 field trip highlighted the critical role that cooperatives and targeted insurance solutions can play in securing rural livelihoods. Shikhar Insurance, the cooperative and local farmers have worked together to create a strong system of risk management and financial security in Gagalphedi. The district's success shows that with the right support and partnerships, inclusive insurance can increase the prosperity and resilience of rural farming communities.

The lessons learned in Gagalphedi have provided valuable insights into the impact of inclusive insurance on rural communities in Nepal. The district is an outstanding example of effective insurance uptake in the country, which is now being used as a benchmark for insurance penetration in other rural areas. Its success is based on a trusted cooperative system that farmers can rely on for financial stability and growth. The community's resilience and adaptability to insurance products showed how inclusive insurance can improve economic security. However, farmers in Gagalphedi - as in other parts of Nepal - remain vulnerable to climate change, reinforcing the need for holistic, inclusive insurance solutions.

Click here to find out more about the ICII 2024 that took place in Kathmandu, Nepal, in October 2024. Click here for information on the ICII 2025, scheduled to take place in Quito, Ecuador, from 13 to 17 October 2025.