Understanding ENSO: Its Impact on Indian Subcontinent Agriculture and Insurance Landscape

The El Ni?o-Southern Oscillation (ENSO) is a critical climate phenomenon that periodically alters global weather patterns, affecting everything from agriculture to water resources. This article is resultant of renewed interest on the subject instigated by a recent Swiss Re publication on ENSO. The objective is to raise awareness and foster a deeper understanding of ENSO, its impacts, and the variability due to climate change on agriculture and insurance in the Indian Subcontinent, where stable weather patterns are vital for the region's agricultural sector.

ENSO consists of three phases: El Ni?o, La Ni?a, and a neutral phase. El Ni?o occurs when sea surface temperatures in the central and eastern Pacific Ocean rise above normal levels, often leading to droughts in regions like the Indian Subcontinent. La Ni?a is characterized by cooler-than-normal sea surface temperatures in the same regions, usually bringing wetter conditions and floods.

Sea Surface Temperature Anomalies and ENSO Phases

The table below illustrates sea surface temperature (SST) anomalies associated with the different phases of ENSO (i.e. El Ni?o, La Ni?a, and Neutral conditions) usually. These anomalies aide in explaining the climatic impacts discussed in this article.

ENSO and Agriculture in the Indian Subcontinent

The Indian Subcontinent is vulnerable to the impacts of the El Ni?o-Southern Oscillation (ENSO) due to its reliance on monsoon rains for agricultural production. ENSO, which includes the phases of El Ni?o, La Ni?a, and a neutral state, significantly influences the timing, distribution, and intensity of monsoons. These variations have the potential to lead to extreme weather events such as droughts and floods, posing considerable risks to agriculture in the region.

Impact on Agriculture in India

India's agricultural sector is significantly reliant on the monsoon season, which provides approximately 70% of the country’s annual rainfall. The monsoon is crucial for the cultivation of crops like rice, wheat, and pulses. However, the timing, distribution, and quantity of monsoon rains are directly influenced by ENSO, making India highly susceptible to its phases.

El Ni?o and its Impact

During El Ni?o years, India often experiences weaker monsoons, leading to drought conditions that severely affect crop yields. A significant example is the 2015-2016 El Ni?o, which resulted in a 14% rainfall deficit across the country. This deficit led to drought conditions in several states, including Maharashtra, Karnataka, and Andhra Pradesh, causing a decline in food grain production by 2%. The drought also led to a sharp increase in food prices, exacerbating food insecurity and impacting millions of farmers.

Another El Ni?o event in 2018 led to below-average rainfall during the monsoon season, particularly in central and northwestern India. This event affected the sowing of key crops like rice, maize, and pulses, leading to a significant reduction in yields.

India's 2022-2023 El Ni?o events, though they were less severe than previous ones, still affected the monsoon resulting in localized droughts and crop failures, impacting key crops.

La Ni?a and its Impact

In contrast, La Ni?a typically brings excessive rainfall to India, which can cause flooding in various regions. The 2020-2021 La Ni?a event led to higher-than-normal monsoon rains, particularly in the eastern and northeastern states. Bihar and Assam were among the hardest hit, with floods damaging large areas of cropland. In Assam alone, over 5 million people were affected, and more than 100,000 hectares of crops were destroyed, severely impacting rice production.

La Ni?a conditions also influenced the 2011 monsoon, which brought above-average rainfall, leading to flooding in parts of Uttar Pradesh and West Bengal. These floods caused significant crop damage, particularly to rice and wheat, disrupting the food supply chain and leading to economic losses for farmers.

Apparently, the 2024 La Ni?a event appears to be ongoing, and its impacts are still unfolding. There are predictions of above-average rainfall in certain regions, which could lead to increased flooding risks.

Impact on Agriculture in Pakistan

Pakistan's agriculture is heavily dependent on the Indus River, which provides water for irrigation across the country. The timing and quantity of river flow are influenced by the monsoon and glacial melt, both of which are affected by ENSO.

El Ni?o and its Impact

El Ni?o events often lead to reduced monsoon rainfall in Pakistan, resulting in water shortages and drought conditions. The 2015-2016 El Ni?o caused a significant reduction in water availability in the Indus River, affecting the irrigation of wheat and cotton crops. This led to a decrease in wheat production by approximately 20%, causing economic hardship for farmers and increasing the country's reliance on wheat imports.

The 2018 El Ni?o also resulted in lower-than-normal rainfall during the monsoon season, particularly in the Sindh and Punjab provinces. This had a detrimental effect on rice and cotton production, leading to lower yields and significant economic losses.

La Ni?a and its Impact

La Ni?a typically brings higher-than-average rainfall to Pakistan, which can lead to severe flooding. The 2010 La Ni?a is a stark example, where record monsoon rains caused devastating floods across the country, affecting over 20 million people. The floods submerged vast areas of agricultural land, particularly in Sindh, where more than 1.6 million hectares of crops, including rice, sugarcane, and cotton, were destroyed. The economic impact was immense, with damages estimated at over $10 billion.

In 2022, Pakistan again faced catastrophic flooding due to unprecedented monsoon rains. Although not directly linked to ENSO, these floods highlight the increasing vulnerability of Pakistan's agriculture to extreme weather events. The floods affected 33 million people and submerged one-third of the country, causing widespread devastation to crops and infrastructure.

While there was no strong La Ni?a event in 2023, the country still experienced above-average rainfall in some regions, leading to localized flooding and affecting agricultural production.

Impact on Agriculture in Bangladesh

Bangladesh, with its low-lying geography and reliance on agriculture, is particularly vulnerable to the impacts of ENSO. The country’s agricultural sector is heavily dependent on the monsoon season, which is influenced by ENSO phases.

El Ni?o and its Impact

During El Ni?o years, Bangladesh often experiences drought conditions, especially in the northwestern regions. The 2015-2016 El Ni?o led to a significant drop in rainfall, particularly in the Barind Tract, one of the driest regions of Bangladesh. This resulted in a substantial reduction in rice production, exacerbating food insecurity in the region.

The 2018 El Ni?o also affected the country’s agriculture, leading to below-average rainfall during the monsoon season. This impacted the cultivation of aman rice, which is heavily dependent on monsoon rains, leading to reduced yields and economic losses for farmers.

La Ni?a and its Impact

La Ni?a events typically bring excessive rainfall to Bangladesh, increasing the risk of flooding. The 2020-2021 La Ni?a led to prolonged monsoon rains, causing widespread floods in the Brahmaputra and Ganges River basins. These floods resulted in destruction of large areas of rice paddies, particularly in the northeastern regions, where more than 100,000 hectares of crops were lost. The floods also displaced millions of people and caused significant economic losses, further straining the country’s economy.

In 2017, another La Ni?a event caused severe flooding in northern Bangladesh, particularly affecting the districts of Dinajpur and Rangpur. The floods damaged crops such as rice, jute, and sugarcane, leading to food shortages and increased poverty levels in the affected areas.

According to the World Meteorological Organization (WMO), there is a high probability of a La Ni?a event developing between July and September 2024, likely to affect Bangladesh.

Role of Insurance in the Indian Subcontinent

Given the significant impact of ENSO on agriculture, innovative insurance solutions have become vital for enhancing resilience among farmers in the Indian Subcontinent.

India: Crop Insurance and the PMFBY

India's Pradhan Mantri Fasal Bima Yojana (PMFBY) remains one of the most comprehensive crop insurance programs globally. This government-backed scheme provides insurance coverage and financial support to farmers in the event of crop loss due to natural calamities, pests, and diseases. Since its launch in 2016, PMFBY has been critical in helping farmers mitigate the effects of ENSO-induced anomalies such as droughts and floods. For instance, during the 2019 monsoon season, which was impacted by a weak El Ni?o, PMFBY compensated millions of farmers across the country for crop losses, stabilizing incomes and ensuring food security.

Pakistan: Government Initiatives and Private Sector Efforts

In Pakistan, agricultural insurance is gaining attention, though it remains underdeveloped with limited coverage across the country. Both government and private sectors have initiated several schemes to address the challenges faced by farmers due to climate change and other risks.

• Government Initiatives: The Crop Loan Insurance Scheme (CLIS) is the primary government-led scheme, linked to agricultural loans provided to farmers. However, it only reaches fraction of the farming population. The Punjab government has taken significant steps with the introduction of the Punjab Crop Insurance program. This program, which initially covered crops like wheat, canola, and paddy, is designed to provide financial protection to farmers against crop losses due to adverse climatic conditions. The initiative, supported by the World Bank, aims to enhance farmers' resilience by integrating crop insurance with broader agricultural development strategies in the Country. It also focuses on increasing awareness and accessibility among smallholder farmers, who are most vulnerable to climate risks.

Similar schemes are also being considered by other Provincial Governments, most active one being the Sindh Government who is apparently on the cusp of launching a Scheme for select districts.

• The Pakistan Agricultural Coalition (PAC) had launched the Area Yield Index Insurance (AYII) scheme, which compensates farmers when area yields fall below a threshold due to adverse conditions. This pilot scheme has shown promise, particularly in wheat-producing regions, providing a more localized and accurate assessment of crop losses.
• Private Sector Efforts: Notable contributions to agricultural insurance and takaful in Pakistan come from insurers such as Jubilee General Insurance Company Ltd , TPL Insurance , Asia Insurance Company Limited , Salaam Takaful Limited , united insurance , and Askari General Insurance Company Limited where these players are offering and piloting Indemnity, Area Yield Index and Weather Index solutions paving a way for a public-private joint initiatives.

Bangladesh: Expanding Agricultural Insurance Initiatives

In Bangladesh, both state-backed and private sector insurance schemes are increasingly available to support farmers, particularly in the face of climate-related challenges.

• State-Backed Insurance Schemes: Sadharan Bima Corporation (SBC): This government-run insurance company offers subsidized crop insurance programs. Farmers pay 25% of the cost of seasonal insurance and can receive up to 10,000 taka (approximately $120) if their crops are damaged by climate events. These programs are designed to provide financial relief and stability to farmers affected by adverse weather conditions.
• Private Sector and Public-Private Partnerships: (Former) Syngenta Foundation for Sustainable Agriculture SFSA): SFSA has implemented projects like Surokkha and the “Boosting Agriculture Risk Mitigation in Bangladesh through Climate Insurance for Smallholders” initiative. These projects focus on providing crop insurance and developing an 'insurtech' platform to support smallholders, enhancing their resilience to climate risks.
• Green Delta Insurance PLC : GDIC is a leading player in the private sector offering agricultural insurance. Since 2015, GDIC has been working with the International Finance Corporation (IFC) to develop Weather Index-Based Agriculture Insurance. This insurance covers risks such as excessive rainfall, drought, and other climate-related incidents. The policies are designed to be accessible, with automated claim settlements based on weather data, ensuring timely payouts to farmers.
• Microfinance Institutions and Commercial Insurers: Various microfinance institutions and commercial insurers in Bangladesh offer tailored insurance schemes to small-scale farmers. These schemes help farmers finance their businesses and protect against natural calamities, ensuring they have the necessary support to recover from climate-induced losses.

These initiatives are crucial in mitigating the risks faced by farmers due to climate change and natural disasters, providing them with financial stability and resilience.

Current ENSO Conditions and Forecast

According to the World Meteorological Organization (WMO), a La Ni?a event is highly likely to develop between July and September 2024. This shift from El Ni?o to La Ni?a conditions could have significant implications for weather patterns across the Indian Subcontinent, including India, Pakistan, and Bangladesh. Regions reliant on monsoon rains should be prepared for potential deviations from normal rainfall patterns. This could impact agricultural productivity, food security, and other sectors sensitive to climate variability.

Accounting for Additional Factors

While ENSO is a major factor influencing climate variability and agricultural outcomes, it is not the sole driver. Other factors such as soil moisture levels, irrigation infrastructure, and access to weather forecasting tools also play a significant role. Therefore, a comprehensive approach that includes both ENSO forecasting and these additional factors is essential for effective risk management in agriculture, especially at policy level and national preparedness.

ENSO and Climate Change

Climate change is making El Ni?o and La Ni?a events more extreme. This means we can expect stronger and more frequent heatwaves, droughts, floods, and other extreme weather events. Moreover, human activities like burning fossil fuels are warming the Earth, which affects the patterns of ocean currents and weather. This is a significant problem for farmers and everyone else, as it can lead to crop failures, food shortages, and economic losses.

Conclusion

The impact of ENSO on agriculture in the Indian Subcontinent is profound, with both El Ni?o and La Ni?a events causing significant disruptions. From droughts in India and Bangladesh to devastating floods in Pakistan, the agricultural sector in this region remains highly vulnerable to these climatic shifts. However, the role of innovative insurance solutions in mitigating these impacts cannot be overstated. Programs like India’s PMFBY, Pakistan’s government and private sector insurance schemes, and the expanding agricultural insurance initiatives in Bangladesh are crucial in enhancing the resilience of farmers against the unpredictable impacts of ENSO. As climate change continues to intensify these events, expanding access to these and other insurance programs will be key to safeguarding the livelihoods of millions of farmers across the Indian Subcontinent.

MNK Re plays a crucial role in helping its cedant partners and other brokers navigate the complex risks associated with ENSO events and their impact on agricultural portfolios. By utilizing advanced risk assessment models and probabilistic forecasting tools, MNK Re assists in providing tailored reinsurance solutions that account for the specific challenges posed by ENSO and Climate Change. These solutions include parametric insurance options, which trigger payouts based on predefined weather indices or yield thresholds ensuring timely and efficient support in the face of climate-induced losses. MNK Re also specializes in structuring facultative and treaty reinsurance arrangements that help cedants manage their exposures effectively. This approach mitigates the financial impact of ENSO-related events, empowering MNK Re’s Clients to protect their agricultural portfolios more effectively and sustainably.