Ming WangInstitute of Integrated Risk Management

Beijing Normal University

Experimentation of China's Agriculture Insurance Program

Food Security - Background

Long-term Planning Framework of National Food Security (2008-2020)

Main ObjectiveMain TasksMain Policies and Measures

Main Objective

• Total cultivated land: 1.8 billion Mus (120 million hectares), a restrict bottom line

• Total sown areas of grains:1.58 billion Mus , a restrict standard

• Percentage of domestic gain production in total consumption: over 95%, expectation

Main Tasks

Increase production abilityCultivated land and water protectionAgricultural infrastructure constructionIncrease unit yield Capacity-building of main grain production areasAgricultural service system

Develop grain-saving livestock, aquaculture and offshore fishing, and new oil production industryImprove international cooperation on food and oilImprove grain circulation systemImprove grain reserve systemImprove food processing system

Main Policies and Measures

Clearly defined responsibility for food security at all levels

Restrict protection of production resources

Promote technology advancement and scientific support

Increase investment Investment on grain productionIncrease financial supportImprove agricultural subsidy and incentive policies…

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0

20000

40000

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1978 1980 1990 2000 2008

Thou

sand

Hec

tare

s

Year

Cultivated Land

Total Sown Areas for All Crops

Total Sown Area for Grain Crops

Government InvestmentPart 1: Basic Investment (year of 2010)

Total 93.66 Billion Yuan RMB

Livelihood Projects 49.50 Billion Yuan RMB

Agricultural infrastructure 44.16 Billion Yuan RMB

Part 2: Subsidy system (year of 2009)

Total 135.43 Billion Yuan RMB

Subsidy for grain production 19 Billion Yuan RMB

Subsidy for production goods 75.6 Billion Yuan RMB

Subsidy for seeds 19.85 Billion Yuan RMB

Subsidy for farm machinery 13 Billion Yuan RMB

Subsidy for agriculture insurance 7.98 Billion Yuan RMB

And more: subsidies for “Return farmland to forest/grass land”, “Household appliancesgoing to countryside”, “Rural livelihood affair and proposal”, “New rural cooperative medical insurance”, “Rural endowment insurance” etc.

Subsidies for individual farmers

Subsidy for grain production 11~25 Yuan RMB per Mu

Subsidy for production goods60~80 Yuan RMB per Mu

Subsidy for seeds10~15 Yuan RMB per Mu

Subsidy for farm machinery30% of price

Subsidy for agriculture insurance

40%~80% of premium

Subsidy for “return farmland to forest/grass

land”210~240 Yuan RMB per Mu year

Subsidy for household appliances13% of price

Subsidy for Rural livelihood affair and proposal

40% of expense

Subsidy for new rural cooperative medical

insurance80% of expense

Subsidy for rural endowment insurance

30 Yuan RMB per farmer

Purpose of new program

Figure from World Bank, May 2007

Risk perception of farmers in Wuhan

Degree of Concern

Perc

eive

d Pr

obab

ility

Risk perception of farmers in Beijing

Degree of Concern

Perc

eive

d Pr

obab

ility

History of agriculture insurance

History of agriculture insurance

Basic principles and understanding“Guided by government”

Initiated and launched under fiscal supportNot policy-based insurance: limited liability and support; subsidize premium for policy-holders

“Market-oriented operation”Should not establish policy-based institution/company specifically for agriculture insuranceRely on existing commercial insurers

“Voluntary participation”“Propelled under joint forces”

Central and local governmentGovernment and insurance industrySupporting bureaus: meteorological, water, agriculture..Cooperation with international reinsurers

Operational structure

PICC

Contingent reserve:25% of the premium revenue

PROVINCIAL LEVEL

CITY AND COUNTY LEVEL

Product, Information,Indemnity, etc.

IRB

inspection

inspection

Farmer

Designed operational structure of the CAPIEP (2008) taking PICC Hunan Branch as an example

BOA

BOW

MBTechnicalsupport

Technical support

35%

<30%

MOF

35% of the premium

PICC+25%

DOF

>10%BOF

MOC

BOC

Contingent disaster relief

Operational Model

FarmersInsurer at county

level

Insurer at province level

Government at county level

Provincial government

Central government

(1)(2)

(3)

(4)(5)

35%

<30%

>10%

25%35%

Step(1): Farmers’ paymentStep(2): Local government subsidyStep(3): Central government subsidyStep(4): Provincial government subsidyStep(5): Reserve 25% of premium

Details in Crops Insurance Policy (2007)Provinces Hunan Jilin Inner

MogoliaXinjiang Sichuan Jiangsu

Insured crops Paddy rice and cotton

Corn, rice, soybean, tobacco, etc.

Corn, wheat, and soybean

cotton, corn, paddy rice, soybean, wheat, etc.

Paddy rice and corn

Paddy rice, wheat, cotton, rapeseed and corn

Perils rainstorm, flood, inundation, wind, hail, frost, and drought

Insured amount (CNY/mu /season) and premium rate (%)

Rice: 240 (basic 5%, drought 3%, all 7%)Cotton: 300 (8%)

Corn: 200 (10%)Rice: 266.7 (8%)Soybean: 166.7 (8%)

Corn: 230 (10%)Wheat: 300(8%)Soybean: 170 (8%)

Cotton: 400(7%)Wheat:300(5%)Corn:300(5%)

Rice: 300(basic 5%, With drought 10%)Corn: 292 (5%)

300~500(5% for all)

Subsidy rate Central

50% 25% 25% 25% 25% -

Provincial 25% 50% 25% 25%Local >=10% 30% 10% - 20%In total >=60% 80% 85% >=50% 70% >= 60%

Summ

ary of 2007

Premium (CNY)

750 million 689 million - 760 million 74 million 450 million

Indemnity (CNY)

440 million - - 200 million 19 million 150 million

Source: Peijun Shi et al.

Crops and livestock loss v.s. Insured Amount

< 30billion Y(before2007)

240billion Yend of 2008

381billion Yend of 2009

0

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1000

1500

2000

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3000

3500

4000

Econ

omic

Los

s (1

00 M

illi

on Y

uan)

Year

390billion Yend of 2010

Field survey and investigation

Government officials at provincial, municipal, county and village levels.

Insurance companies at provincial, municipal and county branches

Farmers randomly interviewed in different counties

Other government officials and professionals

Feedback from InsurersBeen forced to accept low premium rate

Operating cost is highLack of other relevant products for farmersTransportation cost is highNo office in villages or towns

Great difficulty in claim adjustment

Gap between government tasks and market-operated business

CIRC Project on Crop Premium

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Prem

ium Rate (%

)

Province ID

Premium Rate in UseCalculated Premium Rate

Feedback from FarmersInsured amount is low

Expect government to take the main responsibility of natural disaster losses

Capability building against natural disasters is more urgent

Basic Cost (seeds, fertilizer, pesticides, facilities rental, with labour cost excluded)

RMB Yuan

Current Insured AmountRMB Yuan

Mean Standard Deviation

25% Percentile

75% Percentile

SeedlingPeriod

TillerPeriod

RipePeriod

Early Season Rice 292 101 228 340 180 240 280

Late Season Rice 348 98 289 400 180 240 280

58%24%

14%

4%

Invest in capacity building

Provide subsidy to insurance

Increase compensation of disaster reliefHelp to move out of high-risk areas

Effect of insured amount and subsidy on participate rate

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Participate Rate

Percentage of Subsidy by Government

Insured Amount 840 per Mu Insured Amount 560 per MuInsured Amount 280 per Mu

Feedback from GovernmentUrgent need of regulation and law

Need to define role of local government

Supporting institutions expect to get operating cost

Discussion and RecommendationsFurther Development of Government Support

Fiscal subsidiesTax incentivesOther financial support

Improve the operation model

Further Enhance Capabilities Against Agricultural Disasters

Develop risk transfer mechanism in international reinsurance market

Thank you!wangming@bnu.edu.cn