Monday, June 15, 2009

Agricultural insurance supports rural loans

Agricultural insurance and construction of infrastructure are two building blocks of China's rural financial system. So said Liu Shiyu, the vice-chairman of the Peoples Bank of China at a conference on the results of rural finance surveys held at Qinghua University on June 13.

According to Liu, village mutual lending organizations generally have only about 300,000 yuan in capital, which means about 1,000 yuan per farmer in loans to support purchases of fertilizer and pesticides. Without agricultural insurance, loans can go unpaid in the event of a natural disaster.

The reporter learned from company representatives that the Shaanxi Branch of Peoples Insurance Company and Anhui's Guoyuan Agriculural Insurance Company are among the companies exploring agricultural insurance business. Some products are already offered.

The example given in the article is "facilities agriculture." Agriculture's water, electric, gas and road infrastructure need improvement. Subsidized agricultural insurance has been implemented in the hog and dairy industry nationwide and in the outlying areas of Shanghai.

Liu claims that China's agricultural insurance system is way behind the rest of the world. However, in actuality, agricultural insurance typically requires government subsidies, and that's the case in China. The framework for insurance in China relies on financial subsidies for insurance. Bank loans are given with insurance as the security. The article fails to point out that the companies offering agricultural insurance are state-owned too. The reporter says agricultural insurance is a cooperative venture between insurance companies and banks that relies on financial subsidies.