Dim Sums: Agricultural Markets in China

"Wet soil and waterlogged farmland have hindered the movement of agricultural machinery, negatively impacting harvesting, drying, and clearing stubble for wheat sowing," according to official Chinese news media . The Xinhua report proclaimed, "We must unite our efforts to protect autumn crops and strive to overcome disasters and achieve a bumper harvest!" A Xinhua reporter claimed to see crawler-type harvesters working nonstop. Source:  Xinhua . A special meeting on agricultural insurance indemnities  was held on October 10 to consider how to speed up insurance payments to farmers impacted by heavy rains in the Huang-Huai region of northern China. The meeting was held to address complaints about slow processing of agricultural insurance claims and low payouts. Insurance companies were instructed to expedite claims, use remote sensing and drones to verify losses, pay the full amount promptly, and ensure that grain is harvested and dried.  The meeting was convened joi...

Corn was the crop most impacted when floods covered large swathes of China's Henan Province during July 2021. It turns out that officials had canceled insurance for corn four years ago, even though corn is by far the biggest crop grown in Henan during the summer, so many farmers were not insured. Flooded fields in Henan Province in July 2021 This oversight was revealed in an August 16 Beijing News interview with two agricultural insurance experts from China's Academy of Agricultural Sciences which revealed numerous shortcomings in the country's huge subsidized agricultural insurance program.  The experts explained that China's agricultural insurance program is the biggest in the world. According to the Beijing News interview, premiums grew 27-fold to about $12.5 billion from its launch in 2007 to 2020--significantly larger than the U.S. agricultural insurance program. China's agricultural insurance covers 16 major commodities and 60 local specialties. Insurance c...

A crackdown on pig insurance fraud is underway in China's Sichuan Province after officials uncovered a "chain of corruption" that collected insurance money based on false reports of dead pigs. China began offering subsidized insurance for sows in 2007 and later extended coverage to fattening hogs. Insurance is sold by insurance companies, but the government subsidizes 80 percent of the premiums. The program is intended to stabilize production by reducing risk for farmers and to prevent diseased pigs from being sold and slaughtered. Insurance for sows and commercial hogs was included on the Ministry of Agriculture and Rural Affairs' (MARA) list of key rural policies for 2019. There has been no public discussion of whether insurance companies have been paying out claims on the large numbers of pigs that died of African Swine Fever since August 2018. Unspecified "improvement" of hog insurance was one of the policy measures to promote recovery of hog producti...

China has been experimenting with agricultural price index insurance, a new approach to mitigating the risk of price fluctuations. A recent description in Economic Reference News highlights a pilot for vegetable producers initiated in Zhangjiagang, a prefecture in northern Jiangsu Province. The price index insurance product is offered by Peoples Insurance Company of China (PICC) with 90 percent of the premiums paid by prefecture and township governments. A basis price is set--apparently the commodity's wholesale price during the same period in the previous year. If the current period's price falls below the basis price, the producers receive a compensation payment from the insurance company based on the price shortfall. The Zhangjiagang pilot is for leafy cabbage-type vegetables grown in the summer when they are in short supply. The basis price is set using average price data provided by local price bureau surveys every 10 days. Last year the insurance company paid out 80,...

Haiyan County in Zhejiang Province is offering subsidized  insurance against food safety incidents at rural banquets . The insurance covers victims of food safety incidents at group meals. It covers the personal injury, death, hospitalization, or burns of victims. It protects chefs against liability for negligence resulting in food poisoning, other food-borne illness, or foreign matter in food affecting five or more people. The insurance premium is 10 yuan per table, with half paid by the district government. According to the local food and drug monitoring bureau, there have been food safety incidents at rural banquets in recent years that threatened social stability. The local food safety monitoring officials say they came up with the pilot insurance system after conducting an assessment and gathered suggestions and arranging for an insurance company to participate. Food safety insurance pilots have already been underway in urban areas of the county for three months and are no...

According the Daily Business News, Farmers in Huajiaqiao Village in Jilin Province have experienced heavy losses to their corn crop from this year's army worm infestation, but they should not expect their crop insurance to give them any compensation because insect damage is not considered a "natural disaster." The article focuses on losses from the worst attack of army worms since 2001. Some farmers sprayed their plots with insecticide four times but still couldn't get rid of the caterpillars. They bought subsidized crop insurance at the beginning of the year, but the insurance excludes insect damage. The reasoning is that insect damage can be avoided (by spraying insecticide) so it is not a "natural disaster." Insurance only covers what we would call in English an "act of God" like hail, floods, wind, and frost. The problem is that farmers didn't know what they were buying when they paid for their crop insurance. No one in the village had...

China has quietly been building up probably the world's largest agricultural insurance program over the last five years. The program was rolled out on an experimental basis in 2007 and was hastily launched as a package of pork industry policies in 2007 when the industry was shaken by widespread disease outbreaks. China's subsidies for agricultural insurance are now the equivalent of $ 1.5 billion. Chinese officials have been pushing the idea of agricultural insurance since the 1990s as part of a broader development of modern agriculture and transitioning from the traditional "depending on the weather to eat" to risk management. While risk management is a critical problem for Chinese agriculture and insurance is a good idea on paper, the implementation is difficult. Like many of China's agricultural policies, the agricultural insurance program is implemented by giving subsidies to profit-seeking companies as part of their "social responsibility." Like m...

China first began experimenting with direct subsidies to farmers in 2002. Since then they have spread to every nook and cranny of rural China. It's sometimes surprising to see what gets subsidized. A mundane article about a meeting to discuss implementation of this year's fine breed subsidies reveals that Yak semen is one of the unusual items receiving subsidies. The fine breed subsidy for livestock is a payment to breeding farms to buy or breed quality breeds of bulls or boars and pay for artificial insemination of farmers' animals at breeding stations using semen from these beasts. This typically means importing animals from north America or Europe like Holstein dairy cattle or landrace, yorkshire or duroc hogs to upgrade the breeding stock. At the meeting, officials claimed that the program has increased dairy cow productivity by 500 kg and shortened the time for hogs to reach a market weight by 5-10 days. They claim the artificial insemination rate for hogs has been i...

When the Peoples Republic of China was founded it was mainly a country of peasant farmers. Sixty years later, the Chinese communists are obsessed with companies and giving them a multitude of subsidies and tax breaks carefully designed to entice them to industrialize the backward agricultural sector. This strategy of "industry feeding agriculture" and "cities supporting the countryside" sometimes appears carefully-crafted, but it changes from year to year depending on what crisis has popped up. Ironically, a Farmers Daily article about Yunnan Province's "No. 1 Document" for this year emphasizes tax breaks, interest subsidies, and favorable access to land for agribusiness companies that lead farmers out of poverty to become full participants in the modern global economy. While this is only a provincial document, the provisions of bigger investment and integrating companies with farmers seem to be a general strategy for the 12th five-year plan that begi...

An article in the Yangzhou Evening News last week reports that sows can be worth more dead than alive. According to a worker with the local insurance company, the company has lost money since it began offering subsidized insurance for breeding sows last year, because farmers are filing twice as many claims for dead sows as they did last year. Comic from Yangzhou Daily: "Sorry brother, I'm waiting to collect the insurance." Because hog prices have been low, raising sows has been unprofitable. Thus, you spend more on the feed and upkeep of the animals than they generate in sales of baby pigs. They could slaughter them and sell the meat but the indemnity payment for a dead sow is more (1000 yuan). There is a mixture of fraud and moral hazard (engaging in risky behavior because you know you're insured). The insurance worker reports that he has seen a lot of farmers neglecting to treat sows for disease in the hope they will die so the farmer can collect the insurance. He ...

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 a...