Can "Insurance + Futures" Solve Farmers' Dependence on the Weather?
As China's agricultural modernization level continues to rise, agricultural products have enjoyed consecutive bumper harvests. However, the long-standing situation in which farmers "depend on the weather" has still not changed. When there is a bumper harvest, "cheap grain hurts the farmers"; when disaster strikes, there may be "no harvest at all."
How can this situation be changed? Along with the rapid growth of China's financial market, the financial industry is joining forces to create the innovative financial service of "insurance + futures," which has already been piloted in multiple agricultural product sectors and has made some progress in safeguarding farmers' income.
Prices Keep Falling, and in a Year of Plenty "Cheap Grain Hurts the Farmers"
Grain prices at home and abroad have long been inverted, and imported grain continues to hit the domestic market. In the long run, relying on state price subsidies not only prevents market rules from operating normally, but also prevents China's comprehensive agricultural competitiveness from being effectively improved.
Take corn, for example. After China began implementing temporary corn purchase and storage in 2008, the corn purchase and storage price continued to rise, and corn output enjoyed consecutive bumper harvests. By the end of 2015, China's temporary corn reserves had reached the total annual output of corn in China. In 2016, the state abolished the temporary corn storage policy. After corn returned to market pricing, the price fell rapidly from the 2015/2016 temporary storage price of 2,000 yuan, at one point even dropping to around 1,400 yuan. The landed price of imported corn was only about 1,500 yuan.
How to resolve the gaming relationship between production and price after market-based pricing is not only related to the stability of farmers' income, but also a key issue related to maintaining China's sustainable agricultural reproduction and agricultural production security.
"Insurance + Futures" Helps Farmers Avoid Price Risks
Over the past few years, the rapid development of China's futures market has led its function in price risk management to be recognized and widely used by many industrial enterprises. But how to apply this management tool to the agricultural sector and, against the backdrop of market-based pricing of agricultural products, help farmers avoid price risks has become a topic of industry attention.
For farmers, futures is too highly specialized, and they basically do not understand it. Sun Dachuan of the Dachuan Machinery Planting Professional Cooperative in Yushu City, Jilin Province, said bluntly that agricultural insurance is easier to accept.
A relevant person in charge of the Dalian Commodity Exchange pointed out that "insurance + futures" combines the strengths of both the insurance and futures industries and fits the characteristics of China's agricultural production. "Farmers focus on production, while innovative financial services focus on responding to risks. The two combined jointly address agricultural risks."
Steadily Expand Pilots to Build a New Barrier for Agricultural Security Together
Since the beginning of this year, the China Securities Regulatory Commission, together with the Ministry of Agriculture and the China Insurance Regulatory Commission, has, on the basis of earlier exploration, steadily expanded "insurance + futures" pilots. The Dalian Commodity Exchange used corn and soybeans as pilot varieties and supported 12 pilot projects, requiring each corn pilot project to have a spot volume of no less than 15,000 tons and each soybean pilot project to have a spot volume of no less than 10,000 tons, both 5 times that of 2015. At the same time, the Zhengzhou Commodity Exchange also launched "insurance + futures" pilots, selected cotton and white sugar as pilot varieties, and determined 10 pilot projects, covering 8 provinces.
Vice Minister of Agriculture Qu Dongyu said that relevant departments of the Ministry of Agriculture, together with agricultural departments in pilot localities, should actively coordinate with relevant departments and units of the China Securities Regulatory Commission and the China Insurance Regulatory Commission, jointly study and improve pilot operating methods, and put forward suggestions for improving policies. In addition, relevant departments and units should carefully study the model of "order agriculture + over-the-counter options + futures market" explored by the Dalian Commodity Exchange. If it is operable and risks are controllable, it can be promoted in the next step of "insurance + futures" pilots.