Crop price insurance lets farmers lock in profits without losses

“If paying more than 20 yuan per mu in insurance premiums could guarantee the profitability of grain farming, I would certainly be willing to pay.” The speaker is Liu Jianlin, a major grain farmer in Xueyan Town, Wujin District, Changzhou City. This year he planted more than 600 mu of rice; half of the plots yielded more than 650 kg of paddy per mu, while the other half could not be harvested in time due to rainy weather and yielded only 450 kg per mu. Moreover, this year the price of paddy was 0.46 yuan per kg lower than last year, so the profitability of grain farming was much worse than in previous years.

The insurance premium Liu Jianlin mentioned is in fact the core of the district's rural reform experiment——using insurance to support target price reform.

Wujin District is among the second batch of national rural reform pilot zones, undertaking two reform pilot tasks. One of them is to launch a pilot reform of target price insurance for agricultural products starting this year, which is the centerpiece of this round of experimentation; Wujin District chose locally produced Cuiguan pears and paddy as the carriers of the target price reform for agricultural products, and the paddy target price is the top priority, bearing the important task of a pilot for grain product target prices for the whole province and even the whole country. On the 18th, the Wujin District Party Committee Rural Work Office, which undertakes this pilot project, held a demonstration meeting in Nanjing on the target price insurance plan for agricultural products. Experts at the meeting held that Wujin's pilot plan is basically mature and has value for replication.

Starting with this year's paddy harvest, the paddy target price reform experiment in Wujin District also began operating at the same time. Ling Guangyao, deputy secretary of the district Party committee, introduced that the district selected more than 2,000 mu of rice in Qianhuang Town, Lijia Town and Xueyan Town as the pilot area, with growers being new agricultural production entities such as family farms and cooperatives, growing rice in contiguous plots of more than 100 mu, and the varieties planted being qualified varieties approved by government departments. According to different plots and the average paddy output of the previous three years, the target price is divided into two tiers: 1,200 yuan and 1,500 yuan of output per mu. Under this target price, grain farmers can have a reasonable profit margin. If the output value per mu falls short of this amount, the difference is made up; if it exceeds it, no subsidy policy applies.

If output falls short of the target price, who makes up the difference? Xu Qinfeng, director of the Wujin District Party Committee Rural Work Office, said they brought in insurance companies to participate, with the Rural Work Office and PICC Property and Casualty Company Limited Jiangsu Provincial Branch jointly formulating insurance terms. The two target price tiers are based on the japonica rice delivery prices on the Zhengzhou Commodity Exchange in November of the previous two years. If the output per mu falls short of the amounts for these two tiers, the insurance company makes up the difference. Of course, the premise is that one must participate in insurance. After investigation and assessment, the determined premium rate is 6%. The premiums for the two target price tiers are 90 yuan and 72 yuan per mu per year respectively, with 70% of the premium subsidized by government finances and farmers bearing 30% themselves, that is, paying 27 yuan and 21.6 yuan per mu per year in premiums.

Are farmers willing to pay so much in premiums? “Personally, I certainly am.” Li Chen, head of Junchen Agricultural Cooperative in Qianhuang Town, said his cooperative was listed this year as a pilot unit for the target price, and his personal grain planting area is 292 mu. Over more than 20 years he has experienced increases and decreases in grain output and price fluctuations. In most years grain farming made money, and there were also times of loss. If he could put on such an “insurance lock,” of course he would be willing. He calculated that under the 1,500 yuan target price tier, after deducting land transfer fees, production costs and insurance premiums, the profit margin is indeed relatively small; in a normal year, if grain prices do not fall further, the output value per mu would be at least 1,700 yuan. But who knows whether there will be natural disasters, or whether grain prices will continue to fall? He said he has already tasted the benefits of participating in insurance: besides growing grain, he also grows 50 mu of grapes. In early summer this year, when the grapes began to bear fruit, a hailstorm hit, and the grapes basically had no harvest. But he had insured them beforehand and received 720 yuan per mu in compensation, while if the grapes had suffered a natural disaster at maturity and had no harvest, the compensation amount would have been 2,000 yuan per mu. He believes the risks of grain farming are actually quite high. With insurance, at least he can preserve his capital and make a small profit, so he is certainly willing to participate and will also mobilize cooperative members to join.

There is another question: what if someone, after taking out insurance, no longer manages the crops as carefully as before and artificially causes a reduction in output? “This is actually the moral hazard in the insurance business.” Hu Shengxiang, senior business supervisor of the Agricultural Insurance Department of PICC P&C Jiangsu Provincial Branch, who participated in formulating the target price insurance plan, said the insurance terms state that if one deliberately gives up or neglects field management, or if reduced output or no harvest is caused by seed quality problems or improper application of chemical fertilizers or pesticides, the insurer is not liable for compensation. When this business is rolled out in the future, grain output per mu will be determined by village, so individuals who artificially cause reduced output will not receive compensation. On this issue, Li Chen believes that unless someone is a wastrel, normal people will not deliberately reduce output. “Buying insurance for grain farming is like buying insurance for driving. How many people would deliberately crash their car to get the insurance company to pay?”

Xu Qinfeng told reporters that this year is the trial operation year for paddy target price insurance in Wujin District. Because this year's autumn harvest season encountered continuous rainy weather, plus low paddy prices, calculations show that insurance companies will pay an average of 183.3 yuan per mu in compensation, but insurance companies are still willing to open this new business because they believe it is impossible for conditions like this year's to occur every year, which provides the possibility of market-based operation for target price reform. “Next year, this reform will be truly implemented; after the pilot matures, it is expected to be gradually replicated.”