Head of economic research at Asia Capital Re, Dr Yao Jianzhong, talks exclusively to StrategicRISK about the roles of agricultural risk management and insurance in China

China’s growing affluence, changing dietary demands and greater integration with the global food economy mean that its food security policies and consumption habits are having a considerable and growing effect on the world’s food supply.

So much so, says Dr Jianzhong, that China’s food security policy strategy now goes way beyond internal calibration.

“In recent years, the country has expanded its agricultural investment to beyond its borders, to other parts of Asia, Africa and Latin America, and has even shopped around in North America too for food producers,” he told SR.

“We also see the central government being increasingly involved on the world stage as a food donor.”

China’s domestic consumption could not be blamed for causing the 2007/8 global food crisis, Dr Jianzhong said. However, as the world’s largest producer and consumer of agricultural products, China’s food security policies and consumption habits are affecting the world food supply and prices like never before.

In an effort to safeguard its agriculture market and also in recognition of its role in ensuring global food security, the Chinese government has “prioritised the self-sufficiency and security of staple foods at the top of its strategic agenda”, Dr Jianzhong said.

Dealing with disasters

Dr Jianzhong spoke to SR in relation to a report on the advancements in China’s agriculture risk management produced by agriculture research analyst at Asia Capital Re, Lily Zhang. In it, Zhang writes that China is one of the most disaster-prone countries in the Asia-Pacific region and, as such, is building on measures to reduce the impact of natural disasters on agricultural production.

“China is characterised by natural disasters of extensive variety, wide geographical distribution, high frequency and with high loss severity,” she writes.

“Aside from volcanic activity, the world’s second largest country by land area has weathered almost all types of natural catastrophes – meteorological disasters, earthquakes, geological and biological events, and forest and grassland fires.

“According to the Institute of Environment and Sustainable Development in Agriculture, such events caused China to have lost an average annual grain yield of about 50 million tons.”

Nevertheless, despite disruptions from floods, droughts and pest attacks in 2013, China managed a 10th-year increase in total grain production, Zhang reports. “This is not only because of the highly complementary crop types across China’s vast territory, but also due to China’s improving disaster prevention and mitigation mechanisms.

“At present, basic disaster monitoring and early warning systems are in place, with meteorology, hydrology, seismology, geology, agriculture, forestry, marine, environmental and other kinds of natural disaster forecasting, warning and monitoring networks established.”

China’s food security strategy now focuses on a range of measures and approaches, from improving disaster prevention and mitigation mechanisms to enhancing the country’s grain safety through agriculture support policies and fiscal tools.

New insurance regulations

Agricultural insurance has also been singled out as an area of focus. Zhang writes that the development of a healthy and effective agricultural insurance system ranks among the country’s key priorities. Agricultural insurance regulations put in place in China this time last year are “pushing agricultural insurance towards a new era of formalised and structured legal frameworks”, Zhang argues.

“As of last year, there are 25 agricultural insurance providers in China,” she writes. “In the first four months since the agricultural insurance regulations were introduced in March 2013, the China Insurance Regulatory Commission (CIRC) had already newly approved 14 insurance firms to operate agriculture insurance business in different provinces.”

According to CIRC’s vice-chairman Chen Wenhui, Chinese agricultural insurance covered more than 10 million hectares of crops from January to October in 2013, with insured amount exceeding 1 trillion yuan. From 2007 to 2012, Chinese agricultural insurance risk protection rose from 112.6 billion yuan to 900.6 billion yuan, with 55.1 billion yuan of claims paid out to 113 million farmers.

There have also been various updates and developments of agricultural insurance initiatives across China, such as schemes for Beijing’s 13 agricultural suburban counties covering greenhouses, sheds, vegetables and animals, as well as mandatory aquaculture insurance schemes and vegetable cultivation pilot schemes in Guangdong Province.

Zhang says that China’s agricultural insurance system is taking steps to move its insurance models from cost protection to yield and price guarantees, and gradually towards income assurance.

“This is undoubtedly a positive stride towards even greater agricultural insurance development,” she argues.

“As an effective risk management tool, agricultural insurance plays a vital role in diffusing agricultural risks and reducing losses for a sustainable agriculture industry ahead.”

Food security

Dr Jianzhong believes that China will only be able to help feed the world when it has worked out how to feed its own people in the long-term.

“Successful annual grain harvests have enabled it to attain a level of self-sufficiency and provide a degree of food security for its 1.34 billion people in the country, for now,” he said.

“The country’s grain output is expected to remain stable as a result of the government’s efforts and the measures it has taken for the further development of its agriculture and food production.

“This will be especially evident in the country’s supply of the different grain varieties; that is, the so-called staple foods such as rice and wheat. The production yield of rice and wheat is expected to remain stable.

“The import of these grains is expected to increase only slightly this year and beyond, and will therefore not likely to have a significant impact on global market pricing.”

On the other hand, he cautioned, China has adopted a “moderate import” strategy for soybean, so its dependence on imported soybean has reached about 80%.

“This import level could increase in the near future, and will inevitably affect the global prices,” he said.