Millions of Chinese farmers may no longer risk their fortunes on the weather or be devastated by calamities like bird flu, as the government gives hard thought to expanding agricultural insurance coverage to include natural disasters.

Wu Dingfu, chairman of the Chinese Insurance Regulatory Commission, says the government is exploring ways of expanding the insurance to protect the nation's 900 million farmers from natural disasters.

He reports that China is concentrating on commercially operated agricultural insurance with financial and policy support from the government. Pilot programs will get under way soon in two or three provinces or cities, according to Wu.

China's first special agricultural insurance company is to be set up and operational within the year in Shanghai. The company, capitalized at 200 million yuan (US$24 million), is a landmark trial by the Chinese government to promote farming insurance.

Xu Wenhu, director of the insurance department of Fudan University in Shanghai, says the government and the insurance industry should be spurred to action by bird flu, which has affected tens of thousands of farmers and ignited their demand for the farming insurance services.

But China's meager agricultural insurance services are far from as satisfactory to either the government or the farmers. There are currently only two major insurance companies offering agricultural insurance: PICC Property and Casualty Co Ltd. and China United Property Insurance Company. Their businesses have been languishing in recent years.

Agricultural insurers in China are in a dilemma, says Zhou Weiguo, general manager of the agricultural department of the Shanghai branch of PICC. If premiums are set according to the market, most farmers are unable to afford them. But if rates are lowered, the insurers will go into the red.

The situation has worsened in recent years. China's total agricultural insurance revenue plunged 20 percent plunge in 2002, the sharpest drop since 1982, when agricultural insurance was first launched. The 480 million yuan (US$58 million) of agricultural premiums made up a poor 0.16 percent of the nation's total insurance revenue in 2002.

The situation was no better in 2003.

The faltering agricultural insurance business leaves farmers, if hit by disaster, no option but to wait for government aid. The avian influenza outbreak in Shanghai alone has led to the culling of 300,000 birds, while less than 1 percent of the area's 150 million fowl are covered by insurance. Most affected farmers wait for the government's financial compensation, which is a small amount for each individual but hugely expensive for the government.

A farmer surnamed Xu in Shanghai's Jinshan District saw his 30,000 chickens disappear overnight, killed because his farm was within the unsafe three-kilometer radius of a confirmed outbreak site. He was paid only six yuan (about 72 US cents) for each kilogram of chicken, merely covering his breeding costs.

"The disaster destroyed 20 years of effort," says Xu. He has heard of agricultural insurance, but opted against it because of the high premium rates and his lack of information about the companies that might offer such insurance.

Xu's dream of becoming rich has been snuffed out by bird flu.

"Ignorance about insurance and premium rates that the farmers can't afford are two major obstacles to the development of agricultural insurance," notes Xu Wenhu.

Bird flu is just one of many disasters that can wipe farmers out, but it stimulated the government's attention to providing adequate financial services to this sector. Farmers' income growth slowed in the late 1990s and became a top-priority issue for the new Chinese government, inaugurated last March.

"China's agricultural insurance should be commercial, assisted by preferential policies established by the government," Xu says.

The first special agricultural company in Shanghai will be a commercial operation with financial assistance from the government. Since 1992, Shanghai has integrated the profitable rural construction insurance with the agricultural insurance to support the latter's development, according to Mo Yunhua, a senior official with the Shanghai agricultural commission.

The city tapped the agricultural department of the Shanghai branch of PICC to operate that insurance package independently. Its success not only offset cumulative losses of the previous years, but also built up an insurance fund reserve of 194 million yuan (US$23 million).

According to Xu Wenhu, the Chinese Insurance Regulatory Commission has listed five methods of developing agricultural insurance. It believes that special agricultural companies are the ultimate solution.

The government is considering launching more trial programs in other provinces or cities to test the usefulness and success of commercial agricultural insurance joined with financial aid, report sources with the Chinese Insurance Regulatory Commission.

Preferential treatment for farmers in the realms of finance and insurance has been listed as one of the major policies in the No. 1 Document issued early this year by the State Council, China's central government.

It was the first time in 18 years that the Chinese government has released what was once an annual report on agricultural issues. It announced a string of five No. 1 Documents on agriculture in the late 1970s and early 1980s, when China first launched its reform and opening drive and innovations were being made in the farming sector.

(Xinhua News Agency February 23, 2004)