Evaluation on the Efficiency of Crop Insurance in China's Major Grain-Producing Area

Abstract

Abstract In China, crop insurance is just a pilot program characterized by material cost-based coverage level and government-subsidized premium. To identify the efficiency of the crop insurance, we use the nonparametric density function model and estimate the probability of yield loss rate at 3 proposed levels for grain crop, wheat, corn, rice and cotton respectively from 13 provinces in the Major Grain-Producing Area. Besides, we point out some unfavorable factors for crop insurance management based on the Second National Agricultural Census data (2006). Our finding is: the coverage level is on average no larger than 50% of the per hectare crop production value while the probability of yield loss for each crop approaches to zero if the proposed yield loss rate is larger than 40%, so the yield damage compensations are not necessary unless the huge catastrophes occur with the yield loss rate over 50%. Farmers could buy crop insurance to avoid big crop failure other than to maximize their returns. Therefore, the current crop insurance coverage level under normal years could not create an effective inducement for farmers to purchase insurance contracts. To expand crop insurance participation, we consider that it is necessary to carry out positive and conditional forced insurance, provide a larger portion of premium subsidy to the Major Grain-Producing Area by central government and improve the basic agricultural production conditions.