Weather risk and the viability of weather insurance in China's Gansu, Shaanxi, and Henan provinces

Abstract

PurposeThe purpose of this paper is to investigate weather risks facing Chinese farmers, and to determine whether farmers would have a preference for weather insurance over other types of agricultural insurance.Design/methodology/approachThe data are based on 1,564 farm households surveyed in Shaanxi, Henan, and Gansu provinces in Central China between October 2007 and 2008.FindingsResults suggest that the greater risk for farmers is drought followed by excessive rain. Heat is less critical as a risk but more significant than cool weather. Results suggest a strong interest in precipitation insurance with 50 and 44 percent of respondents indicating strong interest in the product. Supplementary results indicate that interest is equal between planting, cultivating, and harvesting. Furthermore, results suggest that farmers are willing to adopt new ideas, and where possible action has already been taken to self‐insure through diversification and other means.Research limitations/implicationsThis research is based on primary data gathered in China. However, the authors are limited in the access to Chinese weather station data to illustrate how weather insurance operates. Instead, the authors use weather data from the weather station in Ashland, Kansas which has similarities to the wheat growing regions of China. While the example is for illustrative purposes only, the authors cannot claim that it actually represents premiums that might actually be found in China.Practical implicationsThe Chinese Government has within the past year authorized an investigation into agricultural insurance. The burst of research and applications of weather insurance in both developed and developing countries suggest that a wide array of applications could be feasible in China. The results are encouraging because they suggest that farmers in China would have an interest in purchasing weather insurance.Originality/valueThe authors believe that this is the first study conducted on weather insurance in China. The survey instrument is designed to specifically determine what weather risks are important to Chinese farmers and the interest that farmers would have in using such a product.