A Study On The Effective Demand Of Policy-oriented Agricultural Insurance In China

With the promoted progress of agricultural industrialization, the uncertainties ofagricultural production and operation is increasing day by day, it makes thecharacteristics of agricultural risk being more and more complex, and is now threateningthe stability of China’s rural economy and the national food security. Agriculturalinsurance as an important tool of modern agricultural risk management has the economiccompensation function of enhancing the comprehensive agricultural production capacity,stabilizing peasants’ incomes and improving peasants’ welfare level. However，theproperties of agricultural insurance as quasi-public goods would bring about marketfailure under the conditions of government absence. From2004to2012, the NO.1Central Document and the government work report proposed to strengthen thedeveloping process of agricultural insurance for9consecutive years. In the year of2007,the Ministry of Finance launched a pilot testing of financial subsidies for agriculturalinsurance, which step China’s policy-oriented agricultural insurance development into avirtuous circle. But opposite to the world’s highest level of governmental subsidies ratio,the effective demand of agricultural insurance stay low. Therefore, the research on theissues of how to enhance the effective demand of policy-oriented agricultural would havecertain theoretical and practical significance on stimulating the effective demand ofChina’s policy-oriented agricultural insurance, perfecting the operation mode ofgovernmental subsidies on agricultural insurance and realizing the sustainabledevelopment of policy-oriented agricultural insurance.The writers from both at home and abroad have done continuous exploration on thedemand issues of agricultural insurance, promoted the brisk development to the researchof this field. But from the points which they focused, the majority of these researches arelimited in the micro-level of peasant households, having no integration with theoutcomes from the macro-governmental level, especially the motivation performance ofChina’s ongoing subsidies mode on the effective demand of policy-oriented agriculturalinsurance and the lack of in-depth research and argument on the feasibility problems ofthe subsidies mode from higher security level on the practice of China’s agricultural insurance. Based on this, this paper applied the modern insurance demand theory, welfareeconomics theory and public finance theory, combined with theoretical analysis of bothdomestic&foreign research results on agricultural insurance demand and themechanisms of agricultural insurance effective demand. Firstly, it defines the content ofpolicy-oriented agricultural insurance and the effective demand of agricultural insurance,builds the logical analysis framework of the effective demand of policy-orientedagricultural insurance and determines the research angle of view; secondly, it takes thecombination approach of both field survey and the quantitative analysis of statistics,interprets the current condition， existing problems and the causes of policy-orientedagricultural insurance; again, by implying the approach of normative analysis andquantitative analysis of statistics, it interprets the mechanism of how to stimulate theeffective demand of policy-oriented agricultural insurance from both the micro peasanthouseholds level and the macro governmental level; finally, by using the approach ofboth statistics quantitative analysis and numerical simulation, it analyzes the feasibilityand changes against the effective demand of policy-oriented agricultural insurance underthe mode of diversified subsidies. Based on the theoretical and empirical study, it putsforward the policy suggestions and the guarantee of implementation of promote theeffective demand of China’s policy-oriented agricultural insurance. The full text of thisresearch falls into5main parts:The first part is about the arising of this problem and the research perspectives. Bydefining the background, significance, methods, content and etc. of this research, clearlyput forward the issues of this paper. And on this basis, put forward the possibleinnovations and deficiency; by combing both the content of existing literatures and theresearch method, it defines the concepts of agricultural insurance, policy-orientedagricultural insurance, effective demand and the effective demand of agriculturalinsurance. Through the systematic analysis against the theory of agricultural insuranceeffective demand, clarifies the researching perspective of the combination of both micropeasant households level and macro governmental level, and further analyzes themotivation theory of governmental subsidies against the effective demand of agriculturalinsurance, constructs the logical framework of policy-oriented agricultural insuranceeffective demand with the micro mechanism, macro mechanism and the mode of chosen. The second part is about the quo interpretation of policy-oriented agriculturalinsurance effective demand.Since the implementation of policy-oriented subsidies, theeffective demand of China’s agricultural insurance have been highly motivated; theleverage effect of subsidized capital on insurance premium is obvious, the ratio of claimssettlement become lower and the operation of agricultural insurance have been improved.But the low degree of permeability suggests that the incentive of governmental subsidieson the effective demand of policy-oriented agricultural insurance is not sufficient. Theoutstanding contradictions and problems mainly are the inefficiency of subsidies, limitedpayment ability of the low-income peasant household, the substitution effect of othertraditional risk diversification mechanism, and the imperfection of incentive system.The third part is about the interpretation of policy-oriented agricultural insuranceeffective demand mechanism from both level of micro peasant household andgovernment. Based on the empirical analysis of the influencing factors and mechanism ofpolicy-oriented agricultural insurance effective demand from the micro peasanthousehold level we conclude that, along with the increase of the peasant household’sincome, the ability of the peasant household to pay for the purchase of agriculturalinsurance is enhanced. And the education degree of peasant households, governmentalaids, assets, acreage, the awareness and satisfaction of insurance showed positive effecton the effective demand of policy-oriented agricultural insurance. But under thecondition of budget constraints, the consumption of medical and pension insurance isprior to agricultural insurance, and the willingness to purchase agricultural insurance tendto decline if the peasant households engage in non-agricultural activities. According tothe empirical analysis of policy-oriented agricultural insurance effective demandincentives from the level of macro government, the revenue effect of policy-orientedagricultural insurance is greater than the effect of substitution, but there is no substitutioneffect between policy-oriented agricultural insurance and the savings of peasanthousehold. substitution effect should not change the welfare of peasant households,whereas revenue effect would increase it, these two effects function in the same directionand the total effect would increase the effective demand of agricultural insurance. Andbecause of the dynamic endogeneity of agricultural insurance market equilibrium,governmental subsidies would advance the equilibrium. The long-term market equilibrium of China’s agricultural insurance would remain stable, but the year of2004would be a breakpoint. The effective demand of agricultural insurance have strongerability of self-improvement and self-perfection, and this is the driving power foragricultural insurance to achieve a higher equilibrium.The fourth part is about the chosen of policy-oriented agricultural insurancesubsidies mode. According to the analysis of policy-oriented agricultural insuranceeffective demand under the mode of diversified subsidies, the implementation ofgovernmental subsidies under the cost preserving pattern has positive effect onpromoting the effective demand of governmental insurance, but the achievement is low.So duly push out the output insurance with the multiple guarantee levels under thedynamic changes of the governmental subsidies proportion is feasible, but we don’t havethe foundation for the popularity of income guarantee pattern. To the low-income peasant,no matter which kind of policy-oriented agricultural insurance under the preservingpattern, they don’t have the capacity to pay. So, how to improve the net income oflow-income peasant is the key to promote the effective demand of policy-orientedagricultural insurance.The fifth part is about conclusions and suggestions. The low effective demand ofpolicy-oriented agricultural insurance is the compound effect of peasant household’sincome&economic position, the use of risk management, other consumption constraintsand the awareness of insurance, which ultimately based on the rational choice of thepeasant household for their utility maximization. Through enhancing the ability to payfor the policy-oriented agricultural insurance of peasant household, fostering the peasanthousehold’s willingness to purchase policy-oriented agricultural insurance, innovate thepolicy-oriented agricultural insurance product and technology to improve the servicelevel of policy-oriented agricultural insurance, these are the basic solutions for solvingthe inefficiency of policy-oriented agricultural insurance effective demand. Furtheremphasis the leading role of government, continuously proving policy-orientedagricultural insurance subsidies system and agricultural insurance legal system are theguarantee to improv the effective demand of policy-oriented agricultural insurance.