Influence And Prevention Of Weather Risk On Formal Financing Of Western Farmers

In recent years, although microfinance in rural China has been developing rapidly with the increasing support for agriculture, it is hard for disadvantaged farmers to borrow money, especially in the west regions of China. In the western of China, farmers' family income mainly comes from the agricultural industry which is variably influenced by weather disasters leading to agricultural income instability, thus it weakens the farmers'ability to obtain formal financing. In order to increase their formal financing capability, reducing the weather risk and stabling agricultural income are the most important ways, but at this stage, China is lack of the effective preventive measures. The literatures about farmers' formal financing mechanism from the perspective of risk aversion and steady revenue are rare. So it urgently needs the study on farmers'formal financing and weather risk prevention based on theoretical and empirical analysis. This research was supported by China National Nature Science Fund with grant number 70873096 and Humanities and Social Science Fund of China Education Department with grant number 07JA790027.Based on the current situation, this dissertation summarizes the damages caused by adverse weather and farmers' formal financing from existing literatures both at home and abroad, and classifies China's western farmers into 4 categories by their financing sources, including formal financing, non-formal financing, compatible and without borrowing. On the basis of 897 households data from Shaanxi and Gansu Province, the typical western agricultural production areas, this paper analyses the characteristics of farmers'formal financing in western China, discusses different types of farmers'financing attitudes, measures and choices, explores the effects of weather risks and preventive measures of western farmers'formal financing, and policy suggestions were given based on international experience. This research mainly involves the following five aspects:First, by using Binary Logistic Regression Model and other analysis, this dissertation studies the present situation, characteristics and influencing factors of formal financing in western China and estimates the influencing degree of weather risk. The results show that the main feature of western farmers'formal financing is informal finance-dominated; refusal borrowings account for a higher proportion; credit amount is small; the period of debt is short; basic daily needs dominated (especially for building houses); high repay rate(99%); higher late payment rate(25.6%), etc. According to the influencing extent from large to small, the factors are listed as follows: capita income, whether farming is the main source of income, whether abandon agriculture, whether be willing to adopt new species. However, some factors, such as degree of education, agricultural acreage, how long engaged in farming work, whether a loan ever being refused, whether be willing to buy weather insurance, whether suffering drought, whether be willing to borrow more money, have no obvious influence on the farmers'formal financing. The weather risks indirectly influence the farmers'formal financing ability through their agricultural income. Thus, we need make further study on weather risk's aversion.Second, this part adopts contingency table estimation to compare the preventive attitudes, measures among different types of farmers and to analyze farmers' choices of insurance breeds according to their interest concerning rainfall levels, temperature and gale. The data shows that the majority are more willing to take"new production risks","new technology risks"and"new management method risks"; compared to farmers without formal financing, formal farmers hold a higher percentage of the willingness, that is to say, there is correlation between farmers'types of financing and their risk attitudes; in order to reduce the weather risk effect on agricultural production, over 80% of the farmers use the corresponding countermeasures (such as maintaining household saving, diversification, non-farm investment), but there are still some farmers who pay insufficient attention on weather risks; more than half farmers are interested in insurance of excessive heat, excessive rainfall, gale, cold weather or deficit in rainfall; compared to farmers without formal financing, more formal farmers are interested in weather insurance. Based on the above conclusions, the dissertation will further explore farmers' interests and influencing factors of "new weather insurance" (or "new loan products") combined by formal financing and weather insurance.Third, the Ordinal Regression Model is used to investigate farmers' interests and influencing factors of weather insurance (A new loan product requires an increased interest rate, for example, such a loan product has a built-in insurance mechanism so that when a severe drought occurs the amount of debt you have to repay decreases as the intensity of the drought increases. In this paper, it is called new type of weather insurance or loan product.). 57.1% farmers are interested in this new type of weather insurance. Compared with men, women are more interested in it; whether be willing to borrow more money, agricultural acreage, whether be willing to buy weather insurance exert negative influence on the famers'interest in this new type of weather insurance. However, the factors including degree of education, how long engaged in farming work, types of borrowing, whether farming is the main source of income, capita income, asset-liability ratio, whether a loan ever being refused, whether be willing to adopt new species, whether be willing to adopt new species, whether suffering drought, whether abandon agriculture don't have significant influence on the famers'interest to the new type of weather insurance or loan product.Fourth, through using comparative analysis, this section discusses the preventive measures for weather risk both at home and abroad (sound governmental security system, perfect law setup, well-developed agricultural insurance system, modern rural financial system, canonical eco-environmental protection system, etc), This research intends to provide reference which can effectively prevent weather risk and improve the farmers'formal financing capacity in western China.Fifth, according to the above theories and empirical results, the author puts forward recommendations and main countermeasures which can prevent the weather risk, improve the ability of farmers'formal financing in western China and promote the development of finance in western rural China from the aspects of government, financial institution, insurance company, farmers of western China, environmental protection sector, meteorological department and others.