Performance And Policy Optimization Of The Financial Subsidies For China’s Agricultural Insurance

As a mechanism to decentralize agricultural production risk, compensate for economic loss and maintain agricultural production, policy-oriented agricultural insurance, which is accept as "green box" policy by WTO, is not only one of the important security systems against agricultural risks, but also has become a non-price tool to protect farmers’income. "The Central File No.1 of 2004" first brought forward policy-oriented agricultural insurance pilot in China. The central government began to offer premium subsidies to agricultural insurance in 2007. Ever since then, the amount, varieties and proportion of subsidies have increased year by year. China’s agricultural insurance began to make profit instead of losing money.At the same time the ability of sustainable development of China’s agricultural, insurance has increased. But the development of policy-oriented agricultural insurance is accompanied with a number of problems, such as local government or insurance agencies defrauding the financial subsidies, insurance companies overstating the cost, some towns and the villages misappropriating or intercepting insurance claims, and and the insured famers misstating the losses caused by disaster. The performance of financial subsidies for agricultural insurance development is obvious. But it is necessary to assess the performance of financial subsidies for agricultural insurance timely and effectively. Then we can effectively regulate the financial subsidies for agriculture insurance and achieve the optimal scale, reasonable allocation and utility maximization.The Ministry of Finance selected Sichuan, Inner Mongolia, Anhui and Jiangsu Provinces (autonomous region) to pilot the performance evaluation of premium subsidies for agricultural insurance in 2012.Audit departments and financial departments of some provinces (autonomous regions and municipalities) have undertaken a number of performance evaluation, and also got some valuable experience. However, absence of holistic and dynamic assessment, the performance evaluation can’t fully reflect the comprehensive benefits of financial subsidies for agricultural insurance. The performance evaluation of financial subsidies for agricultural insurance is a comprehensive process system, including the economic, social and environmental benefits. So the performance evaluation should make clear the following key issues, such as the impact of the government’s fiscal premiums subsidy on the farmers’ decisions, how to make the subsidy more reasonable, the effect of policy-oriented agricultural insurance to agricultural production activities (planting area, planting varieties, pesticides and fertilizer use),the moral hazard and adverse selection of the farmers, the role of financial subsidies for agricultural insurance in promoting agricultural production and rural environmental improvement, whether central and local financial resources is sufficient to ensure the sustainability of agricultural insurance subsidies. The government must know how much subsidies can achieve the effect for "less government input, more farmers benefit". Based on the data of the financial subsidies for agricultural insurance in China and our inspection of the Sichuan Province, this thesis tries to investigate the performance of financial subsidies for China’s agricultural insurance and build a scientific and reasonable performance evaluation system in order to improve our policy-oriented agricultural insurance system and to achieve its sustainable development.Based on the dualistic structure of China’s economy and society, in particular with the background of "the industry to support agriculture", this thesis analyzes the overall performance of the financial subsidies for agricultural insurance in China. The theoretical bases of this thesis are the Neo-classical economics, welfare economics, information economics, institutional economics, public finance and financial development theory.This thesis gives a qualitative and quantitative evaluation of the effect to promote the farmers’ insurance, to improve crop planting structure and increase agricultural output, points out the influential factors which constrain the development policy-oriented agricultural insurance, builds up China’s agricultural insurance financial subsidies performance evaluation system, and points out the path to optimize the financial subsidies.This thesis is composed by six chapters.Chapter I is the theoretical basis of the performance evaluation of agricultural insurance financial subsidies. The author expounds the theories involved in this study such as the neo-classical economics, new institutional economics, welfare economics, information economics, public choice theory, the public finance theory, and financial development theory. These theories confirm the necessity of financial subsidies and performance evaluation for agricultural insurance. This chapter builds up the theoretical basis for the subsequent in-deep study.Chapter II is the international experiences of the financial subsidies for agricultural insurance and its performance evaluation. First, this chapter introduces the financial subsidies and its performance of the United States, Japan, France, and India. Then it contrasts the differences of the system design and performance of agricultural insurance financial subsidy in various countries in the following aspects, such as public-private partnerships, sales channels, compulsory insurance, reinsurance and financial support. And at last it points out that we can learn from foreign successful experience on promulgation of laws, government support, public-private partnerships, reinsurance and multi-stakeholder involvement.Chapter Ⅲ is a comparative analysis of the performance of financial subsidies for agricultural insurance in China This section analyzes the development skeleton and performance of agricultural insurance in China before and after the financial subsidies and contrasts the development of agricultural insurance of various provinces, autonomous regions and municipalities from various angles.Chapter IV is a quantitative analysis of the performance of financial subsidies to agricultural insurance in China, based on mathematical statistical method. Firstly, combined with the history of China’s agricultural insurance and agricultural production data, the author uses cointegration and error correction model to examine the relationship between the agricultural insurance premium income and agricultural production variables. Then using the survey data in Sichuan Province, the author analyzes the effect of financial subsidies for agricultural insurance to farmers’insurance decision. Using the agricultural insurance and agricultural production panel data, the paper investigates the contribution of policy-oriented agricultural insurance in the agricultural planting structure adjustment, the gross agricultural production and farmers’ income. Finally, the author studies the sustainability of financial subsidies for agricultural insurance from the national and Sichuan Province..Chapter Ⅴ analyzes the reasons for restricting the performance of financial subsidies for agricultural insurance in China, combined with game theory. The author introduces the subsidies game between the central government and local government, and then analyzes the game between the central government, local government, insurance companies and farmers.Chapter Ⅵ is the way to enhance the performance of financial subsidies for agricultural insurance.This chapter proposes the optimal path to improve the performance of the financial subsidies for Chinese agricultural insurance in following points, such as building a performance evaluation system, legal system, supervision and management system of financial subsidy for the Chinese agricultural insurance,clealy identifying the respective rights and obligations of the central government and local, creating the system of "Industry Compensate Agriculture" to stimulate farmers to buy agricultural insurance, and optimizing of the subsidy policy in the agricultural structure adjustment.The main contribution of this thesis is as follows:Firstly, it is the first time to built the framework of the performance evaluation of financial subsidies for agricultural insurance.The thesis systematicly investigates the performance of the financial subsidies for China’s agricultural insurance, comprehensively utilizing a variety of analytical methods.The author collects the data of gricultural insurance,agricultural production and armers’ income of the whole country and every provinces (autonomous regions,municipalities), and carries out a large number of questionnaires in Sichuan Province.Using a variety of quantitative analysis tools such as time series analysis, logistic analysis, panel data analysis and Cobb-Douglas model,this thesis comprehensively evaluates the performance of the financial subsidies for China’s agricultural insurance from the following multiple angles stimulating farmers to insure,promoting agricultural planting structure adjustment,increasing farmers’ income and the sustainability of financial subsidy.The comprehensive evaluation will make up the shortage of later literatures which used a single analysis tools to evaluate the performance of financial subsidy for agricultural insurance.Secondly, based on game theory, the author initially analyzes the factors restricting the performance of financial subsididy for China’s agricultural insurance. Especially the subsidy game of the central government and local government was introduced into the game of the financial subsidy for agricultural insuranc, which make up for the shortage of later literatures which mix them for a group.Using three "models such as subsidies evolutionary game, the regulation game and stackelberg game, the authors depply analyzes the subsidy game between the central government and local government.And then from the game between the four agricultural insurance participants including the central government, local government, insurance companies and farmers.Thirdly, this thesis tries to build up the performance evaluation system of financial subsidy for China’s agricultural insurance.There is a great deal of literatue relevant to the supply,demand and the subsidy system of agricultural insurance,less of a comprehensive system of how to systematically improve the performance of financial subsidies for agricultural insurance.From multiple theoretical perspectives,this thesis demonstrates the necessity of financial subsidy and performance evaluation for agricultural insurance.Then learning from the experience of financial subsidy for foreign agricultural insurance,the author puts forward the way to build the performance evaluation system of financial subsidy for China’s agricultural insurance.The main conclusions of this paper are as follows.A sound legal system, regulatory system and performance evaluation system of financial subsidy for China’s agricultural insurance are the fundamental guarantee for the healthy development of the financial subsididy of agricultural insurance.The key indicators such as premium income, insured amount, insurance claims, insuranced area,insuranced households, benefited households, variety of subsidies, the proportion of subsidies in premium increase substantially. The loss ratio of insurance companies stable at around 65%.The effect of financial subsidies for agricultural insurance in promoting farmers’ income,adjusting the industrial structure of agriculture and increasing agricultural production is still low.Crop varieties of agricultural insurance subsidies, insuranced crop area, as well as farmers’insurance consciousness need to be improved. The rights and obligations of the central government and local government must be clearly defined so as to build the cooperative game between them.In order to raise the farmers and insurance companies’expectation on the sustainability of financial subsidy for agricultural insurance.The financial subsidies responsibility of cities and counties must be reduced,and the financial subsidies responsibility of the central and provincial government must be increased.We must give full play of the market and the government in the allocation of resources, especially the financial subsidy of central government and the operation of insurance company, rely on reinsurance and capital market, improve the sustainability of expectations and satisfaction of the farmers, and perfect the financial subsidy system of China’s agricultural insurance.