1. Experience from China: Agricultural Risk Management 1-6 November 2010 Nanning, China

2. Disaster Risk Reduction (DRR) and Risk Management The Delivering as One initiative for UN system reform, the UN High Level Task Force on Food Security, World Bank Trust Fund (GAFSP-I), Committee on Food Security

Ex-ante

risk management

Emergencyresponse

Ex-postrecovery

and reconstruction

Risk sharing: By farmers, market/privategovernments Risk mitigation: Improved seed, advance tech. Infrastructure farmknowledge Early warning system Holistic approachFor AgriculturalRisks Management Agriculture Risks: Production RiskMarket Risk Risk transfer: Insurance and reinsurance 3. Risk layers Prob. 80% 50% 25% 10% 40% 30% 10% 20% 50% 60% 70% 90% 80% reinsurance Risk retention layer insurance Marketlayer Catastro-phe financing layer GovernmentSafety net Yield loss as % 4. A quick expandingagricultural insurance market USA Spain China USA Spain China Premium (USD) 5. Agricultural Insurance-the main products

Traditional crop and livestock indemnity products

Named peril crop insurance (e.g. hail)

Multiple peril crop insurance (yield guarantee)

Revenue insurance (yield +some price protection)

Livestock mortality insurance

Index-based products

Weather Index Insurance (WII)

Area Yield Index Insurance

Livestock Index Insurance

Other rural Insurance: Health, life, property, motor

6. Comparative Advantage of Weather Index Agriculture Insurance

Objective, transparent and timing;

Limited possibility of moral Hazard and less adverse selection;

Favorable for small farmers;

Potential for reinsurance arrangement;

7. Chinas pilot of Weather Index Insurance:Drought and Heatwave Index Insurance for Rice Target:Poverty County in Changfeng, Anhui prov. Annual income p/c:498 USD Total population 1,200HH covered 482 Sum insured/max. payout:300 RMB per MU, or 50 USD/0.07 ha. Premium rate 4% Cropinsured Rice 8. Seasonal Temp.Cycle in Changfeng (1975 ~ 2007) 9. The phase approach Harvest 100mm 0 mm Trigger: 200 mm Exit: 100 mm Trigger Exit StagePeriodMay 15-Aug.31 Pre-sowing~Flowering Sep.1-Oct.15 8 mm -180mm Drought Index IDrought Index II200mm Payout=(200mm-180mm)* 1.5 RMB/mmPayout=(200mm-100mm)* 1.5 RMB/mm 10. The phase approach Trigger Exit StagePeriodJuly 30 -Aug.15 Flowering HeatwaveIndexTrigger: 8C Exit:20 C Exit=20 Observed Index=15 Trigger=8 11. Payout Structure Payout=Max{[0, (min(IndexV., exit)-trigger)*tick]} 12. For those who have interest http://www.sciencedirect.com/science/journal/22107843 Government Interventions in Agricultural Insurance The Potential for scale and sustainabilityin weather index insurance for agriculture and rural livelihoods http://www.ifad.org/ruralfinance/wrmf/index.htm 13. We not only protect the livelihood of farmers, but the human capital of our next generation! 14.

Thanks!

Weijing Wang

IFAD China Office

[email_address]

[email_address]