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What's Holding Back Agricultural Finance?

  Agriculture is one of the oldest industries and the basic pillar of human survival and social development. However, compared with industry, construction or service industries, the innovative development of agriculture is relatively slow. Although chemical technology, information technology and even biotechnology have been developed in recent years However, there are few breakthroughs that can substantially improve the structural bottleneck of the agricultural system.

  Taking agricultural finance as an example, agriculture, with its unique industrial characteristics, is naturally affected and restricted by many external factors, such as weather, market supply and demand, and so on. Unlike industry and commerce, the penetration of external factors into agriculture can be said to be very deep. For example, in the planting industry, not only soil quality and basic elements such as sunshine, precipitation, and accumulated temperature will affect production capacity, but also meteorological disasters such as typhoons, rainstorms, freezing, drought, or various pest and disease disasters, which may also affect production capacity. According to sources, even facility agriculture such as greenhouses still cannot completely escape the impact of the deterioration of the natural environment.

  In addition, due to the relatively long production cycle of agriculture, there is also a significant time difference between the matching between supply and demand. Market demand cannot be transmitted to farmers in time, and when farmers start planting and breeding, they can only make empirical judgments based on historical data. However, it is very likely that due to information asymmetry or the hysteresis of sensitivity to changes in market demand, farmers may have potential loss risks.

  Especially in a country like China with a low overall level of agriculture and a large number of employed people, the "three rural issues" formed by agriculture, rural areas and farmers have become an important shortcoming that restricts the country's competitiveness and the transformation and upgrading of its economic structure.

  On the one hand, agricultural risks are constantly accumulating, and on the other hand, the agricultural foundation is relatively weak. Originally, this is an opportunity for the financial industry, which is good at risk management and hedging, to show its talents. But why has agricultural finance never achieved large-scale growth? Taking agricultural insurance as an example, most of the most common insurance products are policy-based insurance products led by the government and financially supported. There are sporadic commercial insurance products. It can be said that agricultural insurance is currently supported by government funds, and its attractiveness to social capital is seriously insufficient.

  Since the risks of agriculture are diversified and the demand potential of agriculture is huge, why are financial resources turning a blind eye? The reasons may exist in the following aspects.

  First of all, the overall development level of agriculture at this stage is seriously behind industry, construction and service industries, and there is a big gap between the professional level of agricultural employees and other industries. Therefore, the understanding and recognition of complex financial services There are large gaps in knowledge and acceptance. From the perspective of agriculture-related financial derivatives in China's capital market, both farmers and agricultural enterprises have a very limited share of the transaction volume, and cannot achieve the goal of risk management and hedging through the existing financial market.

  Secondly, the scale of agricultural industrialization is limited, and most areas are still dominated by small-scale households. Even some agricultural cooperatives or large households have limited overall operating strength. The strength of the operating entities is weak, so it is difficult to optimize the cost and cost-benefit ratio of agricultural finance. Compared with the industrial, construction or service industries, the financial industry will pay less attention to agriculture.

  Third, the basic assets of agricultural finance must be agricultural resources, and as the land with the largest proportion of agricultural resources, the overall scale and quantity are basically fixed, and the scale and quantity of land are fixed, so its production capacity is basically fixed. The structure of financial products cannot be replicated on a large scale. Take a fully commercial aquaculture insurance as an example. If the scale of aquaculture is fixed and the production capacity of aquaculture is fixed, then the market value of aquaculture insurance is also fixed. For insurance companies, " ceiling” loses trading flexibility.

  To sum up, the reasons for the unsatisfactory development of agricultural finance are: insufficient willingness to consume; high costs; and the total amount is too small.

  Therefore, although the government has repeatedly guided financial resources to be tilted towards agriculture through policy dividends and even fiscal appropriations, the effect has not always been as good as expected. For example, a county in the north signed a contract with an insurance company to purchase insurance for local farmers with financial allocations, but in fact the final total payment is the insurance amount. In other words, such insurance did not leverage the insurance funds to serve agriculture. It’s just that government funds have changed hands into insurance funds, and the original intention of insurance has been lost.

  From another perspective, the reason why insurance companies are reluctant to invest in this is mainly because the unit cost of agricultural insurance cannot be diluted through scale, coupled with the limited consumption capacity of farmers and the need to rely on government policy funding, insurance companies are involved in agriculture. Products and services are more like semi-public welfare projects, and the related insurance premium income barely covers the cost, that is, "the most if you don't take an accident, you will lose money at the most." This also leads to insurance companies constantly arguing with the insured after an accident, and even looking for various reasons to prevaricate, pay less or not pay, and ultimately lose the meaning of insurance.

  Another point is that at present, agricultural financial products are basically linked to agricultural resources, which may cause another problem, that is, the identification of relevant risks. Taking crop insurance as an example, although the insurance contract stipulates that once various disasters cause The insurance company will compensate for the failure or failure of the collection, but the occurrence of a disaster is not the same as an inevitable loss, so how should the standard of disaster exploration be adjusted? If there is a disaster, but due to various timely and effective guarantees, there is no lack of income or no income, how to deal with it? Or, although the disaster standard is not met, but due to the combined influence of other factors or even human interference, resulting in a lack of harvest or no harvest, how to deal with it?

  As for the insurance set up for agricultural costs, how to determine the more fairness to both parties, while taking into account the changes in costs caused by external factors during the execution cycle?

  In a word, in addition to the above-mentioned insufficient purchasing power of consumption, lack of flexibility in cost and ceiling of market size, the factors restricting the development of agricultural finance also have vague hidden dangers in the rationality of agricultural finance transactions. Although the insurance industry includes reinsurance and catastrophe insurance for special disasters in addition to the original insurance, the unbalanced capabilities of both parties in financial transactions also lead to a significant gap in the willingness to conclude transactions.

  To break the bottleneck restricting the development of agricultural finance, it is necessary to continue to promote the industrialization, large-scale and technologicalization of agriculture, improve the risk tolerance of agriculture itself and the ability to diversify risks, but also to get rid of the existing agricultural financial products and services. The design idea is to promote the transfer of the subject of financial transactions from being strongly interfered by external factors to weakly being interfered by external factors, reducing relevant business costs and indirectly expanding revenue space, and at the same time getting rid of the limitation of the overall market size ceiling.

  Taking planting cost insurance as an example, the original product composition will be cost compensation due to various disaster losses, but the insurance cost has risen sharply in the disaster exploration process. If it goes well, farmers will only recover the planting cost, but the time cost and opportunity cost. Losses in vain, if things go wrong, the farmers may lose more than the insurance companies lose, and the result is a lose-lose situation in the end.

  If the key factors that affect crop productivity, such as precipitation, wind, frost, etc., are comprehensively designed to design a meteorological condition index, and then compensation is made according to the actual meteorological conditions in the planting area, then the first farmer (or the government) can purchase an unlimited amount of this index insurance. , when the index change triggers the compensation conditions, insurance companies no longer need to pay for disaster exploration costs, and farmers no longer need to worry about various tug-of-war with insurance companies due to disaster exploration (even if farmers do not suffer losses due to disasters).

  It simplifies various external interference factors in financial transactions, and allows all parties involved to examine the costs and benefits borne more intuitively. In addition to unlocking the corresponding dependence on agricultural resources, the scale of transactions can be continuously enlarged, which will help motivate financial industry players. Or the enthusiasm of social capital willing to take transaction risks to participate in agricultural finance. When the resources of all parties participate more actively in the agricultural financial market, the government's agricultural subsidies will gradually give way to social capital.