Starting from Pu'er Railway Station, it takes 3 hours and 40 minutes to drive, and after passing through 250 kilometers of mountain roads, you can reach Menglian County on the southwest border of Yunnan. The full name of Menglian County is Menglian Dai Lahu and Wa Autonomous County. "Menglian" is pronounced in the Dai language and means "a good place found". The climate here is subtropical and the hot zone is rich in resources. Natural rubber, sugar cane, tea and coffee constitute the four pillar industries.
Recently, a reporter from the Securities Times visited the Longhai Group in Meng'a Village, Mengma Town, Menglian County, and saw a nearby rubber forest. Over the past six or seven years, rubber farmers have not only lifted themselves out of poverty, but have also gained confidence in rubber planting and tapping. They no longer worry about falling rubber prices. If they fall much, they will receive compensation from insurance companies.
The changes started in 2017. Starting from this year, rubber farmers have received the guarantee of "insurance + futures". They may not necessarily fully understand the principles of this form, but they know they are guaranteed. Inadvertently, small and medium-sized rubber farmers in the southwest border villages have benefited from innovations in capital market tools and financial service models.
“Don’t worry if the price of rubber is too low”
Natural rubber is one of Menglian's pillar industries. "The county's rubber planting area is 301,000 acres, and the agricultural output will be 290 million yuan in 2022." said Li Meiying, director of the Menglian County Tea and Specialty Biological Industry Development Center.
Years ago, rubber production was not stable. Rubber trees are quite special. The tapping period is measured on a daily basis or every few days, which requires a lot of labor and has certain requirements for harvesting techniques. When rubber prices are too low, rubber farmers may stop hiring people to tap rubber out of profit considerations. Therefore, although rubber trees have a harvesting period of about 20 to 30 years, rubber production will still be reduced in some years due to low rubber prices.
"Rubber prices have indeed fluctuated quite a lot in recent years." Li Meiying said that in 2017, with financial support during the poverty alleviation stage, the local government launched the "guaranteed + futures" guarantee project, and rubber farmers have benefited from this. So far, the project has benefited more than 20,000 households. By the end of 2022, the cumulative compensation will be more than 30 million yuan, and so far, the compensation will be about 40 million yuan. The project is very popular among rubber farmers.
Li Haocheng, the Rural Affairs Department of China Life Property & Casualty Insurance Yunnan Branch, said that according to the guarantee of "guaranteed + futures", when rubber prices are low, rubber farmers can also have stable income - that is, as long as there is output, at least a certain price can be guaranteed. In this way, the industrial front-end is motivated and the rubber industry is protected from the source.
"Insurance + Futures" join forces to protect farmers
In terms of business model, how does "Insurance + Futures" achieve protection for farmers? Why do insurance and futures come together?
Taking the rubber "insurance + futures" as an example, the insurance purchased by rubber farmers belongs to a type of price insurance, with the rubber futures price as the target, which can transfer the risk of rubber price fluctuations to the insurance company; the insurance company then purchases OTC options, and the insurance company purchases over-the-counter options. Futures companies conduct hedging in the futures market, thereby transferring the underwriting risk to the futures market.
A reporter from the Securities Times learned from the interview that before the rubber “insurance + futures” model, there were both insurance and futures hedging to ensure rubber risks, but both of these tools had certain limitations.
In terms of insurance, the main thing to ensure the physical and chemical cost of rubber is insurance, which can only protect the basic cost investment in planting; for rubber farmers, the loss compensation effect is weaker than the complete cost insurance (protecting physical and chemical cost + labor cost + land rental cost ) and stable income; from the perspective of futures, fewer rubber farmers have actually benefited, and only a handful of large-scale farms have the knowledge and ability to hedge by purchasing futures. Futures types are traded in units of "tons" per lot. Many small and medium-sized rubber farmers cannot meet the threshold. In addition, futures still have a certain degree of professionalism, so it is difficult for futures to effectively reach rubber farmers.
Under the "guaranteed + futures" model, as long as the futures price is lower than the set value during the period, rubber farmers will be compensated. "In fact, it has the same effect as hedging." Li Haocheng said that this model is equivalent to allowing more small and medium-sized rubber farmers to indirectly use futures tools to transfer price risks.
In short, "Insurance + Futures" is equivalent to insurance companies helping futures companies organize rubber farmers through "price insurance", and "groups" enter the futures and options market to conduct futures and options transactions.
Xiang Shiping, deputy general manager of the Rural Affairs Department of China Life Property & Casualty Insurance Yunnan Branch, believes that "Insurance + Futures" is an exploration of using financial tools to resolve price risks. It is a good idea to transfer the price risks faced by farmers to the futures market. The conveyor belt between the price risks faced by farmers and businesses and the futures market. Proper use and development of futures business can better bring into play the risk management role of the futures market.
A total of 18 categories have been touched
Menglian County's rubber "insured + futures" is just a representative of this form. Locally, China Life Property & Casualty Insurance Yunnan Branch has underwritten the "Insurance + Futures" project for six consecutive years, covering rubber, sugar, pigs and other types of products, and has underwritten a total of 74,500 households.
This model can be implemented and implemented, and there are many things behind it for insurance companies and futures companies. Xiang Shiping introduced that when he took the lead in promoting "safety + futures" in Yunnan in 2017, it was not understood and accepted by farmers. Initially, it mainly relied on the power of government organizations to carry out publicity and explanation, and at the same time provided one-on-one education to key leading enterprises. After 2019, China Life Property & Casualty Insurance Yunnan Branch and Futures Company jointly conducted multiple training sessions at the grassroots level. After a period of going from village to household, farmers gradually accepted the "safety + futures" product.
"Later, during our service process, the claims settlement basically met the farmers' expectations. The farmers actually gained benefits through insurance, so their awareness of insurance and their understanding of the products became stronger and stronger. From the very beginning, they didn't understand , tried to take out insurance, and now we have basically taken the initiative to take out insurance." Xiang Shiping said.
Judging from public information, the current "insured + futures" model is in a period of rapid development not only in Yunnan, but also across the country. Taking China Life Property & Casualty Insurance as an example, the company first started piloting the "insurance + futures" model in Hubei in 2016. By the end of 2022, this model had covered 25 provinces across the country, providing nearly 7 billion yuan in risk insurance.
Since 2016, "Insurance + Futures" has been written into the Central Document No. 1 for eight consecutive years. "Insurance + Futures" has been implemented in many places and in many agricultural products. The main entities operating agricultural insurance, such as PICC Property & Casualty Insurance, China Pacific Insurance Property & Casualty Insurance, China Life Property & Casualty Insurance, China Property & Casualty Insurance, Ping An Property & Casualty Insurance, etc., have all been involved. The participating futures There are also many companies.
According to information released by the my country Futures Industry Association in July this year, since 2016, a total of 73 futures companies have provided risks for 18 categories including pigs, corn, feed, apples, natural rubber, sugar, and soybeans through the "guaranteed + futures" model. Handling services, the cumulative insured value is 134.604 billion yuan, involving a total of 27.4965 million tons of spot quantity. The project covers 1,224 counties in 31 provinces (autonomous regions and municipalities), covering 5.387 million rural households, 3,101 farmer professional cooperatives, 1,488 family farms, and 2,349 agricultural-related enterprises.
On September 5, Fang Xinghai, vice chairman of the my country Securities Regulatory Commission, mentioned "Insurance + Futures" at the China Futures Industry Association membership meeting, believing that this model effectively served small and medium-sized farmers and gave full play to the futures market based on my country's basic national conditions of "a big country with small farmers". Professional advantages help manage the risk of price fluctuations in agricultural products and stabilize and increase farmers' income.