Pilot Project in Tongbai County
Tongbai County in Henan Province is located at the source of the Huai River. Its unique geographical conditions and favorable climate for peanut growth have made peanut cultivation a crucial pillar industry and economic source for local farmers to escape poverty. The peanuts produced locally are also known as "Tongbai Pearls." They are considered exemplary high-quality oilseed peanuts due to their rich nutritional content and shiny, round appearance. Tongbai County has developed into a key production area for small and medium-sized peanuts in Henan Province and has been designated by the Ministry of Agriculture and Rural Affairs as a key county for peanut production in China. We closely collaborate with the Zhengzhou Commodity Exchange (郑州商品交易所), the local government, and other stakeholders to help those peanut growers to mitigate the risk of price fluctuation.
Overview
To comprehensively promote rural industrial revitalization and ensure the income of farming households in Tongbai County from planting, the Tongbai County government, in collaboration with the China Siyuan Foundation (specifically, IFU project), Shenzhen Yuzi Public Welfare Foundation, Kaifeng Public Welfare Foundation, Zhongliang Futures, CITIC Construction Investment Futures, CMB Futures, Hua’an Futures, and Huatai Futures, has adopted an innovative way of cooperation in subsidying those farmers. This initiative explores a new model of "Insurance + Futures + multi-level public welfare fund" to support agricultural risk management. We together implemented the Tongbai County Peanut "Insurance + Futures + Multi-level Public Welfare Fund Linkage" Price Insurance Project in 2023 (referred to as "Peanut Price Insurance") targeting the group of peanut growers in the area.
The "Peanut Price Insurance" project addresses the difficulties and reluctance of originally registered impoverished households to purchase insurance by creatively using a strengthened "Insurance + Futures" model. In comparison to the "Insurance + Futures" model where farmers still need to pay part of the premium after subsidies, under the "Peanut Price Insurance" project, these farmers, after enjoying subsidies from the "Insurance + Futures" model, receive additional subsidies from multi-level public welfare funds and thus do not need to pay premiums to enjoy insurance benefits. Moreover, under this new model of public welfare fund linkage subsidies, the Tongbai County peanut price insurance project has leveraged additional funds of over ten thousand yuan from foundations, covering nearly two thousand more impoverished households than before, alleviating the previous dilemma of low participation in the "Insurance + Futures" project.
So far, our "Peanut Price Insurance" project has successfully covered approximately 24,775.2 mu (about 4,082 acres) of peanut planting area, with nearly seventy percent planted by originally registered impoverished households. This project, by providing direct subsidies to originally registered impoverished households, is fully funded by the non-profit organization China Siyuan Foundation's “Inclusive Finance for the Underrepresented Farmers” ("IFU"), covering 100% of the premium amount that should be paid by the households. This approach effectively relaxes the credit constraints faced by these farmers. Additionally, the project disseminates financial knowledge through grassroots propagandists, changing the subjective perceptions of local farmers and encouraging them to purchase insurance. Furthermore, directly subsidizing these households to participate in insurance solves the problem of insurance companies facing challenges in popularizing the concept of "Insurance + Futures" and achieving low economic benefits. This innovative approach not only realizes the deep integration of rural areas with financial services but also provides strong experience and references for consolidating the achievements of poverty alleviation and promoting financial services for agriculture nationwide.
Techinical Details
In 2023, with strong support from the Zhengzhou Commodity Exchange (郑州商品交易所) and Tongbai County Government, the Tongbai County Peanut "Insurance + Futures + Multi-level Public Welfare Fund Linkage" Price Insurance Project, initiated by the China Siyuan Foundation's "IFU project", began implementation in Tongbai County. It covers 17 townships (industrial agglomeration areas) including Maoji Town, Anpeng Town, Guxian Town, Wucheng Town, County Industrial Agglomeration Zone, Suburban Township, Pingshi Town, Zhuzhuang, Chemical Industry Agglomeration Zone, Bujiang Town, Chengwan Town, Dahe Town, Huaiyuan Town, Huanggang Town, Huilong Town, Xinji Town, and Yuehe Town.
The project is underwritten by the Nan Yang Branch of China Pacific Property Insurance Co., Ltd., covering 24,775.2 mu (about 4,082 acres) of peanuts planted by 5,862 households in Tongbai County with "Insurance + Futures" price insurance. The "Peanut Price Insurance" project involves a collective donation of premiums totaling 870,000 yuan, providing coverage for 2,909.1 tons of peanuts in Tongbai County (with an average yield of about 0.117 tons/mu), at a premium of 299.06 yuan per ton (tentative, subject to market fluctuations). Among the donors, the China Siyuan Foundation and Seagulls Society jointly contributed 200,000 yuan. After various subsidies, the premiums are covered by the donors, and participating farmers in the pilot project do not need to pay premiums to enjoy insurance payouts. The insurance company manages "reinsurance" by purchasing over-the-counter options products from futures companies to transfer payout risks. Futures companies purchase market put options to share risks, ensuring compensation for farmers even when crop yields are high and prices decline.
Tongbai County also held two sessions of the "Futures Serving Rural Revitalization Forum," creating a cross-border platform for local governments, financial institutions, and industrial enterprises to collectively discuss topics related to serving industrial revitalization and regional development from different perspectives. Over 200 participants from government, industrial enterprises, cooperatives, and large-scale growers have been trained.
Future Development Plans
In the future, we plan to promote the new model of "Insurance + Futures + multi-level public welfare fund" in Tongbai County to further support the improvement of agricultural protection systems and rural financial service systems. The responsible person from the Zhengzhou Commodity Exchange (郑州商品交易所) indicated that they would continue to deepen the support for agriculture through futures, further enrich the variety of agricultural tools, and promote model innovation to facilitate the comprehensive development of the agricultural sector.
Applicability Beyond the Case
The new model of multi-level public welfare fund linkage can address the shortcomings mentioned in the central government's Document No. 1 regarding the inadequate coverage of "Insurance + Futures" at the county level, thus providing economic security and income generation opportunities for more rural areas, with broad promotional significance. If households in similar counties or cities have not yet been covered, projects like IFU can be replicated with sufficient funds and government support.
Limitation
However, despite its broad applicability, this model also has limitations. Firstly, it requires the target areas to have suitable industries for "Insurance + Futures" so that poverty alleviation projects can be carried out in a targeted manner. Secondly, the success of the project largely depends on the active cooperation and support of the local government. Government intervention and resource sharing are crucial, and without government cooperation, it will be difficult to implement the project. Therefore, future development plans will emphasize the linkage of multi-level public welfare funds and the innovative model of "Insurance + Futures + multi-level public welfare fund" to support agriculture. This will add strength to consolidating the achievements of poverty alleviation in revolutionary old areas and ensure the sustainable development of the project. At the same time, attention should be paid to the specific requirements and limitations of the project when promoting it in different regions to ensure its successful implementation on a wider scale.