The Rise of Agricultural Insurance: The Case for Chinese Tea Farmers
Tea farming has been here since thousands of years, yet not everyone knows that it's a high risk and high stake business for its owners. It’s a labor intensive business. Especially for artisan tea farmers who still produce teas the traditional way and only harvesting during the Spring season.
Agricultural costs, wages for tea masters and tea pickers, and rents have all to be paid in advance, while the owner is only able to collect revenue when the tea is finally harvested and processed in Spring.
The majority of the farmers don't own the land on which they grow and therefore even have to paid a significantly amount of yearly rent all in advance. During good economic times, some entrepreneurs even dare to sell their own house or borrow lots of money from relatives to finance such project.
However, the good news is that agricultural insurance is on the rise in China due to several reasons as discussed below:
1. Awareness of Farmers
It's not like agricultural insurance products are recently introduced. They've been around for a long time, but farmers weren't aware of these products. That's not strange at all knowing that there's still a high illiteracy rate among farmers of whom most haven't enjoyed more than primary education. However, education levels and literacy rates are improving at a fast rate. And whit this trend, farmers are becoming more and more aware of such products and understand how they can benefit their business.
2. Government Subsidies
The Chinese government also highly encourages farmers to purchase insurance. Therefore, many of the agricultural insurance products are partly subsidised by the government, allowing the monthly premiums to be very affordable. Farmer Wang, a oolong tea producer in Wuyishan who I got to know during my tea trips told me the following: “In the past, I looked into insurance products before, but there weren’t that many and the insurance premiums were far above my expectations. Today, the premiums are around 3000 RMB per year, about just half of what they used to be.”
3. Increase in Extreme Weather Conditions
Tea farming requires relative hot, humid and stable weather conditions. The latter is becoming particularly challenging as weather conditions are more extreme these days. This isn't only a challenge in China, but a huge problem for all farmers over the world.
Green house gases are depleting the ozone layer that protects flora and fauna on earth against UV light, resulting in global warming. Tea is harvested during a 1 - 6 week window, depending on the type of tea and tea region. If during this period, there’s a long drought or excessive rain, it can ruin a harvest. Because of all this, more tea farmers decide to purchase agricultural insurance to avoid complete losses of their harvest.
4. Access to the Web
One other reason for the rise of tea farming insurance is the fact that there’s just much more access to statistics related to the frequency and severity of certain weather threats. More farmers are connected to the internet these days. Not everyone could afford a desktop in the past and for those who could wired internet simply wasn’t available.
Due to the rise of the smartphone in the past 5 years this changed. Everyone can afford a smartphone and get connected to the web instantly by just inserting a SIM card with a data package.
Once connected, tea farmers could access hundreds of sites with past weather statistics. And when they subscribe to certain Weibo (China’s Twitter) they can even get future weather alerts for their particular growing region. Over time, they develop a more rational view of the risks they face and may find it worthy to cover potential losses by buying insurance.
5. Economies of Scale
In the past farmers where so busy with the production itself that they rarely had time to look into insurance packages. Today individual farmers cooperate more together. Some communities combine the land of individual farmers and maintain them together. Because of this each member of the community was able to specialise in certain fields. Some started a community Taobao store (China’s eBay) to sell products from the whole community. Others focused on more administrative tasks and managing risk. It was naturally for them to eventually consider things such as insurance packages. Moreover, because they buy insurance together, they’re better able to get competitive monthly premiums from insurance companies, compared to when they apply for insurance separately.
6. Insurance Innovation
Last but not least, it’s also the innovations in financial insurance products in the most recent years that allowed insurance packages to be more tailored to individual or regional needs. Chinese insurance companies apply big data analysis to calculate the expected insurance costs based on what the farmer wants to insure and add a margin so they can make an overal profit.
Farmers are able to insure for detailed events such as temperature spikes, amount of days of drought, strong winds etc. This isn’t only convenient for farmers, but also for insurance companies. They now don’t have to visit the tea garden to measure the damage, since the insurance pay outs are completely data driven. This is saving the lots of operational costs, hence allowing them to reduce monthly premiums further.