Corn farmers couldn't use futures contracts to protect their harvest price — too big, too technical — so China built a relay that passed the risk down to whoever could actually price it.

the problem

the people most exposed to a price risk are the ones least equipped to hedge it directly

background

the move

Starting with a pilot in August 2015, when the People's Insurance Company of China (PICC) and Xinhu Futures covered 1,000 tons of corn for cooperatives in Yixian, Liaoning, China built a three-layer relay instead. Farmers bought a simple price-floor insurance policy from a local insurer, paying a premium and getting a payout if the market price fell below a guaranteed level, no futures knowledge required. The insurer, now holding price risk itself, bought an over-the-counter put option from a futures company's risk-management subsidiary to cover its own exposure. That subsidiary, the only party in the chain built to operate in a real derivatives market, hedged its own position on the futures exchange itself — passing the risk down the chain until it reached the layer actually equipped to price and absorb it.

the payoff

The Dalian Commodity Exchange alone supported 195 corn insurance-plus-futures projects across 18 provinces in the years following, covering 1.125 million tons of corn, reaching 114,000 farmers, and paying out roughly ¥598 million in total claims; Huichuan County in Heilongjiang alone received ¥87.87 million in a single payout year (2019), a payout ratio of 376 percent of the premiums paid in. By 2023 the model had expanded to 18 agricultural products, including soybeans, pork and apples, across 31 provinces, protecting an estimated 5.39 million farmer-instances annually.

what came after

"Insurance plus futures" is now written into China's annual central agricultural policy document (the "No. 1 Central Document") as a standard rural risk-management tool, and is cited in Chinese financial-policy writing as a model for extending sophisticated financial hedging to participants who could never access it directly, by relaying the risk through intermediaries each equipped to handle one link of the chain.

references

1. [1]玉米价格有保障 "保险+期货"模式显成效中国金融信息网 (China Finance Information Network), 2024m.cnfin.com
2. [2]大商所：今年推进"期货+保险"试点中国太平洋保险 (CPIC), 2016cpic.com.cn

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