(Yicai) June 5 -- Chinese farmers and herdsmen can break free from the grip of worry, thanks to mature weather index insurance products that help them control losses related to climate disasters.

Different from traditional insurance that pays farmers and herdsmen based on their actual losses, weather index insurance relies on large-scale meteorological data, such as temperature, precipitation, and wind speed. Once the index surpasses the thresholds, policyholders automatically receive the settlement based on the prearranged standards.

This reduces communication hassles and disputes between insurers and policyholders and significantly lowers operational costs.

China first experimented with a weather index insurance for rice in Changfeng county in eastern Anhui province in 2009, followed by pilots for weather index insurance for livestock and forestry.

Xiliin Gol League, a grassland region in China’s northwestern Inner Mongolia Autonomous Region known for its high-quality beef and mutton, sits in a typical arid and semi-arid continental monsoon climate zone, so it frequently suffers from droughts and snow disasters, posing challenges to herdsmen’s stable production and income.

In 2016, the Xiliin Gol League meteorological authority teamed up with local insurers to launch China’s first county-level weather index insurance for cattle and sheep. The product targeted livestock feed and provided protection and risk hedging for herdsmen against increased sheep farming costs caused by droughts, snowstorms, and other disasters, and losses in mutton production due to meteorological disasters.

China has already accumulated extensive experience in weather index insurance, with over 2,000 products available on the market, ranking first globally, Yi Fujin, director of the Research Center for Agricultural Risk Management and Safe Development at Zhejiang University, told Yicai. But due to factors such as non-disclosure of financial data, its international awareness is low, he added.

Zhejiang province has been the most successful in implementing weather index insurance, especially for products characterized by long and stable life cycles, Yi noted. Lychee and tea cultivated in Zhejiang have high added value, so farmers are highly willing to insure their crops.

However, in major grain-producing provinces, such as Henan, Hunan, and Hubei, 667 square meters of farmland may yield profits of only CNY200 to CNY300 (USD30 to USD45), while insurance premiums can reach CNY40 to CNY50 (USD6 to USD7.50), Yi pointed out. Therefore, farmers are not very willing to buy insurance, so government subsidies or even government-led initiatives are required.

Cocoa and coffee prices have reached new highs in the past two years, partly due to lower yields caused by intensified climate change. Ye Tao, professor at the Institute of Disaster Risk Science, Faculty of Geographical Science, Beijing Normal University, has designed the first coffee index insurance for China’s southern Yunnan province in recent years.

Ye has also transformed China’s mature experience in agricultural risk management into solutions suitable for Africa. In fact, pilot programs are underway in key production areas, such as Yunnan and Sidama in Ethiopia.

Weather index insurance is not new in Africa. In 2010, a corn weather index insurance product was launched in Burkina Faso and Mali. With strong support and promotion from international institutions, around 20 pilot projects for agricultural weather index insurance, many of which in Africa, were initiated around that year. However, most of them were discontinued after the pilot ended.

Insurance highly depends on the social environment, making localization strategies crucial, Yi explained. Based on this, China’s experience is of reference significance to developing countries, including those in Africa.

Editor: Futura Costaglione