China's Ministry of Finance said the application scope of two types of agricultural insurance relating to planting rice, wheat and corn will be expanded by an extension to a pilot program.

In a statement on June 29, the ministry said one of the products is full-cost insurance covering various costs of agricultural production, including that of seeds, pesticides, fertilizers, land, labor, and losses from natural disasters, plant diseases, and pests, among others.

The second product is income insurance covering losses due to price and output fluctuations.

In 2018, China launched a three-year pilot of the two types of agricultural insurance in 24 counties of six major crop-growing provinces, including Shandong, Henan, and Anhui.

Extension for the pilot would mean the two types of insurance can protect up to 80 percent of incomes from planting target varieties of agricultural products, the ministry said.

This year, 500 counties with high crop yields in 13 major grain-producing provinces, including Sichuan, Liaoning, and Jiangxi, will launch the extended pilot.

In 2022, the extended pilot will further expand to all identified counties in major grain-producing provinces, the ministry said.

The agricultural catastrophe insurance launched in 2017 will be withdrawn from 2022, to be replaced by the two new types of farm insurance, the ministry confirmed.

Tuo Guozhu, a professor with the Capital University of Economics and Business, said the expansion of application scope of agricultural insurance will help ensure food security, increase farmers' income, encourage farmers to raise grain production, and promote agricultural insurance products in China.

China's fiscal policy has played a significant supportive role in developing agricultural insurance products in the country. The government provides subsidies for insurance premiums, said Tuo.

For the expanded insurance pilot, the central and local governments will increase fiscal subsidies toward premiums. Provincial governments will pay no lower than 25 percent. And 45 percent of premiums will be from the central government's budget for China's central, western and northeastern regions.

The central government will pay 35 percent of insurance premiums in the eastern areas, according to the ministry.

This year, the central government's budgetary spending on agricultural insurance premium subsidies increased substantially compared with that of 2020, said a senior official with the ministry.

Last year, the central government spent 28.54 billion yuan ($4.41 billion) toward subsidies for agricultural insurance premiums, which leveraged 4.13 trillion yuan as risk security funds for 189 million households in rural areas, ministry data showed.

Insurance companies that would like to provide the two new products should be qualified, with stable agricultural reinsurance arrangements.

Under the insurance policy, the comprehensive expense ratio, or the ratio of net operating expenses to the premiums, should be no higher than 20 percent. It is a rule designed to limit an insurance company's profits earned from agricultural insurance products, which can protect farmers' benefits.

An executive meeting of the State Council, China's Cabinet, held on June 18 decided to expand the insurance scope. According to a statement issued after the meeting, the enlarged scope highlights the importance of insurance as a market-oriented method in shielding farmers from risks and stabilizing their incomes.

Zhang Qiao, head of the Agricultural Risk Management Research Center, which is part of the Chinese Academy of Agricultural Sciences, said the extended pilot will promote modern agriculture as an industry in China and aid its development, improve financial services in rural areas, and facilitate the safety net of food security.

In the next step, the Ministry of Finance plans to revise the agricultural insurance rules and improve relevant policies to better locate financial resources in areas that can support China's rural revitalization strategy, the ministry said in its statement.

The government will also increase agricultural insurance premium subsidies in line with international rules under the framework of the World Trade Organization. Facilitating the construction of information institutions in agricultural insurance services will be another key measure, the ministry said in its statement.