Futures Daily: First Natural Rubber Futures-Based Insurance Policy Effective in Hainan

Date: June 2^nd, 2017

Reported by Que Yanmei, Journalist of Futures Daily

Encourage the productive enthusiasm of rubber planting farmers and boost the local economic development

On June 1^st, 2017, the launch ceremony for the first insurance policy of the Natural Rubber Futures-Based Targeted Poverty Alleviation Project was hosted in Haikou, which is led by Hainan Insurance Regulatory Bureau. Sources say, this insurance policy is a closely cooperative achievement made by the People’s Government of Hainan Baisha County, PICC Baisha Branch and Xinhu Futures with the strong support of the SHFE.

In recent years, the No.1 Central Documents has repeatedly mentioned the agricultural product price insurance. In 2017, the No.1 Central Document has clearly put forward that China will further promote the construction of agricultural product futures and options market, proactively guide agriculture-related enterprises to manage market risk with futures and options and steadily carry out the expansion of pilot operation of futures-based insurance.

Hainan Province is one of the most important natural rubber production bases in China. According to the information provided, Hainan Province, with a rubber plantation size of 542,271 hectares, produces 361,100 tons of dry rubber content annually, accounting for 42% of the national total output. State-owned and private rubber plantations each contribute half of the output, and employ more than 2 million rubber industry-related jobholders, including 0.75 million of rubber planting farmers.

Rubber price has fallen continuously in recent years. Taking the futures price as an example, the dominant contract of natural rubber had dropped from RMB43,500 yuan per ton in early February, 2011 to RMB 11,965 yuan per ton on December 10^th, 2014, down 72.5%. In 2015, the price had fallen below RMB10,000 yuan per ton, or even below the production cost. Therefore, the rubber plantation becomes a hot potato for farmers, catching them in a dilemma in which they found it hard to give up the battle and yet had to give it up.

“In Baisha County or even the entire Hainan, the productive enthusiasm of rubber tapping farmers has waned, forcing some rubber service stations to be closed. Rubber planting farmers abandoned tapping or even switch over to grow other crops,” said the relevant responsible person of Xinhu Futures to our journalist. Meanwhile, according to customs statistics, China imported 2.1077 million tons of natural rubber in the first 10 months of 2014, up 13.47%, reflecting the grim situation of domestic natural rubber industry.

The same responsible person of Xinhu Futures said that the natural rubber price insurance, or the futures-based insurance pilot project is an exploration to safeguard the interests of rubber planting farmers, relieve the financial burden of the government and protect the national strategic resources by utilizing marketized tools. It is beneficial to the construction of the whole industrial chain model from the R & D, plantation, processing, through marketing to financing of natural rubber. Besides, it is also of great significance for Hainan to effectively carry out the targeted poverty alleviation projects.

According to the sources, the operation of the natural rubber futures-based insurance pilot project mainly consists of three processes as follows: firstly, rubber planting farmers or agriculture-related enterprises buy the rubber product price insurance from insurance companies to protect their own income; secondly, insurance companies buy the natural rubber OTC put option for reinsurance from futures risk management companies to hedge against the claim risk arising from the natural rubber price decline; and finally, futures risk management companies clone the relevant put option in the futures market to disperse the natural rubber price declining risk.

“The targeted poverty alleviation project with the natural rubber futures-based insurance will satisfy the actual needs of rubber planting famers in the poverty-stricken counties to address the market risk, and at the same time further shore up the confidence of farmers in the development of the rubber industry,” the same responsible person of Xinhu Futures told our journalist. Sources say, after the first insurance policy takes effective in Nankai Town, Baisha County of Hainan Province, this pilot project will be carried out successively in the areas such as Lingao, Ledong, Qiongzhong, Five-Finger Mountain and Baoting.

“After the successful completion of this pilot project, we will upgrade this product based on concrete conditions in a bid to better serve the local economy by intensifying the depth and coverage of our product,” said the same responsible person of Xinhu Futures.

According to the insider sources, this targeted poverty alleviation project with the natural rubber futures-based insurance will encourage the productive enthusiasm of rubber planting and protect the supply of national strategic resources by safeguarding the income bottom line for rubber planting farmers with the price insurance. It will also consistently boost the local economic growth by utilizing marketized tools and advanced financial instruments in poverty alleviation.