Management & Engineering Management Under Agricultural Insurance

Management & Engineering 13 (2013) 1838-5745
Contents lists available at SEI
Management & Engineering
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The Factors Influencing the Hubei Farmers’ Behavior of Risk
Management Under Agricultural Insurance
Huiru XING1, Juan JIN1, Jianping TAO2
1. Wuhan Yangtze Business University, Wuhan 430065, P.R.China
2. Onomic Management College of Huazhong Agricultural University, Wuhan 430070, P.R.China
KEYWORDS
ABSTRACT
Farmers,
Risk management,
Strategy-making,
Logistic model
The study focuses on the decision-making to deal with natural risk of Hubei farmers under
agricultural insurance. Based on a survey of households in 15 counties, the factors
influencing the risk management behavior choice of Hubei farmers are analyzed according
Logistic modeling. It is shown that cultivated land quality level, farmers’ perception on
natural disaster loss rate, production losses accounted for the proportion of household
income and the perception of importance of insurance have a significant influence on risk
management behavior choice of farmers. On this basis, the government should strengthen the
techniques training of disaster prevention and mitigation, and guide the farmers’ choice of
risk management strategies, support the innovation of tools and methods for risk
management to avoid the moral hazard in agricultural insurance.
© ST. PLUM-BLOSSOM PRESS PTY LTD
1 Introduction
Farmers are located in the core of agricultural natural disaster risk management. No matter what kind of agricultural insurance from
insurance company and agricultural risk management policy of government to make, the ultimate goal is to help farmers be away
from agricultural natural disaster losses. So in order to improve the agricultural natural disaster risk management mechanism, we
must master farmers risk strategy choice behavior and its influence. This is very important for improving the efficiency of
agricultural natural disaster risk management mechanism.
Agricultural natural disaster risk management strategy usually has two kinds: (1) The farmers self risk management strategy; (2) And
risk-sharing with others (Meuwissen, 2001) [1]. Farmers’ self-risk management strategies are very effective according to the
environment to develop (Ellis, 1987) [2]. In the absence of risk management system of formal and not willing to accept the
government to provide formal system supply conditions, farmers mainly prevent and deal with risk through family and social
networks (Rosenzweig, 1993) [3]. The formal institutions of risk avoiding are almost absent in the rural region of China, and farmers
generally avoid the risk of agriculture through informal mechanism; the risk management strategy is rational and effective (Shijun
DING, 2001; Chuanbo CHEN, 2007; Xuegao XU, 2010) [4-6]. Patrick’s (1985) [7] research showed that the operating (farm scale,
mode of production) and individual (gender, age and risk performance) characters of farmers affect the risk and management mode.
Many studies focus on the influence factors of demand for agricultural insurance in our country [8-10], the research on status and
influence factors of farmers’ self selection of risk management strategy is relatively small, especially the research on the relationship
of policy agricultural insurance and risk management strategy. On the basis of relevant research, the study focuses on the farmers self
risk management strategy and its relationship with the agricultural insurance through a questionnaire survey of farmers’ participation
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI:10.5503/J.ME.2013.13.019
105
in Hubei Province with the logistic model to provide decision-making reference for government to implement effective agricultural
natural hazard risk management mechanism.
2 Research Background and Data
Policy agricultural insurance in Hubei begins in 2007, and in 2008 Hubei Province has become the pilot provinces of policy
agricultural insurance subsidy, the policy agricultural insurance carried out in all-round. For the purpose of the study, we have a preinvestigation in Huangpi District Wuhan City which is the earliest area in Hubei of the policy agricultural insurance, and then we
designed the formal questionnaire. Then the selection of sample location satisfied the following principles. First, the sample location
is a natural disaster prone area. Second, the farmers in sample location are covered all basic information of Hubei Province; Third,
policy agricultural insurance has been carried out in sample location. After determining the sample location, the selection of sample
village and farmer followed the principle of random. 20 farmers are selected in every location to ensure the quality and
diversification of the sample farmer. There are three surveys for the same purpose to understanding the change of farmers risk
management behavior. At the same time in order to ensure the data can have certain comparability feature in time sequence, surveyed
the area roughly in the same range.
The research teams were investigated with questionnaires and interviews with farmers in Jianghan Plain in 2008, there are 434
questionnaires, and 427 valid questionnaires were obtained. 2009 October and 2012 April, two surveys were conducted for the
purpose. The 2009 survey relates to Wuhan City, Huangpi District, Jiangchang, Chibi City, Xiaogan City, Jianli County, Hanchuan
City, Hong’an County, Dangyang City, etc. A total of 160 questionnaires were sent out, and 155 questionnaires were available. The
2012 survey area including Wuhan City, Huangpi District, Shayang County, Zhongxiang City, Chibi City, Xiantao, Jianli County etc.,
a total of 170 questionnaires were sent out, and 166 questionnaires were available. Out of the total 764 questionnaires distributed,
748 copies are valid returned questionnaires; The questionnaire has 97.35% efficiency. In each administrative village investigation
paid attention to farmers’ ages, sex, planting scale, degree of culture differences, and try to fully grasp the various types of farmers’
risk management strategy behavior.
The questionnaire includes three parts: the first part is the farmers’ basic information. Including gender, age, farming duration, level
of education, labor, the number of non-agricultural labor, land area, household income, total income of planting industry, total income
of breeding, non-agricultural income. The second part is the farmers’ natural disaster risk perception and behavior choice. Including
the risk sources, risk perception, risk adverse behavior selection etc. The third part is the farmers’ cognition of agricultural insurance.
Including farmers’ awareness on agricultural insurance, trust degree to insurance company, and willingness to buy agricultural
insurance.
3 Data Analysis
3.1 Basic data information
The statistical results from the samples showed that through the demographic characteristics such as gender and age, education level,
the survey sample and range can basically meet the diverse characteristics. The investigation object in questionnaire is the
householder, while in rural areas the majority of householder is male. So there are a high proportion in the sample survey of men
accounted for 90%, the proportion of women is only 10%, which is in agreement with the Hubei Province rural practice.
Farmers are divided into four groups by age, below 35 years of age, from 36 years old to 45 years old, at the age of 44 to 55 years old
and over 55 years old. In the samples there are only 62 labors below 35 years of age, accounted for 8.30% of the total number;
Workers between the ages of 36-45 has 264 people, accounting for 35.30%; The ages of 46-55 has 314 people, accounting for
42.00%; Over 55 years old has 108 people, the proportion is 14.40%. Over 36 years of age groups accounted for the proportion of
total sample reached 91.70%, and above the age of 46 to 56.40% the proportion of the population accounted for sample. It is shown
that peoples in rural areas mainly are elderly at present, young adults mainly work or go to school; most old people and children are
left behind in rural areas.
Table 1 The age distribution of the respondents
Age group (year)
Number
Percent (%)
≤35
62
8.30
36－45
264
35.30
46－55
314
42.00
≥55
108
14.40
Total
748
100.0
106
Maximum
Minimum
Average
77
24
47.13
From the view of education of householder, primary school and below has 278 people, accounted for 37.16%; Junior high school
degree has 325 people, accounted for 43.45%; High school degree 134 people, accounted for 17.92%; University or above only has
11 people, accounted for only 1.47%. The majority of respondents with primary school or junior high school level of education.
From the sample household size, family population up to 16 people, at least 1 people (the sample is a lonely old man), the average
family size is 4. The household which have 3-5 peoples is the most, a total of 607, accounting for the proportion of the total number
of 81.15%. There are 666 households that have 2-4 workers, the proportion is 89%. So the sample household size is too small, has the
typical characteristics of small farmers.
Table 2 The family population of the respondents
Household population (person)
≤2
3－5
6－8
≥9
Total
No. of sample
34
607
96
11
748
Percent (%)
4.54
81.15
12.84
1.47
100.00
Maximum
Minimum
Average
1
16
4.36
In theory, the longer the householder engaged in agricultural production time, the higher the level of planting and natural disaster risk
cognition degree, the more can take effective risk management strategies to avoid the risks of agricultural production. From the
sample, for 53.00% farmers, the time engaging in agricultural production is from 16 to 30 years.
Table 3 The time being agriculture production of the respondents
Time group (year)
No. of sample
Percent (%)
≤15
133
17.80
16－30
397
53.10
≥31
218
29.10
Total
748
100.00
Maximum
Minimum
Average
60
0
25.97
A family economic characteristic mainly inspects the land scale, family income and its structure. In land scale, the mode of small
farmer decentralized management is more obvious, land scale of each farmer is very limited, and the cultivated land area is small.
Through the samples cultivated area varied from at least 1 acre to the largest of 120 acre, the average area of cultivated la nd is 10
acre. There are 410 farmers which own cultivated land from 5 to 20 acre, and the proportion is 54.89%.
Table 4 Arable land of the respondents
Cultivated land (acre)
0<A≤2
2<A≤5
5<A≤20
>20
Total
No. of sample
73
205
410
59
747
Percent (%)
9.77
27.44
54.89
7.90
100.00
Maximum
Minimum
Average
1
120
10.01
Family income is measured with per capita income. The 97% of the farmers’ annual per capita income is less than 20,000 yuan. In
family income structure, income of 153 households only relies on planting, accounted for 20% in all; 595 households have the
income from non-agricultural and reach the ratio of 80%. In addition to the elderly and children, 1-2 people have a long-term or
casual work to subsidize home in abroad. Diversification is generally common in household; the skills with the householder and the
amount from non-agricultural income directly affect the family income.
Table 5 The annual per capita income of the respondents
Annual per capital income (yuan)
No. of Sample
Percent (%)
0<A≤5,000
370
49.47
5,000<A≤10,000
243
32.48
10,000<A≤20,000
113
15.11
>20,000
22
2.94
Total
748
100.00
107
Maximum
Minimum
Average
250
75,320
6,701
3.2 The choice of agricultural natural disaster risk management strategy
Farmers adopted the diversity measure to avoid risk in the agricultural production. It is usually divided into ex-ante and ex-post
strategies. The “ex-ante” strategy means the change of production activities to ensure the level of household income stability before
risks. The “ex-post” strategy means the arrangement to smooth the consumption after risk. The analysis aims to “ex-ante” and
“ex-post” strategies for farmers as following.
In order to inspect the “ex-ante” measure for farmers, the question “what measures did you take to prevent the natural disaster” is
asked, and the statistical frequency is 583. The results can be seen, the vast majority of farmers (96.23%) will take some measures to
prevent the risk of natural disasters. These measures according to the frequency from high to low as following: the use of new variety;
planting different crops; other no-agricultural business; increase savings and reduce expenditure; buying agricultural insurance and
the others.
The investigation shows that the agricultural technology extension is more effective for farmers to prevent natural disasters, such as
the use of disease resistant varieties. At the same time, the diversity planting and business are also the important strategy for farmers
to management natural disaster risk. Agricultural insurance has a lower-ranking in the farmers’ risk management strategy. A further
conclusion to extract that farmers in Hubei Province prevent agricultural natural disaster risk still rely mainly on their own strength,
such as self-saving, diversification of production and operation, use of new techniques, rely less on external forces, such as
agricultural insurance, agricultural organizations and government support and help.
Table 6 The measures to prevent natural hazard of the respondents
Measure
Frequency
Percent
Cumulative percentage
The use of new variety
154
26.41%
26.42%
Diversity planting
142
24.36%
50.77%
Diversity business
117
20.07%
70.84%
Increase income and reduce expenditure
95
16.29%
87.13%
Buying agricultural insurance
43
7.38%
94.51%
The others
10
1.72%
96.23%
Do not take any measure
22
3.77%
10.000%
“Ex-post” (the occurrence of natural disaster risk), the farmers will take some loss management strategy to minimum the losses. The
question “what measures did you take to reduce losses when the natural disaster occurred (such as flood)” is asked, and the statistical
frequency is 683. With the exception of a few farmers did not take any measures, other farmers management strategy according to the
frequency ranking is: irrigation and drainage; Filling the gaps, planting other crop; out of work; utilization of agricultural facilities
and increasing fertilization etc. However, the measure of seedling filling the crops and increasing fertilization is influenced by the
crop growth cycle in a certain extent. There are only 23 choices for seeking government relief. Although the survey only focus on
self-management and government relief, without considering the other such as cooperative organizations, grassroots organizations,
social assistance, but still can see that the farmers rely mainly on self-power, rarely on government and external.
Table 7 The loss management measures after natural hazard of the respondents
Measure
Frequency
Percentage
Cumulative percentage
Irrigation and drainage by self
175
25.62%
25.62%
Seeding and filling crop
126
18.45%
44.07%
Planting other crop
101
14.79%
58.86%
Out of work
93
13.62%
72.47%
The usage of agricultural facilities
63
9.22%
81.70%
Increasing fertilization
57
8.35%
90.04%
Seeking the government relief
23
3.37%
93.41%
The others
Do not take any measure
20
2.93%
96.34%
25
3.66%
100.00%
When asked about “the way you deal with unexpected difficulties (multiple choice)”, in 321 samples, the statistical frequency of 446.
34.75% of the households choose savings, 30.72% households choose the borrowing from friends or neighborhood, the ratio of other
choice is very low.
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Table 8 The measures for respondents to deal with emergency of the respondents
Measure
Frequency
Percentage
Cumulative percentage
Saving
155
34.75%
34.75%
Borrowing from friends or neighborhood
137
30.72%
65.47%
Grant aid from friends or neighborhood
50
33
11.21%
76.68%
Loan
7.40%
84.08%
Selling off assets
29
6.50%
90.58%
Insurance
22
4.93%
95.51%
Government relief
20
4.48%
100.00%
“The borrowing from friends or neighborhood” and “grant aid” belong to the typical risk management based on a certain
organization or community social network, but choose “grant aid” was far less than the “The borrowing from friends or
neighborhood”. First, because the natural disaster in certain area is systemic, so when the farmers suffered from the loss of natural
disaster, and may be subject to the same injury to village, which lead to less of “grand aid”. Second under the condition of market
economy, ethics based on blood relationship and region tends to collapse in traditional rural community, and the economic
consciousness strengthens gradually, which limits the role of ethical power for social network risk enforcement mechanisms. In the
interview survey, the farmers said that the “grand aid” mainly derived from direct blood relatives, such as his parents separated,
between brothers and sisters, rarely between villages. In nature this is the continuation of the family risk sharing.
Compared with the “grand aid”, the borrowing from social network is more important for the risk management. Because the
“borrowing” means the return of obligations, easily restricted by “Qian zhai huan qian” ethics, in this way the formation of social risk
sharing network is ranged. Relatives and friends, villages are an important part, so the risk sharing effect is more than “grand aid”.
On the other hand, the farmers rarely choose agricultural insurance, government relief and loan in formal institution to cope with
emergency, which are not the mainstream risk management strategies for farmers.
In general, whatever ex-ante and ex-post, the farmers manage their risk through non-formal risk aversion mechanism, such as
self-power or social network, and rely less on formal risk management strategy of government, insurance etc.
3.3 The factors influencing the farmers’ behavior of risk management
In order to explore the factors influencing the household risk management behavior, we set up “the measure to take before and after
natural disaster” as the dependent variable “X”, which is a dichotomy variable: 0=“no”; 1=“yes”. The first step is screening the
independent variable to affect the choice behavior (X) of risk management for farmers. By using the software SPSS 18.0 with single
factor variance analysis to find the most relevant factors (P< (0.05)), the labors in family (A7), non-agricultural income (A10), the
cultivated land quality level (A12), the severity of natural disaster (B2), the proportion of losses in family income (B3), the
perception of importance for agricultural insurance disperse the losses (C2).
According to the related research and experiments, the following assumption is given in dependent and independent variables:
Table 9 The definition of model variables in self-risk management
Dependent variable
Take measure or not
Independent variables
Definition
0=no, 1=yes
Expected effect
The labor engaged in agricultural and
non-agricultural
The income from work outside and others
1=good, 2=common, 3=bad
—
—
1=very serious, 4=none
—
The proportion of losses in
family income (B3)
1=below one percent
2=from one percent to two
3=from three percent to four
4=from five percent to six
5=over six percent
+
The importance of
agricultural insurance (C2)
1=very important, 5=not important
+
Labors (A7)
Non-agricultural income (A10)
Cultivated land quantity (A12)
The severity of natural disaster
(B2)
Other explanations
?
Furthermore based on the analysis and assumption above, the data from the survey of households in village, we built the Logistic
Model to analyses the strategy choice and its influence factors. Let P as the probability that farmers take measure to management risk,
109
X  ln(
P
)
1 P
. X is the linear combination of independent variables, the equation as following:
X  1  A7   2  A10  3  A12   4  B2  5  B3   6  C2
(1)
Through the software SPSS 18.0, using binary logistic regression model, the Back: Wald method, and let the classification standard
value is 0.5, the regression analysis of the risk management and its influencing factors as following:
Table 10 The logistic regression estimation of respondents’ self risk management behavior
Step 3a
B
S.E.
Wals
df
Sig.
Exp(B)
A12
-.558
.230
5.883
1
.015
.572
B2
.534
.164
10.647
1
.001
1.706
B3
-.492
.121
16.442
1
.000
.612
C2
.227
.136
2.782
1
.025
1.254
Note: The variables are imputed in step 1: A7, A10, A12, B2, B3, C2
From the regression results can be seen: the cultivated land quality level (A12), severity of natural disasters (B2), the proportion of
losses in family income (B3) and the perception of importance for agricultural insurance (C2) has a significant statistical influence on
farmers’ self risk management behavior. Binary logistic regression equation:
X  0.558  A12  0.534  B2  0.492  B3  0.227  C2
(2)
3.4 Result and discussion
3.4.1 Cultivated land quality level
The cultivated land quality level (A12) has significant effect on farmers’ risk management behavior, and is negative, coefficient of
0.558. Because the value of cultivated land quality level for 1=good, 2=common, 3= bad. Therefore, farmers with poor quality of
arable land and lower yield will tend to not take any risk management measures, which is consistent with the assumption.
3.4.2 Severity of natural disasters
There is a significantly positive correlation between the farmers’ cognition of severity of natural disasters (B2) and self risk
management behavior (0= “no”, 1= “yes”), and the coefficient is 0.534. This means that farmers with very serious losses will not take
any risk management measures, contrary to our assumption. Maybe when the farmer thinks the losses is very serious, the possibility
to make up the loss is lower even if he take some steps. Then he takes a passive strategy.
3.4.3 Proportion of losses in family income
There is a significant negative correlation between the proportion of losses in family income and the farmers risk management
strategy choice behavior, and the coefficient is 0.492. A negative correlation indicates that when farmer faces a small loss, he will
take the risk management measure, but when the losses are larger enough to not take any measure. This is consistent with the degree
of loss of natural disasters cognitive conclusion. It is means when farmer face a serious disaster and suffering large losses, he will not
carry out any self-risk management measure. These behaviors will increase the pressure of formal risk management mechanism, such
as agricultural insurance and government relief.
3.4.4 Perception of importance for agricultural insurance
There is a positive correlation between the farmer’s cognition of importance for agricultural insurance to disperse the loss and the
self-risk management behavior, and the coefficient is 0.227. The larger of the value, the weaker of the insurance disperse the loss.
When the value is 5 (5=not important), then X=1. This positive relation indicates that the farmer will take some measure to cope with
natural disaster risk when he thinks the agricultural insurance is not important to disperse the loss. So there is a substitution effect
between agricultural insurance and farmers self risk management behavior.
4 Conclusions
A descriptive study about farmers’ risk management strategy choice was drawn through the data from a survey on Hubei Province,
the conclusion as following: whether ex-ante or ex-post farmers will actively take measures to carry out the risk management. Risk
management strategies for farmers in Hubei province are mainly self-risk management; The formal risk avoid mechanism such as
government assistance, agricultural insurance is not the popular strategies.
Cultivated land quality level, farmers on the degree of loss of natural disasters, the importance of cognitive production loss
proportion and insurance income dispersion loss of 4 variables have significant effect on farmers’ self-risk management behavior
choice.
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The research indicated that when the farmers face with larger losses, they will not take any measure to cope the risk. So in this
situation, the insurance company will pay for more, it will face the moral hazard. We must design an optimal agricultural contract to
eliminate the adverse effect. On the other hand, the government should strengthen the techniques training of disaster prevention and
mitigation, and guide the farmers’ choice of risk management strategies, support the innovation of tools and methods for risk
management to avoid the moral hazard in agricultural insurance.
About the Author:
XING Huiru, (1977- ), Male, Ph.D, Assistant Professor, the research field: Agricultural Risk Management and Insurance.
Acknowledgements:
This work is supported by the National Natural Science Foundation of China (1173086); The Education Department of Hubei
Province social science research projects (Research on information asymmetry in agricultural insurance and avoidance mechanism);
Collaborative innovation projects of Hubei Province in 2011 (modern logistics and business).
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