The future of millions of local farmers will hopefully no longer rest with the weather or be severely impacted on by disasters like floods or pests, as China will launch its first special agricultural insurance company in Shanghai this year.

The company, with capital of 200 million yuan (US$24.2 million), is a landmark trial by the government to promote the meager farming insurance throughout the country.

Wu Dingfu, chairman of the Chinese Insurance Regulatory Commission, said last week the government is exploring ways of expanding the insurance to protect its 900 million farmers from natural disasters.

The country will highlight the promotion of commercially operated agricultural insurance with financial and policy support from the government.

Some pilot programmes will get under way soon in two to three provinces and cities, according to the chairman.

Tuo Guozhu, professor of the finance department at the Capital University of Economics and Business, said the government and the insurance industry should have learned lessons from various natural disasters in recent years, which have affected tens of thousands of farmers and ignited their demand for the insurance services.

However, China's agricultural insurance services far from meet the demand of both the government and farmers.

There are currently only two major insurance companies offering agricultural insurance in the country, PICC Property and Casualty Co Ltd and China United Property Insurance Co.

But due to the paltry profit margin, their businesses have been shrinking dramatically since 1982, when agricultural insurance was first launched.

Agricultural insurance in China is in a dilemma, according to Zhou Weiguo, general manager of the agricultural department of PICC's Shanghai branch.

If the premium rate was set according to the level of risk, most farmers were unable to afford it.

On the other hand, if the rate is dropped to meet farmers' capacity, insurers would drop into the red, Zhou said.

Due to the high risks, the cover sometimes costs 30 times more than property insurance premiums in cities. However, farmers' income is only one-third of that of urban residents.

Currently, only the small number of farmers who plant rare but profitable vegetables and fruits or those who feed sea food buy agricultural insurance, according to Tuo.

The vast number of grain and livestock farmers seldom think of insurance, which leaves them, if hit by big disasters, no other way out but to wait for government aid.

"No market, no profit, therefore insurers have no interests in the business," Tuo said.

Actually, no agricultural insurers throughout the world can earn money without the government's support, Tuo told China Business Weekly.

Governments of developed countries usually pay subsidies to agricultural insurers on every deal they make. However, in China, such a practice cannot work effectively, said Tuo.

"There is not yet a supervision system in the country to verify the exact business volume of agricultural insurance. Insurers would offer false statistics to the government in order to gain more of a subsidy, which is unavoidable," he said.

"This situation makes it difficult for the government to decide how much of a subsidy they should offer to insurers.

He also pointed out that the country should not rely on foreign investment to solve the matter.

"No foreign firms really want to offer agricultural insurance in China. They would only use it as a way to enter the country," said Tuo.

Shanghai operates the best among other cities in China in terms of agricultural insurance.

Since 1992, the local government has combined the profitable rural house-building insurance with agricultural insurance in order to support the latter's development, according to Tuo.