A recent major expansion in the premium volume of the Chinese crop insurance program coupled with renewed international attention with respect to the role of China as a major producer and importer of agricultural commodities has prompted an interest in probabilistic models to analyze the risk associated with crop insurance portfolios in the country. This article is intended to shed light on the exposure, the nature of the risk and current risk management practices within China’s crop insurance market.

China is the world's most populous country and one of the largest producers and consumers of agricultural products. It produced crops and livestock valued at $366 billion in 2004, about 50 percent more than the U.S. total. Despite limited supplies of land, water, and other natural resources, China grows most of its own food and is a major exporter of many agricultural commodities. China ranks number 1 in the world in rice paddy production with over 40 percent more production than India which ranks number 2. Importantly, China also ranks number 1 in the world in fresh vegetable production with 4 times more production than India which ranks number 2 again. China is also the largest wheat producing country in the world. In total, China ranks number 1 in the world in the production of 45 agricultural commodities (FAO, 2005).