Who will protect poultry farmers?

The lethal H5N1 bird flu virus has struck more than 15 countries and regions since September, and continues to spread. As of this writing, five provinces across China have reported H5N1 outbreaks in the past month. All signs indicate that more are highly likely.

As the government and the public focus their attention on how and when the epidemic can be brought under control, we feel now is the time to raise a more deep-seated concern: compensation. China cannot simply view bird flu as a force majeure, or act of God. In the face of huge potential losses brought about by the disease, the government needs a comprehensive policy to insure people's livelihoods.

In a modern society, any rural economy is vulnerable to both the forces of nature and the market. The bird flu epidemic is a double hazard. On the one hand, it poses a potential natural disaster to poultry farmers. On the other, there is long-term uncertainty in the market as to how much time and resources it will take to tame the virus. It is not adequate for the government simply to cull all the poultry in the infected areas and then compensate those farmers afterwards. Rather, a constant hedging mechanism against natural and market risks will protect farmers better than the sort of emergency response mechanisms aimed at dealing with public health crises within a limited area.

Poultry farmers made their investment decisions, we must remember, long before the outbreaks. Bird flu will likely cause devastatingly sharp market fluctuations. In the near future, it will dramatically alter farmers' investment decisions, which could lead to a shortage of poultry meat and eggs. This, in turn, could send prices soaring. The living costs of urban residents will also go up.

This is just one example of how the economic costs of bird flu will be shouldered by all members of society. Nobody is exempt.

So, to begin with, the government must hedge some of the risks with policies that stabilise market expectations and investment choices by farmers. But how? In recent years, cuts in rural taxes and fees have lessened farmers' burdens somewhat. But given the low yields of the agricultural industry and thus the weak base of the rural economy, no simple market-based risk-hedging mechanism can adequately protect farmers. Sadly, this has been evinced by the failure of China's agricultural insurance system.