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Carlos Enrique Arce Agricultural Risk Management Team
Agriculture and Rural Development DepartmentThe World Bank
Strengthening the Caribbean Agri-food private sector:Competing in a globalised world to foster rural development
The Caribbean Agricultural Week
Grenada October 18-19th, 2010
Managing Agricultural Risks in the
Caribbean
ALL ACP AGRICULTURAL COMMODITIES PROGRAM
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CONTENT
Identification & Quantification of risks Current CAT agricultural risk management Role of Public Sector in the Trilogy of “Mitigation–
Transfer–Coping” Role of Weather Insurance Lessons Learned
MANAGING AGRICULTURAL RISKS IN THE CARIBBEAN
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Caribbean Agriculture: High Risk Exposure
Risk + uncertainty widespread in food/ agri system:Agro-climatic factorsComplex biological/environmental processesGeographical span of supply chainsPolitical economy of food/agriculture
Major structural and demographic changes
Risky business = ‘old risks’ + ‘new risks’‘Old Risks’: weather, price variability, pests, logistical
bottlenecks, food safety hazards, policy shifts‘New Risks’: climate change, new disease transmission,
biosafety, bioterrorism, environmental imprint + social concerns
Figure 1. Production for Blue Mountain and of Jamiacan coffee.
Cherry Coffee Production over 25 years Hurricanes etc.
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1981
/1982
1982
/1983
1983
/1984
1984
/1985
1985
/1986
1986
/1987
1987
/1988
1988
/1989
1989
/1990
1990
/1991
1991
/1992
1992
/1993
1993
/1994
1994
/1995
1995
/1996
1996
/1997
1997
/1998
1998
/1999
1999
/2000
2000
/2001
2001
/2002
2002
/2003
2003
/2004
2004
/2005
2005
/2006
2006
/2007
2007
/2008
2008
/2009
JBM NBM Total
CAT5
TS?
CAT3 CAT
5
D
Incidence of natural disaster: hurricane, floods –Lags moving from 37 years to 16 year to 4 years to 2 years between 1951 and 1988, 2004, 2007 & 2008
<< Back
37 years16 years
4 years
F = Crop Financing issues
A = Major Agronomy Issues
D = Drought Issues
FA
FA
Agriculture is sensitive to Risks
• Note: X axis = years; Y axis = boxes of production; JBM = Jamaican Blue Mountain; and NBM = Non Blue Mountain (Low lands)
Cat = hurricanes
Jamaica spends US$1.5 - 2.0 m a year for hurricane damages alone
Disaster Recovery Funding for the Agricultural Sector (2004-2008) (in Jamaican $)
Year Disaster Total Damage to the sector(Billons)
Government Support (MOA)
Donor Support
2004 Hurricane Ivan $6.70 Due to system problem, unable to access
records
2005 Hurricanes Emily, Dennis and
Tropical Storm Wilma
$0.99 Bilateral: Canada (Hurricane Ivan Reconstruction)
C$800,000 / J$44 million
2006 NA NA NA NA
2007 Hurricane Dean $3.76 $102,099,629.60 -
2008 Tropical Storm Gustav $1.63 $25,000,000.00 EU's Hurricane Assistance Programme €2.2 million
/J$222million
Totals $13.08 $127,099,629.60 $266,000,000.00
We estimate that over the past 5 years the Government and Donors have spent a yearly average of US$1.5 to 2 million in post disaster support, in
Response to agriculture average yearly losses of US$52.0 million.
Only direct damages
Current Catastrophe Risk Management System in Agriculture
1. Catastrophe coverage for small vulnerable farmers is ex-post, and with slow response.
2. Commodity Boards and/or individual farmers have no instruments for transferring risks.
High vulnerability to natural disasters !!
So what can be done?Risk Management Strategies
Risk Mitigation : Actions taken to eliminate or reduce events from occurring, or reduce the severity of losses (e.g. water draining infrastructure, crop diversification, extension, etc).
Risk Transfer : Actions that will transfer the risk to a willing third party, at a cost. Financial transfer mechanisms will trigger compensation or reduce the losses in the case of a risk generated loss (e.g., insurance, re-insurance, financial hedging tools, etc.).
Risk Coping : Actions that will help cope with the losses caused by a risk event (e.g. government assistance to farmers, debt re-structuring, etc.).
Risk Layering/financing as part of the Strategy
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
0 500 1000 1500 2000 2500
Hypothetical distribution of cumulative rainfall (mm)l
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700
Risk retention
layer
Market insurance
layer
Market failure
layer
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RISK MITIGATION Services and investments for risk mitigation.
Agriculture Research & Extension Sanitary & Phytosanitary Services Pest Controls, Drainage, etc
RISK TRANSFER Investments for supporting agricultural insurance
Weather data reliability and access Access to reliable agronomic information Access to financial agro information Training
RISK COPING Improving delivery channels to support small farmers after adverse catastrophic events.
Transparency Efficiency Accountability
Identifying the Role of Public Sector in an Agricultural Risk Management strategy
RISK SETSPRODUCERS SETS
Agricultural production risks
Weather risks
Not excessively frequentweather risks (insurance makes sense)
Not exc. freq. and measurable weather risk (data availability)
Agricultural Producers
Producers connected toinsurance markets
SITUATIONS IN WHICH INSURANCE IS POTENTIALLY FEASIBLE
Producers above the poverty trap
Role of Insurance in a wider Risk Management Approach
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Applicability of Weather Index Insurance in Caribbean Agriculture
Most likely risk transfer mechanism to reach small farmers?
Need of an AGGREGATOR
Aggregate level with Commodity Boards/ Managing portfolio risks for Banks (Meso) = market insurance FOR FARMERS THAT ARE ASSOCIATED
Aggregate at Government CAT level / Central gov/ Provincial/ (macro) = social protection FOR INDEPENDENT SMALL FARMERS
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Need to design a comprehensive Country Risk Management Strategy for Agriculture.
This RMS may include Mitigation- Transfer – Coping mechanisms and tools.
Risk Layering and Risk Financing are important Ex Ante is better than Ex-Post Define clear role of public sectorAgricultural Insurance will play an important role, but it is
only part of the Strategy
Key Messages
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Thanks ! www.worldbank.org/agrm
ALL ACP AGRICULTURAL COMMODITIES PROGRAM