the role of publicpolicy in risk management: the case of ... · • 2. evolutionof risk management...

The role of public policy in riskmanagement: The case of the

Hungarian Risk Management System

„Risk in the food economy – theory and practice”

Jachranka, 23th to 25th November 2016

Anikó Juhász, Gábor Kemény, András Molnár, Anna Zubor-Nemes

Outline of the presentation

• 1. Grounds of high risk exposure in Hungary• 2. Evolution of risk management tools – an overview• 3. Management of crop production risks – the MKR• 4. Operation of MKR between 2012 and 2015• 5. Future plans developing risk management tools in MKR

Hungary – why so important to tackle risks?

• Landlocked position• Far from markets• High cropland ratio – greatcrop production potential

• Continental/pannonian climate = high crop yieldvolatility

Hungary – why so important to tackle risks?

Source: EU FADN, Eurostat

‐40

‐30

‐20

‐10

0

10

20

30

40

50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Wheat price deviations from EU average (in percent)

(DEU) Germany (FRA) France (NED) Netherlands

(OST) Austria (BEL) Belgium (ITA) Italy

(HUN) Hungary‐40

‐30

‐20

‐10

0

10

20

30

40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Corn price deviations from EU average (in percent)



(HUN) Hungary

‐25

‐20

‐15

‐10

‐5

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Wheat yield deviations from MS's average (in percent)



(HUN) Hungary

‐50

‐40

‐30

‐20

‐10

0

10

20

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Corn yield deviations from MS's average (in percent)



(HUN) Hungary

‐60

‐40

‐20

0

20

40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Milk Farm Net Income deviations fromMS'saverage (in percent)



(HUN) Hungary

‐60

‐40

‐20

0

20

40

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fieldcrop Farm Net Income deviations from MS's average (in percent)



(HUN) Hungary

• Lower prices• Greater crop yield variability• Greater income variability

‐80‐60‐40‐200

20406080

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Granivores Farm Net Income deviations fromMS's average (in percent)



(HUN) Hungary

Evolution of production risk management scheme in Hungary• I. step – 1997‐2003 – 30 % flat rate subsidy to insurance fees • Problems: continuous mismatch between risks covered by insurances and damages caused by risks, only 30‐40% penetration

Hail and storm21%

Frost (at winter and spring)16%

Drought42%

Water (flood, inland water and heavy rain)

18%

Other3%

Average proportion of damages caused by adverse climatic events

Hail87%

Frost5%

Storm5%

Other3%

Average proportion of risks covered by insurances

Evolution of production risk management scheme in Hungary• II. step – 2007‐2011 – National Damage Mitigation Fund against all risks• Problems: low penetration, very high compensation claims vs. low rateof damage mitigation, high administration burden, reduced number of insured farmers

0%

20%

40%

60%

80%

100%

120%

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

2007 2008 2009 2010 2011

Claims and payments in the NMF

Mitigation payments Compensation claims Rate of mitigation (right axis)

Evolution of production risk management scheme in Hungary• III. step – since 2012 – Agricultural Risk Management System (MKR)• Two pillars: I. pillar – Compulsory National Damage Mitigation Fund

Mitigation over 15% loss of farm level AND 30% loss of crop level by all climatic risksII. pillar – Voluntary insurance subsidised by the stateCompensation over 30%/50% loss of crop level by 8 risktypes

• Common risk definitions, common reference crop yields• Interdependencies – only 50% of mitigation payments withoutinsurance, the compensation payment is deductable from mitigationpayments

Structure of MKREAFRD + national sourcefee subsidy (65% : 35%)

National Damage Mitigation Fund –farmers + state aid

(50% : 50%)

Farmers

Private insurancecompanies

Public damagerequierementsjustification

A, B, C insurance typesregulated by the state(min. 55% : 40% : 30%

rate of subsidy)

Insurancefee

Crop lossescaused byadverse c. events

Compensationpayments

Mitigationpayments

Compensationclaims

I. pillar

II. pillar

Information about the insurance contract and the compensation payments

Operation of MKR

• Members of the system:• 77 thousand farmers• 11 insurance companiesand mutual funds

• 19 regional governmentoffices

• 8 central offices and institutes ARDA

Market insurance

MRD

AKI IGCRS HMS GDWM

Regional government offices

Insurance contracts

Insurance claim reporting

Insurance compensation

Client registration

Damage notification

Damage claim notification

Insurance contract

data

Insurance compensation

data

Common Master Data Management System

Customer register

Register of activitiy area

Farmers

InterfaceElectronic notice of loss and subsidy claim declaration for

farmers

Interface

Statistical and

reporting system

Agricultural risk management data

baseControl of damage

determination

FADN data collection

Professional supervision and coordination of

damage determination

Functional supervision and coordination of damage

determination

Interface Interface Interface Interface Interface Interface

Improved FADN (plot-level yield data

collection)

Agricultural Risk Management

Systems

Analysis of profit, cost and income data

Remote sensing damage assessment

method

Operation of Remote Sensing Damage

Assessment Ssystem

Satellite images

Remote sensing damage

assessment software and data

processing

Basic meteorological data services for the

determination of damage

Extended Meteorological Data Collection System

Damage determination workflow supporting software

Meteorological data processing method

Meteorological data storage ICT

infrastructure

Operation of Damage Mitigation Fund, management of

compensation contributions, determination, payment and accounting of compensation or/and insurance subsidies

Improved compensation and

subsidy management system

Improved claim management

system Determination of damage

Damage determination control supporting ICT

infrastructure and software

Operation of the Hungarian FADN System

Payment of mitigation

contribution

Basic data services of inland water for the

determination of damage

Extended Defence Information System

Interface

General management of Agricultural Risk Management System (supervision, analysis

and planning)

Login to Compensation System (EK)

Determining the amount of

compensation contribution

Payments of compensation

Interface

HCA NFCSO

Covered risks in MKR

RisksHail, Storm, Fire

Winter/springfrost

DroughtHeavyrain, flood

Inlandwater

I. pillar >15% farm level, >30% crop level

II. pillar>30% croplevel

>50% croplevel

>50% croplevel

>40% croplevel

‐

Private add. i.

>5% to <30% crop level

‐ ‐ ‐ ‐

Wheat, 2010 June in inland water

Corn crashed by hail, June 2010Browned apple flowers afterspring frost, April 2012

Corn, August 2011

Sunflower, August 2011

Corn, June 2010 after heavy rain

Wheat, 2010 June in inland water

Payment versions in MKR• I. pillarwithoutinsurance

hail fire storm winter frost drought inlandwater

heavyrain

yield

average yield (100%)

damage mitigation(reduced by 50%)

springfrost

flood

30% deductable

damaged yield: 45%

Payment versions in MKR

A i. payments

• I. pillar• II. pillar

• A insurance


30% deductable

50% deductable

damaged yield: 45%


heavyrain

springfrost

flood

yield

damage mitigation

Payment versions in MKR

Private add. i. payments

• I. pillar• II. pillar

• A insurance• +privateadditional i.


30% deductable

50% deductable

damaged yield: 45%


heavyrain

springfrost

flood

yield

A i. paymentsdamage mitigation

5% deductable

Main indicators of the first pillar (2012‐2015)

74,177,6 78,3

72,5

0

10

20

30

40

50

60

70

80

90

2012 2013 2014 2015

thou

sand

Number of agricultural producers

87,893,7 92,6 91,8

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015

per cen

t

The proportion of agricultural area covered by firstpillar

0

5

10

15

20

25

30

2012 2013 2014 2015

HUF billion

Financial sources of first pillar

Sources of currentyear

Sources fromprevious years

93,9

28,4

11,8

61,8

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015

thosuand

hectare

Damaged area in case of first pillar

7 411

2 453

1 199

6 050

0

1000

2000

3000

4000

5000

6000

7000

8000

2012 2013 2014 2015

HUF million

Mitigation benefits in case of first pillar

• Number of participants has been changed in the periodof 2012‐2015. Memberscovered 66,6 per cent of producers in 2015.

• Increasing financial sources

• The weather conditionswere in 2012 and 2015 more unfavourable thatresulted in greaterdamaged area and highermitigation benefits

Main indicators of the second pillar• Number of insurancecontracts significantlyincreased

• Income from insurancefee also significantly rose

• The insurance paymentswere the highest in 2015 because of unfavourableweather conditions

1 896,0

8 194,0

7 302,0

8 664,0

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2012 2013 2014 2015

Number of insurance contracts

1467

3724

5658 5746

0

1000

2000

3000

4000

5000

6000

7000

2012 2013 2014 2015

HUF million

Income from insurance fee

512

908

634

1 513

0

200

400

600

800

1000

1200

1400

1600

2012 2013 2014 2015

HUF million

Insurance payments

Insurance payments 2012 and 2015

Drought; 9,3%

Storm; 5,5%Heavy rain; 0,5%

Flood; 1,2%

Spring frost; 1,5%Fire; 0,5%

Hail; 81,7%

Insurance payments by risks (2012‐2015)

3 13

153

415

32

159

597

888

11 98

512

765

24 140

866

1 458

‐

200

400

600

800

1 000

1 200

1 400

1 600

Mikro Small Medium Others

HUF million

Insurance payments by sizes (2012‐2015)

2012 2013 2014 2015

Future plans developing risk management tools in MKR• Establishment of III. pillar – Income Stabilisation Tool

• Target groups: dairy, pig and poultry farmers – they could’nt be members of pillar I. and II.

• Reforming of „pillar IV.” – subsidised credits for damaged farmers• Connection of occurence of damages and crediting of farmers

• Establishment of „pillar 0.” – the hail protection system covering allthe country

• Installation of ground generators

http://ec.europa.eu/agriculture/agri‐markets‐task‐force/index_en.htm

AMTF – team of 12 members, 1 year mandate (2016)

H. Giesen A.L. Paumier D. Dobbin A. Babuchowski I. Samir Phil Hogan C. Veerman E.V. Cabrero A. Juhász T. Iwarson L.FrescoDE ‐ pork FR ‐ cereal IE – milk PL – ex‐MoA SK – Chamber DG‐Agri NL – ex‐MoA ES‐MoA HU‐AKI SE‐ StockExch NL‐WUR

Task: report with concrete legal and policy advice

Risk management is a priority conclusion of AMTF• Mandatory inclusion of measures in MS RDP • Monitoring and evaluation systems that map all relevant data linked to the

occurrence of risks. • Minimum thresholds applying to crop losses for insurance purposes could

be revised to make the tool more attractive to users. • EU co‐financing of reinsurance schemes should be assessed. • Resource shift towards an integrated risk management policy at EU level. • Possibility of using simplified loss calculation and reimbursement options. • Set up an EU platform allowing the exchange of best practices of MS• Including tax averaging.

Thank you for your attention!

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