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Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 11
Risk in AgricultureRisk in Agriculture
Ake OlofssonAke OlofssonRural Finance OfficerRural Finance Officer
Food and Agriculture Organization of the United Food and Agriculture Organization of the United NationsNations
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 22
Investment in AgricultureInvestment in Agriculture
Investment is the engine of growth. Investment is the engine of growth. Access to financial services can Access to financial services can provide access to the production provide access to the production means required to increase means required to increase agricultural productivity and scale agricultural productivity and scale that lead to higher incomes.that lead to higher incomes.
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 33
Provision of Financial Provision of Financial ServicesServices
Not necessarily a task for financial Not necessarily a task for financial institutions only. Much of the finance institutions only. Much of the finance in the agricultural production value in the agricultural production value chain is taken care of by other actors chain is taken care of by other actors such as traders, processors and input such as traders, processors and input supply companies. supply companies.
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 44
Risk ManagementRisk Management
Risk management is about care to Risk management is about care to maintain income and avoid/reduce maintain income and avoid/reduce loss or damage to a property loss or damage to a property resulting from undesirable events. resulting from undesirable events. The key to determining who bears The key to determining who bears risk is finding out who will suffer a risk is finding out who will suffer a loss if something bad happens.loss if something bad happens.
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 55
Risk in AgricultureRisk in Agriculture Production/YieldProduction/Yield Price/MarketPrice/Market Asset/PropertyAsset/Property InstitutionalInstitutional OperationalOperational FinancialFinancial PersonalPersonal
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 66
Production/Yield Risk Production/Yield Risk
WeatherWeather Soil qualitySoil quality Pest and diseasePest and disease Planting datePlanting date Plant genetic potentialPlant genetic potential Agricultural practices Agricultural practices
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 77
Risk Management in Risk Management in AgricultureAgriculture
Policy issues Policy issues On-farm physical measuresOn-farm physical measures Financially-based mechanismsFinancially-based mechanisms Good agricultural practicesGood agricultural practices
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 88
Reduce or Cope with Risk?Reduce or Cope with Risk?
Risk reduction/mitigationRisk reduction/mitigation Risk copingRisk coping
Risk retentionRisk retention Accumulation of saleable assetsAccumulation of saleable assets SavingsSavings
Risk transferRisk transfer InsurancesInsurances
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 99
Lending to AgricultureLending to Agriculture
High systemic, market and credit risksHigh systemic, market and credit risks Slow return on rural investmentsSlow return on rural investments Low profitability of small-holder agriculture Low profitability of small-holder agriculture Inability to offer guarantees due to low levels of Inability to offer guarantees due to low levels of
assets assets High cost due to geographical dispersion of clientsHigh cost due to geographical dispersion of clients Poor infrastructure,Poor infrastructure, Insufficient financial management capacity of Insufficient financial management capacity of
farmersfarmers Insufficient knowledge about agriculture Insufficient knowledge about agriculture Unfavourable political interference Unfavourable political interference
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 1010
Insurance and LendingInsurance and Lending
Reduces credit default risk but, could Reduces credit default risk but, could have a negative impact on banks’ have a negative impact on banks’ lending operations.lending operations.
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 1111
Way ForwardWay Forward
Promoting better on-farm risk Promoting better on-farm risk reducing and risk coping strategies reducing and risk coping strategies through better extension services through better extension services
Understanding farmer risk attitudesUnderstanding farmer risk attitudes Blending insurance with other Blending insurance with other
financial productsfinancial products
Johannesburg 1-3/4/09Johannesburg 1-3/4/09 AFRACA/FAO/World BankAFRACA/FAO/World Bank 1212
Rural Finance Learning Rural Finance Learning CentreCentre
A website dedicated to providing A website dedicated to providing access to the best materials for access to the best materials for capacity building in the field of rural capacity building in the field of rural finance. finance.
http://www.ruralfinance.org/http://www.ruralfinance.org/