+ Carlos Enrique Arce Agricultural Risk Management Team Agriculture and Rural Development Department The World Bank Strengthening the Caribbean Agri-food.

+

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.

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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

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/1994

1994

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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