Jesús Antón, OECD Trade and Agriculture Annual Workshop of ERCA Research Network on SPAA. Ottawa 25 November 2011 Risk Management in Risk Management in Agriculture: Agriculture: Assessing household level Assessing household level risk, Policy layering and risk, Policy layering and analytical challenges analytical challenges
Risk Management in Agriculture: Assessing household level risk, Policy layering and analytical challenges. Jesús Antón, OECD Trade and Agriculture. Annual Workshop of ERCA Research Network on SPAA. Ottawa 25 November 2011. 1. OECD Work on Risk Management in Agriculture. Synthesis Report - PowerPoint PPT Presentation
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Jesús Antón, OECD Trade and Agriculture
Annual Workshop of ERCA Research Network on SPAA. Ottawa 25 November 2011
Risk Management in Agriculture:Risk Management in Agriculture:Assessing household level risk, Policy Assessing household level risk, Policy
layering and analytical challengeslayering and analytical challenges
OECD Trade & Agriculture 2
1. OECD Work on Risk Management in Agriculture1. OECD Work on Risk Management in Agriculture
OECD Trade & Agriculture 3
OutlineOutline
•Why using Household level data...
– ...for risk assessment?
– ...and modelling response?
•Risk layering and good policy
•Analytical challenges
Why Using farm household level Why Using farm household level data for risk analysis?data for risk analysis?
Endogenous pro-active risk management strategies: Endogenous pro-active risk management strategies: Interesting results from Interesting results from Stochastic simulation modelStochastic simulation model
)1(
)~()~(
)1(
U
)1/(1)]~()1[( EUCE
ip~
iq~
iLg
uncertain output price of crop i uncertain yield of crop i cost adjustment factor for crop i
area of land allocated to crop i
transfer from government or benefit from risk market strategy level of coverage decided by farmer
Representative farmer maximize his expected utility of profits
degree of CRRA
initial wealth
Farmer’s welfare is computed as certainty equivalent of profit
ic
),~,~(~)(*]*)~*~[(~1
iii
n
iiiii qpgcLLLRLcqp
uncertain variable costc~
revenue from livestock operation (applicable for only Australia)LR
OECD Trade & Agriculture 8
a) Are Minimum Intervention prices effective?a) Are Minimum Intervention prices effective?
•Reduce risk rather than Manage risk
•Only effective for very low Intervention prices
•Beyond certain level, it increases variability:– Less on-farm
diversification – less price-yield
correlation => less natural hedging
OECD Trade & Agriculture 9
b) Support to Insuranceb) Support to Insurance
• Start-up support Information databases and
sharing arrangements Public-private partnership
• Hard to increase demand
• Insurance subsidies Reduce diversification Differentiate catastrophic and
marketable policies Hard to deter ex post assistance
OECD Trade & Agriculture 10
c) Crowding out of BRM policies c) Crowding out of BRM policies
Accounting Change in CV of Income (without crowd out)
Simulated Change in CV of income (with crowd out)
Change in Diversification
Change in share of land insured
Agri-Insurance -23.5% -0.5% -4% +33%
Agri-Stability -33.4% -9.0% -18% -16%
Agri-Invest -0.7% -1% 0%
Agri-Recovery +2.5% -8% -0.2%
Lagged Agri-Stability
-1.4% -4.9% -18% -16%
Impacts of some BRM programs in a sample of Saskatchewan farms
OECD Trade & Agriculture 11
d) AgriStability by tierd) AgriStability by tier
Certainty equivalent income (change in CAD)
CV of income
(change in percentage)
Change in diversificati
on index (Initial = 100)
Minimum income
(change in CAD)
Change in the share of land insured (change in percentage
points)
Overall change
Contributing factorsChange in
meanChange in variability
Total impact 3 769 3 728 40 -5.9 -31.9 8 224.2 -5.4Contribution of the coverage of
TIER 2 70-85% of reference
margin
335 418 -83 2.6 -6.8 -4 887.7 -1.1
TIER 3up to 70% of
reference margin
2 488 2 336 151 -8.6 -6.6 -2 804.7 -21.3
TIER 4 negative margin
946 973 -27 0.1 -18.6 15 916.6 17.0
OECD Trade & Agriculture 12
Improving AgriStabilityImproving AgriStability
•Simplify the delivery mechanism:– Eliminate the margin adjustments– Link payment directly to income tax declaration– Declaring tax in accrual basis, like other businesses
•Make an in-depth evaluation of the effectiveness and targeting – Use available databases– Consider the following changes in policy:
• Eliminate stabilization tier 2 and tier 4• Refocus on Tier 3, addressing the overlap with insurance• Increase participation fee and calculate actuarial premiums
OECD Trade & Agriculture 13
e) Crowding-out effectse) Crowding-out effects
•Government compensation for non-catastrophic risks off-sets pro-active risk management strategies:– Diversification: the main strategy– Market instruments