Sesame Business Network Ethiopia Mekelle, March 21 st 2015 Risk management.

Sesame Business Network Ethiopia

Mekelle, March 21st 2015

Risk management

• We have been looking at the production side, the financial sector and the marketing side.

• 2014 was a very bad year for farmers: low yields and much lower prices

• This triggers attention for the subject of ‘Risk management’

• ‘Risk management’ is also a good theme for bringing the subjects of the annual meeting together.

Introduction

2014 was a difficult year: low yields, decreasing price, problems of credit reimbursement

Multiple risks in the sesame sector:• Weather and Production • Credit• Marketing

• Other risks

Multiple risks

Example other risks: roads and accidents

• We would like to have your ideas ! • Three rounds : How can production, credit

and market risks be reduced or mitigated? • Please work in pairs. • Write down your ideas and suggestions on a

card : use key words, readable handwriting please !

• We will later on analyse the cards and report on the outcomes in workshop report, on website and in the next newsletter.

Risk management action plan

Round one : Production risks

Can you think of production risks for farmers?

• Drought at beginning of the season, forcing replanting of sesame or replanting with sorghum

• Drought during season: affecting flowering and sesame seed production

Drought

Flooding

Pest and diseases

Pest and diseases

Weather hazards (hail, wind, ..)

Improved agricultural practices are more costly. Will this pay off (in good / bad years). That is big question and risk for farmers

What is the marginal rate of return of fertilizer use, row planting, drying on plastic sheets, .... ?

Economic risk of intensification

• What are practical options for reducing or mitigating risks at the production side ?• ..... ???? ......

What could/should be done?

• Experience and perspectives for agricultural insurance • Nyala Insurance

Insurance

Round two : Credit risks

Banks do not (sufficiently) know the farmers, and not (sufficiently) able to assess whether they are serious / capable of paying back their loans

Farmers do not know the banking language and do not know information and security to provide, what responsibilities they have to take

Credit

Loans may come to late; loans not available later during the growing season

Farmers may have to turn to informal money lenders and incur high credit costs

Farmers are susceptible to external conditions that may cause crop failure, hence problems to reimburse. This puts the portfolio of banks and MFI’s at risk.

Credit

• What are practical options for reducing or mitigating risks at the financial/credit side ?

What could be done?

Round three: Market risks

Dependency on some main markets

Market price fluctuations – international price trend (USD)

Past 5 years ; Jan 2010 – Dec 2014

Market – ECX price trend (ET Birr) Oct 2012 – Dec 2014

Price volatility in past years

Totally different trends in 2013 and 2014 - Increase Oct-

Dec 2013 - Decline Oct-

Dec 2014)

• Prices are unpredictable for farmers and for buyers, putting their farming, processing, storage and trading activities at risk of loss• Are there options for market trend

analysis, price stabilization ???

Serious risks

• ..... ???? ......

Market risks : what could/should be done?

Sesame Business Network Ethiopia

Reporting on outcomeCapitalizing on your contributions

• Workshop report: please leave your email address at secretariat

• Website: www.sbnethiopia.org• Newsletter: [email protected]