Post on 31-Oct-2014
description
Session 3:Agricultural Growth &
Social Protectionfrom the angle of risk management
Seminar on hot topics in agricultureBruxelles, 29 June - 1 July 2011
Nicholas Freeland
Introduction
• “Life is a risk”– Diane von Fürstenberg
• Survival is about managing risk
• Poorest are most exposed to risk…• … and have least resilience to handle it
• Agricultural growth and social protection offer complementary policy options on manage risk
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Risk Management Instruments
Large families Buying/selling assets Community reciprocity Savings & loans/ROSCA Income/crop diversity Micro-credit/banking Formal insurance Warehouse receipts Weather insurance Futures/options SGR/price controls Subsidies Social transfers
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Individual Universal
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Risk Management Instruments
Large families Buying/selling assets Community reciprocity Savings & loans/ROSCA Income/crop diversity Micro-credit/banking Formal insurance
Warehouse receiptsWarehouse receipts
Weather insuranceWeather insurance
Futures/optionsFutures/options
SGR/price controlsSGR/price controls
SubsidiesSubsidies
Social transfersSocial transfers
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Risk Management Instruments:WAREHOUSE RECEIPTS
• Description• Examples
• South Africa ; Zambia • Pros
• Provides access to credit• Improves temporal arbitrage• Lowers seasonal price instability• Encourages investment in storage/transport
• Cons• Requires sophisticated grading/quality systems• Requires regulatory procedures and oversight• Requires stable policy behaviour on part of government
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Risk Management Instruments:WEATHER INSURANCE
• Description• Examples
• India (BASIX) ; Kenya (HSNP) • Pros
• Reduces “adverse selection” and moral hazard• Facilitates rapid payouts (once trigger is reached)• Encourages investment in higher return activities• Low transaction costs that can be scaled to small farmers
• Cons• Who pays the premiums? And who gets the benefits?• Normally covers only a single risk• May expose insurer to catastrophic risk (so premiums high)
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Risk Management Instruments:FUTURES/OPTIONS
• Description• Examples
• Malawi (2005) • Pros
• Can be used to hedge against price rises• More rapid inter-temporal adjustment to supply and demand • Improves spatial market integration
• Cons• Needs sophisticated commodity exchange infrastructure• Too complex for small farmers/traders• Large traders put off by uncertain policy environment• Serious governance risks in Government involvement
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Risk Management Instruments:SGR/PRICE CONTROLS
• Description• Example
• Malawi (2001) • Pros
• Reduced price volatility• Can promote domestic food production and local markets• Smoothes impact of seasonality
• Cons• Mixed impact of high/low prices on producers, consumers
and labour market• Risk of political interference and lack of transparency• Reduced stabilisation role of private sector
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Risk Management Instruments:SUBSIDIES
• Description• Examples
• Malawi ; Egypt • Pros
• Kick-start pro-poor growth (eg Asia)• Can raise production• Lower prices
• Cons• Most benefits captured by the better-off• Leakage across borders• Can exclude the poorest• Prey to macro and micro shocks• Hugely expensive to maintain (eg Egypt)
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Risk Management Instruments:SOCIAL ASSISTANCE
• Description• Examples
• Lesotho (pension); Zambia (SCT); Ethiopia (PSNP); etc, etc
• Pros• Safeguards assets• Encourages risk-taking (job search, agric diversification)• Improves education, health, agric productivity• Used to buy local food, stimulates production and markets• Reduces seasonality
• Cons• Danger of inflation in weak markets• Risk of reduced value of cash transfer if prices rise
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Potential beneficiaries of risk management instruments
Stakeholder Group
Warehouse Receipts
Weather Insurance
Futures/ Options
SGR/Price Controls
SubsidiesSocial
Assistance
Consuming Households
Low Low Low Moderate High High
Small-Scale Farmer
High Moderate Low Moderate High High
Small-Scale Trader or Processor
High Low Low Moderate High Low
Larger-Scale Farmer
High High Moderate High Moderate Low
Larger-Scale Trader or Processor
High Low High High Moderate Low
Public Food Agency
Moderate Moderate Moderate High Moderate Low
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Integration of multiple approaches
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