3.1 presentation freeland risk management-1
DESCRIPTION
The world’s poorest populations are typically those most exposed to hazard, according to risk management expert Nicholas Freeland who offers some lessons on how donors can support vulnerable populations and enhance their coping strategies.TRANSCRIPT
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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Individual Universal
Form
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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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