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3.1 presentation freeland risk management-1

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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 ...

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.

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    3.1 presentation  freeland risk management-1 3.1 presentation freeland risk management-1 Presentation Transcript

    • Session 3: Agricultural Growth & Social Protection from the angle of risk management Seminar on hot topics in agriculture Bruxelles, 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
    • 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
      Individual Universal Formal Informal State Commercial Community HH
    • 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
      Individual Universal Formal Informal State Commercial Community HH
    • 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
    • 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)
    • 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
    • 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
    • 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)
    • 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
    • Potential beneficiaries of risk management instruments Stakeholder Group Warehouse Receipts Weather Insurance Futures/ Options SGR/Price Controls Subsidies Social 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
    • Integration of multiple approaches
    • www.wahenga.net