Johannesburg 1-3/4/09

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Johannesburg 1-3/4/09

  1. 1. Risk in Agriculture Ake Olofsson Rural Finance Officer Food and Agriculture Organization of the United Nations
  2. 2. Investment in Agriculture <ul><li>Investment is the engine of growth. Access to financial services can provide access to the production means required to increase agricultural productivity and scale that lead to higher incomes. </li></ul>
  3. 3. Provision of Financial Services <ul><li>Not necessarily a task for financial institutions only. Much of the finance in the agricultural production value chain is taken care of by other actors such as traders, processors and input supply companies. </li></ul>
  4. 4. Risk Management <ul><li>Risk management is about care to maintain income and avoid/reduce loss or damage to a property resulting from undesirable events. The key to determining who bears risk is finding out who will suffer a loss if something bad happens. </li></ul>
  5. 5. Risk in Agriculture <ul><li>Production/Yield </li></ul><ul><li>Price/Market </li></ul><ul><li>Asset/Property </li></ul><ul><li>Institutional </li></ul><ul><li>Operational </li></ul><ul><li>Financial </li></ul><ul><li>Personal </li></ul>
  6. 6. Production/Yield Risk <ul><li>Weather </li></ul><ul><li>Soil quality </li></ul><ul><li>Pest and disease </li></ul><ul><li>Planting date </li></ul><ul><li>Plant genetic potential </li></ul><ul><li>Agricultural practices </li></ul>
  7. 7. Risk Management in Agriculture <ul><li>Policy issues </li></ul><ul><li>On-farm physical measures </li></ul><ul><li>Financially-based mechanisms </li></ul><ul><li>Good agricultural practices </li></ul>
  8. 8. Reduce or Cope with Risk? <ul><li>Risk reduction/mitigation </li></ul><ul><li>Risk coping </li></ul><ul><ul><li>Risk retention </li></ul></ul><ul><ul><ul><li>Accumulation of saleable assets </li></ul></ul></ul><ul><ul><ul><li>Savings </li></ul></ul></ul><ul><ul><li>Risk transfer </li></ul></ul><ul><ul><ul><li>Insurances </li></ul></ul></ul>
  9. 9. Lending to Agriculture <ul><li>High systemic, market and credit risks </li></ul><ul><li>Slow return on rural investments </li></ul><ul><li>Low profitability of small-holder agriculture </li></ul><ul><li>Inability to offer guarantees due to low levels of assets </li></ul><ul><li>High cost due to geographical dispersion of clients </li></ul><ul><li>Poor infrastructure, </li></ul><ul><li>Insufficient financial management capacity of farmers </li></ul><ul><li>Insufficient knowledge about agriculture </li></ul><ul><li>Unfavourable political interference </li></ul>
  10. 10. Insurance and Lending <ul><li>Reduces credit default risk but, could have a negative impact on banks’ lending operations. </li></ul>
  11. 11. Way Forward <ul><li>Promoting better on-farm risk reducing and risk coping strategies through better extension services </li></ul><ul><li>Understanding farmer risk attitudes </li></ul><ul><li>Blending insurance with other financial products </li></ul>
  12. 12. Rural Finance Learning Centre <ul><li>A website dedicated to providing access to the best materials for capacity building in the field of rural finance. </li></ul><ul><li>http://www.ruralfinance.org/ </li></ul>

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