Vergara Air CIRAD 2010

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Vergara Air CIRAD 2010

  1. 1. Information Needs for Agricultural Risk Management i Developing Countries M t in D l i C ti Oscar Vergara Agricultural Market Information Systems in Africa: Renewal and Impact Montpellier, France March 29-31, 2010 , 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 1
  2. 2. Overview of the MPCI Program: Corn, Soybean and Wheat Dominate the US Crop Risk Source: Risk Management Agency 2009 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 2
  3. 3. Weather Is the Key Source of Uncertainty Affecting Yields % Crop Loss Drought & Heat 37% Excess Moisture 33% Hail 13% Cold, Frost & Freeze 5% Flood 1% Wind, Hurricane 4% Subtotal – Directly related to weather 93% Disease 5% Insects & Wildlife 1% Other 1% Subtotal – Other perils 7% Total 100% 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 3
  4. 4. Still … Every Billion Dollar Weather Disaster Came as a Surprise p ---- 1988 ---- Drought/Heat W D h /H Wave SSummer 1988 1988 drought in central 1988. d h i l and eastern U.S. with very severe losses to agriculture and related industries; estimated $40.0 (71.2) billion damage/costs; estimated 5,000 to 10,000 deaths (includes heat stress-related). ---- 1993 ---- Midwest Flooding Summer 1993. Severe, widespread flooding in central U.S. due to persistent heavy rains and thunderstorms; approximately $21.0 (30.2) billion damage/costs; 48 deaths. 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 4
  5. 5. The 2008 Iowa Flood Event 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 5
  6. 6. Traditional Approach for Estimating Crop Losses Observed Corn Yields 140 Yield Distribution 120 Statistical lity 100 Expected Yield Probabil 80 Yield 60 40 20 0 Yield – bushels/acre 70 73 76 79 82 85 88 91 94 97 00 03 197 197 197 197 198 198 198 199 199 199 200 200 Year Market information • Significant weaknesses with Loss traditional approach that inaccurately Distribution accounts for ty Probabilit – Changes in technology – Changes in market information – Weather variability Loss distribution 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 6
  7. 7. Probabilistic Agricultural Model Components YIELD / PRICE HAZARD Price Model AWI Detrended Calculation Yield Distribution FINANCIAL Event Yield Generation Exposure Information Gross Loss Calculations Market Information Government Net Loss Donor Calculations Interventions Subsidies 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 7
  8. 8. AWI (Agricultural Weather Index) is a Measure of Yield Variability Due To Weather Temperature Precipitation County- Specific AWI Index Crop Specific Data Available Water Capacity (Soil) 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 8
  9. 9. County Specific AWI Index 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 9
  10. 10. AWI Removes Weather Variability from the Historic Yields to Reveal True Technology Trend Yield Time Series 200 17 Bushels 180 re Yield - Bushels/Acr 160 True Technology Trend 140 with Weather Variability y y Removed 120 00 10 Trend Line Influenced by Weather Variability 80 2008 1990 1995 2000 2005 2010 2010 AIR WORLDWIDE CORPORATION xAGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 10
  11. 11. The Choice of Methodology Can Have a Large Impact on Insurance Contracts Probability Density Function of Detrended Yield Time Series Yield Guarantee 0.015 With AWI Without AWI Probability 0.010 0.005 0.000 100 150 200 250 100 150 200 250 Yield – Bushels/Acre 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 11
  12. 12. Probabilistic Agricultural Model Components YIELD / PRICE HAZARD Price Model AWI Detrended Calculation Yield Distribution FINANCIAL Event Yield Generation Exposure Information Gross Loss Calculations Market Information Government Net Loss Donor Calculations Interventions Subsidies 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 12
  13. 13. Corn Price Volatility During 2008 2008 Price Volatility for Corn (CME December Corn Contract) Planting Price Harvest Price 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 13
  14. 14. Corn Price Model Corn 180% nting Price) vest Price (% of Plan Historical Values 2008 Example of Harv a yield scenario 0% 60% 80% 100% 120% Event Yield (Percent of Normal) 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 14
  15. 15. Probabilistic Agricultural Model Components YIELD / PRICE HAZARD Price Model AWI Detrended Calculation Yield Distribution FINANCIAL Event Yield Generation Exposure Information Gross Loss Calculations Market Information Government Net Loss Donor Calculations Interventions Subsidies 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 15
  16. 16. County Loss Distributions Form Basis of Event Catalog • 10,000 outcomes based on variation from historical data • Current technology l C tt h l level and l d spatial correlations • Current market information • Not biased by recent years 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 16
  17. 17. Probabilistic Agricultural Model Components YIELD / PRICE HAZARD Price Model AWI Detrended Calculation Yield Distribution FINANCIAL Event Yield Generation Exposure Information Gross Loss Calculations Market Information Government Net Loss Donor Calculations Interventions Subsidies 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 17
  18. 18. Different Applications of the Agricultural Risk Model Household Risk Management Planting and Financial Harvesting Planning Decisions D i i Agricultural Risk Model for C f Crop Producers Risk Input p Transfers Purchases Sales Planning 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 18
  19. 19. AIR Crop Model Clients 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 19
  20. 20. Expected Yields (Corn) – RMA and AWI IS ILLINOI I 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 20
  21. 21. Iowa Corn GRIP (Harvest Revenue Option) 90% Coverage Probability of Loss 2008 2009 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 21
  22. 22. Real-Time Monitoring Minimum Temperature Maximum Temperature Weekly Accumulated Temperature Growing Degree Days Surface Moisture Level Crop Moisture Index AWI – County-Specific Index County Specific Standardized P St d di d Precipitation i it ti AWI – C County Yi ld Distribution t Yield Di t ib ti 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 22
  23. 23. CropAlert: Real-Time Crop Yield and Weather Forecast Information Service 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 23
  24. 24. USDA - NASS Crop Production 2009 Summary 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 24
  25. 25. AIR Proven Technology: USDA Validation and Commodity Trading Simulation Awards y g 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 25
  26. 26. Summary • Traditional approaches for estimating crop losses need to accou t o c a ges account for changes in technology, price volatilities, market tec o ogy, p ce o at t es, a et information changes and, most significantly, the effect of weather • A weather-based agricultural risk model based on a fully p probabilistic yield and price catalog can take into account the y p g spatial and temporal correlations of crop losses • Extension agents, agricultural educators and donors should couple their marketing information systems with agricultural risk p g y g models that can better quantify the potential crop portfolio risk under future adverse weather conditions and improve the type of information that producers receive for risk management 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 26
  27. 27. Data Requirements for Agricultural Risk Modeling 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 27
  28. 28. Modeling Agricultural Perils in Developing Countries: What is Needed? Validation Data Models Calibration 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 28
  29. 29. Sources of Information for Agricultural Risk Modeling in the United States Weather Information National Oceanographic and Atmospheric Administration (NOAA) National Weather Service (NWS) Climate Prediction Center (CPC) Soil Information United States Geological Survey (USGS) United States Forest Service (USFS) Crop and Livestock Information Cooperative Research, Education and Extension Service (CREES) Agricultural Research Service (ARS) Price and Yield Information National Agricultural Statistics Service (NASS) Economic Research Service (ERS) Historical Loss Information Risk Management A Ri k M t Agency (RMA) 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 29
  30. 30. Sources of Information for Agricultural Risk Modeling in Developing Countries g p g Weather Information Production Estimates Crop Assessment Division (PECAD-FAS) Food and Agriculture Organization (FAO-METART ARTEMIS) Soil Information Famine Early Warning System Network (FEWS-NET) Food and Agriculture Organization (FAO-METART ARTEMIS) Crop and Livestock Information Global Information and Early Warning System (FAO-GIEWS) (FAO GIEWS) Agricultural Ministries, Educational Institutions Price and Yield Information Agricultural Ministries Trade Associations Ministries, Food and Agriculture Organization Statistical Database (FAOSTAT) Historical Loss Information Agricultural Lenders, P d A i lt l L d Producer A Associations i ti 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 30
  31. 31. Number of Weather Stations in Central America Honduras Guatemala 52 weather 102 weather stations t ti stations Nicaragua Ni El Salvador 31 weather 30 weather stations stations Source: World Meteorological Organization, 2009 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 31
  32. 32. Coverage of Weather Data in the United States United States 9,000+ , weather stations Source: National Oceanographic and Atmospheric Administration, 2009 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 32
  33. 33. In Crop Production, Every Growing Season is Different Agricultural production is very risky due to weather uncertainties Weather experienced by crops at different stages of development will have an impact on harvest outcome Seedling Stages adequate soil moisture and temperature needed for germination Pod Filling Stages adequate soil Vegetative Stages g g moisture needed for more resistant to grain filling environmental stress 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 33
  34. 34. Global Perspective on Enhanced Vegetation Index (EVI) Global tropical cyclone tracks, 1985 - 2009 2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 34

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