Risk in Agriculture
Ake Olofsson
Rural Finance Officer
Food and Agriculture Organization of the United Nations
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
1
Investment in Agriculture
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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.
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
2
Provision of Financial Services
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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.
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
3
Risk Management
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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.
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
4
Risk in Agriculture
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Production/Yield
Price/Market
Asset/Property
Institutional
Operational
Financial
Personal
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
5
Production/Yield Risk
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Weather
Soil quality
Pest and disease
Planting date
Plant genetic potential
Agricultural practices
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
6
Risk Management in Agriculture
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Policy issues
On-farm physical measures
Financially-based mechanisms
Good agricultural practices
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
7
Reduce or Cope with Risk?
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Risk reduction/mitigation
Risk coping
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Risk retention
Accumulation of saleable assets
 Savings
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Risk transfer
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Insurances
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
8
Lending to Agriculture
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High systemic, market and credit risks
Slow return on rural investments
Low profitability of small-holder agriculture
Inability to offer guarantees due to low levels of assets
High cost due to geographical dispersion of clients
Poor infrastructure,
Insufficient financial management capacity of farmers
Insufficient knowledge about agriculture
Unfavourable political interference
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
9
Insurance and Lending
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Reduces credit default risk but, could have
a negative impact on banks’ lending
operations.
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
10
Way Forward
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Promoting better on-farm risk reducing
and risk coping strategies through better
extension services
Understanding farmer risk attitudes
Blending insurance with other financial
products
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
11
Rural Finance Learning Centre
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A website dedicated to providing access to
the best materials for capacity building in
the field of rural finance.
http://www.ruralfinance.org/
Johannesburg 1-3/4/09
AFRACA/FAO/World Bank
12