IFC Agribusiness
Effective Risk Management
Frameworks for the Agriculture
Sector
The International Economic Forum Of The Americas
Palm Beach Strategic Forum
By Fabiana Feld, Chief Investment Officer
CONFIDENTIAL
Risk in Agriculture
•Agriculture is one of the riskiest sectors of
economic activity.
•It is marked by pervasive and increasing risks that
result from structural, demographic, market, and
institutional changes, some of which are associated
with globalization and the creation of new
technologies.
•Managing risk, not eliminating it, should be the
producers’ and governments’ objective.
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Types of Agricultural Risks
•Risk + Uncertainty widespread in food/ agri system:
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Agro‐climatic factors
Complex biological/environmental processes
Geographical span of supply chains
Political economy of food/agriculture
• Major structural and demographic changes
• Risky business = ‘old risks’ + ‘new risks’
 ‘Old Risks’: weather, price variability, pests, logistical bottlenecks, food
safety hazards, policy shifts
 ‘New Risks’: climate change, new disease transmission, biosafety,
bioterrorism, environmental imprint + social concerns
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Major Risks in Agri Supply Chains
TYPE OF RISK
EXAMPLES
• Weather
• Periodic deficit or excess rainfall, varying temperatures, hail storms, strong winds
• Natural disaster (including extreme
weather events)
• Major floods, droughts, hurricanes, cyclones, typhoons, earthquakes, volcanic activity
• Biology and environment
• Crop/livestock pests and diseases; contamination caused by poor sanitation, humans, or
illnesses; contamination affecting food safety, natural resources/environment, or production
and processing
• Market
• Changes in supply or demand that impact domestic or international prices of inputs or outputs;
changes in demand for quantity or quality attributes, food safety requirements, or timing of
product delivery
• Logistics and infrastructure
• Management and operations
• Changes in transportation, communication, or energy costs; undependable transportation,
communication, or energy infrastructure; physical destruction, conflicts, or labor disputes
affecting transportation, communication, energy infrastructure
• Poor management decisions; poor quality control; forecast and planning errors; breakdowns in
farm or farm equipment; use of outdated seeds; lack of preparation to change product, process,
markets
• Policy and institutions
• Uncertain monetary, fiscal, and tax policies; uncertain policies on trade, market, or land and
tenure systems; weak institutional capacity to implement regulatory mandates
• Politics
• Security-related risks; uncertainty associated with sociopolitical instability within a country or
in neighboring countries; interruption of trade due to disputes with other countries;
nationalization or confiscation of assets
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Components of a Risk Management
Framework for Agriculture
1) Identify Objectives/ target
2) Agricultural Risk Assessment
•Social vs. commercial objective
Risk identification
Target groups:
Risk quantification
Traditional crops sub-sector
Vulnerability Assessments
 Emerging crops sub-sector
Risk Prioritization
Commercial farming segment
Subsistence farming segment
4) Resources
3) Risk Management Strategy
Data management
Regulatory/supervisory framework
Mitigation
 Information and education
Transfer
Technical expertise
 Coping
Program administration and
monitoring
Strategies are client/supply chain/country specific
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CONFIDENTIAL
Risk Management Strategies
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Mitigation – Activities designed to reduce the likelihood of an adverse event or
reduce the severity of actual losses
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irrigation
use of resistant seeds
improved early warning systems
adoption of better agronomic practices
•Transfer of risk to a willing party for a fee or premium
 commercial insurance
 hedging
•Coping or improving the resilience to withstand and cope with events, through
ex-ante preparation.
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social safety net programs
buffer funds
savings
strategic reserves
contingent financing
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A risk layering approach, based on the
probability of occurrence and potential
losses, is used to select an appropriate
risk management strategy.
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Risk Management Implementation
Instruments
Concrete action requires deployment of several instruments:
1. Agricultural Investments:
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Financial investments in irrigation infrastructure
Drought and pest tolerant seed varieties
Soil and water conservation
Weather infrastructure
Investment in improving systems (e.g. agriculture extension system or disease
surveillance system)
2. Technical Assistance: for building capacity of local stakeholders
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Training in price risk management
Feasibility studies for various instruments
Flood risk modeling work
Developing early warning systems
3. Policy support:
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Changes in policy to improve access to agricultural inputs
Change in information policy to make weather information easily accessible to all
Government procurement, storage, and grains release policies to manage strategic
reserves
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