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Strengthening the Caribbean Agri -food private sector: Competing in a globalised world to foster rural development Th

Managing Agricultural Risks in the Caribbean. Carlos Enrique Arce Agricultural Risk Management Team Agriculture and Rural Development Department The World Bank.

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Strengthening the Caribbean Agri -food private sector: Competing in a globalised world to foster rural development Th

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  1. Managing Agricultural Risks in the Caribbean Carlos Enrique Arce Agricultural Risk Management Team Agriculture and Rural Development DepartmentThe World Bank Strengthening the Caribbean Agri-food private sector: Competing in a globalised world to foster rural development The Caribbean Agricultural Week Grenada October 18-19th, 2010 ALL ACPAGRICULTURAL COMMODITIES PROGRAM

  2. CONTENT MANAGING AGRICULTURAL RISKS IN THE CARIBBEAN • Identification & Quantification of risks • Current CAT agricultural risk management • Role of Public Sector in the Trilogy of “Mitigation–Transfer–Coping” • Role of Weather Insurance • Lessons Learned

  3. Caribbean Agriculture: High Risk Exposure • Risk + uncertainty widespread in food/ agri system: • 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

  4. Agriculture is sensitive to Risks • Note: X axis = years; Y axis = boxes of production; JBM = Jamaican Blue Mountain; and NBM = Non Blue Mountain (Low lands) Cat = hurricanes

  5. Jamaica spends US$1.5 - 2.0 m a year for hurricane damages alone Only direct damages We estimate that over the past 5 years the Government and Donors have spent a yearly average of US$1.5 to 2 million in post disaster support, in Response to agriculture average yearly losses of US$52.0 million.

  6. Current Catastrophe Risk Management System in Agriculture • Catastrophe coverage for small vulnerable farmers is ex-post, and with slow response. • Commodity Boards and/or individual farmers have no instruments for transferring risks.  High vulnerability to natural disasters !!

  7. So what can be done?Risk Management Strategies Risk Mitigation : Actions taken to eliminate or reduce events from occurring, or reduce the severity of losses (e.g. water draining infrastructure, crop diversification, extension, etc). Risk Transfer : Actions that will transfer the risk to a willing third party, at a cost. Financial transfer mechanisms will trigger compensation or reduce the losses in the case of a risk generated loss (e.g., insurance, re-insurance, financial hedging tools, etc.). Risk Coping : Actions that will help cope with the losses caused by a risk event (e.g. government assistance to farmers, debt re-structuring, etc.).

  8. Risk Layering/financing as part of the Strategy 1.6 Risk Market Market failure 1.4 retention insurance layer layer layer 1.2 1 0.8 0.6 0.4 0.2 0 7 00 2 5 00 0 500 1 000 1 5 00 2 000 Hypothetical distribution of cumulative rainfall (mm) l -

  9. Identifying the Role of Public Sector in an Agricultural Risk Management strategy RISK MITIGATION Services and investments for risk mitigation. • Agriculture Research & Extension • Sanitary & Phytosanitary Services • Pest Controls, • Drainage, etc RISK TRANSFER Investments for supporting agricultural insurance • Weather data reliability and access • Access to reliable agronomic information • Access to financial agro information • Training RISK COPING Improving delivery channels to support small farmers after adverse catastrophic events. • Transparency • Efficiency • Accountability

  10. Role of Insurance in a wider Risk Management Approach PRODUCERS SETS RISK SETS Agricultural production risks Agricultural Producers Weather risks Producers above the poverty trap Not excessively frequent weather risks (insurance makes sense) Producers connected to insurance markets Not exc. freq. and measurable weather risk (data availability) SITUATIONS IN WHICH INSURANCE IS POTENTIALLY FEASIBLE

  11. Applicability of Weather Index Insurance in Caribbean Agriculture Most likely risk transfer mechanism to reach small farmers?  Need of an AGGREGATOR • Aggregate level with Commodity Boards/ Managing portfolio risks for Banks (Meso) = market insurance FOR FARMERS THAT ARE ASSOCIATED • Aggregate at Government CAT level / Central gov/ Provincial/ (macro) = social protection FOR INDEPENDENT SMALL FARMERS

  12. Key Messages • Need to design a comprehensive Country Risk Management Strategy for Agriculture. • This RMS may include Mitigation- Transfer – Coping mechanisms and tools. • Risk Layering and Risk Financing are important • Ex Ante is better than Ex-Post • Define clear role of public sector • Agricultural Insurance will play an important role, but it is only part of the Strategy

  13. Thanks ! www.worldbank.org/agrm ALL ACPAGRICULTURAL COMMODITIES PROGRAM

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