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Risk Management Strategies of Smallholder Farmers in vulnerable production areas

Risk Management Strategies of Smallholder Farmers in vulnerable production areas. Brussels Policy Briefing 25: Food Price Volatility: Implications for ACP Countries Brussels, 30 November 2011 Thomas Elhaut Director, Statistics and Studies for Development. Typology of Risks.

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Risk Management Strategies of Smallholder Farmers in vulnerable production areas

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  1. Risk Management Strategies of Smallholder Farmersin vulnerable production areas Brussels Policy Briefing 25: Food Price Volatility: Implications for ACP Countries Brussels, 30 November 2011 Thomas Elhaut Director, Statistics and Studies for Development

  2. Typology of Risks Source: WDR (2000), and DFID (2004)

  3. The risk-web, trapping smallholders

  4. Key message 1: a risky world • The global risks landscape (WEF 2011) is impressive and diversified, with … • increased frequency and intensity of incidents, eroding response capacities, and … • sharper market volatility exacerbates the world risk profile, and • asymmetry in access to market and other risk information constrains coping strategies. • Smallholders, women farmers, indigenous farmers and young farmers are particularly vulnerable categories of producers; … especially in remote, marginal production areas

  5. Key message 2: food security compromised • These risks (and perceptions) and uncertainties • compromise (returns to) assets, • affect longer-term investment behaviour, • generate risk of trapping vulnerable smallholder farmers in risk-averse, low-return and unsustainable production systems • inhibit entry of new (young) entrepreneurs in the excessively risky and poorly remunerated business of agriculture, which … • Ultimately compromises global food security • While higher (“economic”) agricultural prices should provide and incentive framework for supply responses

  6. Key message 3: where there is a will, there is a way • Farmers have mitigated and adapted to risks, with a range of strategies: • from soft, traditional knowledge, solidarity based strategies; • to harder, know-how and resource intensive strategies; • including diversification of incomes and migration • We can build on this expertise, enhance risk resilience, develop more robust risk management systems, design risk transfer mechanisms • This requires coordinated action: research, innovation, impact assessment, systematisation, scaling-up, market information management, partnerships, private & public investment and effective brokerage

  7. Risk management strategies Source: Adapted from WDR 2000, World Bank (2001), Walker and Ryan (1990), Mathur and Gaiha (2004), and Gaiha and Imai (2004).

  8. The rural nature of the challenge • The problem is rural: • agriculture as a contributing cause; • agriculture as a victim • Is also the solution rural? • Towards a new rurality … • … new rural futures? Energy security Environmental security Food security poverty Public health security

  9. Smallholder agriculture transformation 2 - Modernised farmers: diversified, specialised 3 – Commercial farmers: competitive, high value commodities, national and world markets 1- Subsistence farmers: Surpluses of low value commodities, local markets Transformation path

  10. Market risks and volatility -invisible hands that strangle smallholders • “rien ne va plus”: • subsistence farmers, in remote and vulnerable areas were traditionally relatively insulated (decoupled) from markets and global conditions (and opportunities) • in globalised economy, exogenous shocks transmit widely • the 2 edges of the sword: • market volatility, • price volatility • the need for innovation and governance

  11. Volatility and Growth of Food Prices in Selected Asia-Pacific Countries (1998-2008) Source:FAOSTAT

  12. Market and price volatility and responses – the 2008 case

  13. Addressing information asymmetry • The underlying logic: • World food security depends on smallholder farmers • Smallholder farmers need on-farm investment • Market uncertainty, price volatility and related information asymmetry constrain risk management options and strategies and thus investment • Smallholder access to agricultural market information (transparency) is essential for world food security • The ultimate goal: • From club good to global public good • Level playing field • Transparency • Efficiency

  14. Complex information needs of smallholders • Which information? • Non-tariff barriers • Quality and safety standards, phyto-sanitary regulations, • Certification norms • Production costs • Farm gate, local markets, national markets, regional markets • Rural competiveness and investment climate • Value chain data • Improving access • Information systems, versus supply of ad hoc data • Processed, analysed, visualised • ICT (private: cell-phones; public: media)

  15. Market information, what for? • Micro- or enterprise level: • Transmitting market signals to smallholder farmers • Inclusive agri-business • Macro-level: • Pro-poor policy development • Ultimately: global food security • Transmitting market signals to smallholder farmers: • Transparency, price transmission,price-risk management • Supply response • Sales/storage decisions • Reduce transaction costs • Adjustment along value chain, managing transaction costs • On farm investment decisions • Inclusive agri-business: • Investment decisions • Procurement decisions, and longer term relationships with farmers • Fair dividends along the value chain

  16. Layers that affect price transmission:Marketing Costs for Rice in Cambodia, 2002 (Riels per kilogram of paddy rice) Source: World Bank Study Team (July 2002).

  17. Concluding message 1: the risk cloud over our heads • the global risk landscape is becoming more complex and threatening • 500,000 smallholder farmers are particularly vulnerable (asset base, returns to assets, diversification options) • market volatility (prices, trade) exacerbates these vulnerabilities of small producers • traditional risk mitigation, risk spreading strategies and solidarity solutions are no longer as effective • this affects risk perceptions and depresses investment behaviour, which • threatens longer-term world food security • serious efforts are required to: mitigate smallholder risks, assist producers to adapt to risks, and put in place risk markets, supported with modern risk transfer mechanisms

  18. Concluding message 2: What will it take? • Coordinated: • research; technical, financial and other innovation, related to risk; • impact assessments (randomised control trials, participatory RRA, …); • systematisation, scaling-up; • market information management; • partnerships, beyond agriculture, involving the financial sector • private & (risk-tested) public investment; and • effective global solidarity and governance (of agricultural markets); and brokerage • Leadership: OECD, BRICS and other MICs • price makers • internalising externalities of restrictive policy actions • South-south cooperation and Trilateral cooperation

  19. Thank you for the attention t.elhaut@ifad.org

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