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

2 CONTENT  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 MANAGING AGRICULTURAL RISKS IN THE CARIBBEAN

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

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

Jamaica spends US$ m a year for hurricane damages alone Disaster Recovery Funding for the Agricultural Sector ( ) (in Jamaican $) YearDisasterTotal Damage to the sector(Billons) Government Support (MOA) Donor Support 2004Hurricane Ivan$6.70Due to system problem, unable to access records 2005Hurricanes Emily, Dennis and Tropical Storm Wilma $0.99Bilateral: Canada (Hurricane Ivan Reconstruction) C$800,000 / J$44 million 2006NA 2007Hurricane Dean$3.76$102,099, Tropical Storm Gustav$1.63$25,000,000.00EU's Hurricane Assistance Programme €2.2 million /J$222million Totals$13.08$127,099,629.60$266,000, 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. Only direct damages

Current Catastrophe Risk Management System in Agriculture 1.Catastrophe coverage for small vulnerable farmers is ex-post, and with slow response. 2.Commodity Boards and/or individual farmers have no instruments for transferring risks.  High vulnerability to natural disasters !!

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.).

Risk Layering/financing as part of the Strategy Hypothetical distribution of cumulative rainfall (mm) l Risk retention layer Market insurance layer Market failure layer

9 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 Identifying the Role of Public Sector in an Agricultural Risk Management strategy

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

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  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 Key Messages

13 Thanks ! ALL ACP AGRICULTURAL COMMODITIES PROGRAM