Johannesburg 1-3/4/09AFRACA/FAO/World Bank1 Risk in Agriculture Ake Olofsson Rural Finance Officer Food and Agriculture Organization of the United Nations

Johannesburg 1-3/4/09AFRACA/FAO/World Bank2 Investment in Agriculture 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. 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 1-3/4/09AFRACA/FAO/World Bank3 Provision of Financial Services 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. 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 1-3/4/09AFRACA/FAO/World Bank4 Risk Management 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. 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 1-3/4/09AFRACA/FAO/World Bank5 Risk in Agriculture Production/Yield Production/Yield Price/Market Price/Market Asset/Property Asset/Property Institutional Institutional Operational Operational Financial Financial Personal Personal

Johannesburg 1-3/4/09AFRACA/FAO/World Bank6 Production/Yield Risk Weather Weather Soil quality Soil quality Pest and disease Pest and disease Planting date Planting date Plant genetic potential Plant genetic potential Agricultural practices Agricultural practices

Johannesburg 1-3/4/09AFRACA/FAO/World Bank7 Risk Management in Agriculture Policy issues Policy issues On-farm physical measures On-farm physical measures Financially-based mechanisms Financially-based mechanisms Good agricultural practices Good agricultural practices

Johannesburg 1-3/4/09AFRACA/FAO/World Bank8 Reduce or Cope with Risk? Risk reduction/mitigation Risk reduction/mitigation Risk coping Risk coping Risk retention Risk retention Accumulation of saleable assets Accumulation of saleable assets Savings Savings Risk transfer Risk transfer Insurances Insurances

Johannesburg 1-3/4/09AFRACA/FAO/World Bank9 Lending to Agriculture High systemic, market and credit risks High systemic, market and credit risks Slow return on rural investments Slow return on rural investments Low profitability of small-holder agriculture Low profitability of small-holder agriculture Inability to offer guarantees due to low levels of assets Inability to offer guarantees due to low levels of assets High cost due to geographical dispersion of clients High cost due to geographical dispersion of clients Poor infrastructure, Poor infrastructure, Insufficient financial management capacity of farmers Insufficient financial management capacity of farmers Insufficient knowledge about agriculture Insufficient knowledge about agriculture Unfavourable political interference Unfavourable political interference

Johannesburg 1-3/4/09AFRACA/FAO/World Bank10 Insurance and Lending Reduces credit default risk but, could have a negative impact on banks’ lending operations. Reduces credit default risk but, could have a negative impact on banks’ lending operations.

Johannesburg 1-3/4/09AFRACA/FAO/World Bank11 Way Forward Promoting better on-farm risk reducing and risk coping strategies through better extension services Promoting better on-farm risk reducing and risk coping strategies through better extension services Understanding farmer risk attitudes Understanding farmer risk attitudes Blending insurance with other financial products Blending insurance with other financial products

Johannesburg 1-3/4/09AFRACA/FAO/World Bank12 Rural Finance Learning Centre A website dedicated to providing access to the best materials for capacity building in the field of rural finance. A website dedicated to providing access to the best materials for capacity building in the field of rural finance.