Jesús Antón, OECD Trade and Agriculture Annual Workshop of ERCA Research Network on SPAA. Ottawa 25 November 2011 Risk Management in Agriculture: Assessing.

Slides:



Advertisements
Similar presentations
Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT.
Advertisements

COMPENSATION SCHEME IN CANADA Dr. Namatie TRAORE Compensation Experience in Western Hemisphere – Closing Workshop, July 2008, Panama.
Coping with the financial impact of disasters: a macro-perspective Insurance as a method for Disaster Risk Reduction in SEE Macedonia, April 2013.
Developing A Risk Management Plan Paul E. Patterson and Larry D. Makus University of Idaho Department of Agricultural Economics & Rural Sociology.
Growing Forward Canada’s New Agricultural Policy Framework.
The CAP after the Health Check Agricultural Policy Analysis and Perspectives DG for Agriculture and Rural Development European Commission.
October 29,  Fiscal Risks identified and quantified in Mexico: ◦ Budgetary impact of fluctuations in key assumed macro-economic variables ◦ Long-term.
PROJECT GCP/SYR/006/ITA – Phase II “Assistance for Capacity Building through Enhancing Operation of the National Agricultural Policy Center” seminar on.
MAFAP: Analysis of Policy Context Module 2.2. Commodity Price Analysis and Government Policies Objective: To examine commodity market price incentives.
Contrasting Structures Cooperative advantage in illiquid markets Steve Buccola and Robin Cross Oregon State University, Agricultural & Resource Economics.
Index-based-Insurance in Agriculture: A suitable Production Risk Management Tool for ECA? Martin Odening, Oliver Mußhoff, Roman Shynkarenko, Federica Angelucci.
Price Stability Econ Price Stability Read Chapter 7 of Schmitz, Furtan and Baylis “Agricultural Policy, Agribusiness, and Rent-Seeking Behaviour”
+ Programmatic Non Lending Technical Assistance P Towards an Agricultural Risk Management Framework for the Caribbean.
+ Carlos Enrique Arce Agricultural Risk Management Team Agriculture and Rural Development Department The World Bank Strengthening the Caribbean Agri-food.
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
1 1 EXPANDED RISK MANAGEMENT CASE FARM WORKSHOP Dr. G. A. “Art” Barnaby, Jr Dr. G. A. “Art” Barnaby, Jr Kansas State University Kansas State University.
Macroeconomic Themes:81 Tax Policy Analysis Using a General Equilibrium Model.
1 The implementation of CAP in the risk management field Aleksandra Szelągowska, MARD.
Agriculture and Agri-Food Canada Canadian Agriculture and Climate Change: Challenges and Opportunities.
Australia’s Experience in Utilising Performance Information in Budget and Management Processes Mathew Fox Assistant Secretary, Budget Coordination Branch.
Policy Issues of EDRC Models Ex-ante Poverty Impact Assessment of Macroeconomic Policies International Workshop Washington, D.C. October 14-15, 2003 Aghasi.
Linkages between the Public Expenditure Analysis, Incentive/disincentive Analysis and Performance and Development Indicators.
CME Group and Informa Economics May 16, 2013 Pan American Grain and Oilseed Conference.
37 th OESAI Conference David Lesolle University of Botswana.
Economics of Risk Management in Agriculture Bruce A. Babcock Center for Agricultural and Rural Development Iowa State University, USA.
Innovations to insure agricultural catastrophic risks Dr. Emilio Hernandez Agricultural Finance Officer, AGS Islamabad, April.
Capacity Building in Analytical Tools for Estimating and Comparing Costs and Benefits of Adaptation Projects in the Berg River Basin, South Africa AIACC.
2 H i g h e r E d u c a t i o n © Oxford University Press, All rights reserved. Chapter 5: Economic theory 2: Insurance Barr: Economics of the Welfare.
Growing Pains – A guide to Agricultural Insurance and Reinsurance
Role and Components of Project Evaluation
The IIASA Modeling Tool Natural disaster risk management The CatSim Model Stefan Hochrainer Department of Statistics and Decision Support Systems (University.
Funded by the Government of Alberta Ecosystem Services and Conservation Offsets April 24 th, 2012.
Modeling Issues Related to EDRC Models Ex-ante Poverty Impact Assessment of Macroeconomic policies International Workshop Washington D.C. October 14-15,
OECD Network – Farm Level Analysis A.Kinsella. Introduction Network for distributional analysis set up by OECD 18 participants from 12 OECD countries.
OECD Report Catastrophe-linked securities and capital markets Prof. Alberto Monti Bocconi University and OECD Bangkok, Thailand September nd.
Agricultural Risk Financing Ramiro Iturrioz Senior Agricultural Insurance Specialist Insurance for the Poor Program The World Bank Agricultural Insurance.
Rome Energy Meeting 2008 Rome, November 2008 Investments Opportunities and Project Finance in the Energy Market Luigi Marsullo President Finpublic.
Risk Financing The Principles of Utilizing Insurance Resources Peter Wang
Evaluation of sector programmes and budget support operations in the context of EU development cooperation 1 st M&E Network Forum 07 to 08 November 2011.
Chapter 7 Learning Objectives After studying this chapter, you should be able to: 1. understand the determinants of foreign exchange rates 2. track the.
Optimisation of government revenue in a framework of fiscal space, tax potential and tax effort Jean-François Brun Gérard Chambas CERDI Module 2.
Growth Promoting Social Safety Nets Harold Alderman Social Protection Advisor Africa Region World Bank.
An assessment of farmer’s exposure to risk and policy impacts on farmer’s risk management strategy 4 September September th EAAE seminar.
Revenue Risk, Crop Insurance and Forward Contracting C ory Walters and Richard Preston University of Kentucky
Revenue Risk, Crop Insurance and Forward Contracting C ory Walters and Richard Preston University of Kentucky
Poverty and Social Impact Analysis: a User’s Guide – Economic tools Nairobi, 6-8 th December 2006.
Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT.
1 HLEF 13 October Panel 5 The Policy challenge: support, trade, aid and investment policies Introduction by Gérard Viatte.
By Mr. Kittipong Chantaraskul Department of Foreign Trade
NEGOTIATIONS ON SERVICES NEGOTIATIONS ON SERVICES Commercial Diplomacy Programme &TrainForTrade.
Financial Management of Flood Risks in Developing Countries Risk Sharing and Risk Transfer.
A Risk Analysis of Adjusted Gross Revenue-Lite on Beef Farms Art Barnaby, Jeff Williams, Andrew Saffert, and Michael Langemeier Department of Agricultural.
Managing Risk in Financing Agriculture - Expert Meeting Johannesburg 1-3 April 2009 Synthesis of the Expert Meeting “Johannesburg Findings”
Ⓒ Olof S. Communication on the future of the CAP “The CAP towards 2020: meeting the food, natural resources and territorial challenges of the future” DG.
Getting out of the box: transitioning out of direct payments David Abler David Blandford Department of Agricultural Economics & Rural Sociology.
Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT.
Canada’s Agricultural Business Risk Management Programs International Conference - Crisis and Risk Management in the Agricultural Sector Madrid March 15-17,
Department of Economics Soybean Outlook and the New Farm Bill Programs Iowa Soybean Association Annual Meetings Ames, Iowa December 19, 2008 Chad Hart.
Financing Eco-Innovation: A critical perspective on the Austrian experience of financial support programmes Wolfram Tertschnig Federal Ministry of Agriculture,
Xinshen Diao, Agapi Somwaru and Terry Roe The objective was to provide the “ big picture ” A Global Analysis Of Agricultural Reform In WTO Member Countries.
Developing a Bioenergy Crop Supply Chain: Contracts and Policy ` Madhu Khanna University of Illinois, Urbana-Champaign.
Country experience: Thailand.
Quality of government expenditure
Agriculture Sector Wide Approach (ASWAp)
Drought, Politics and Risk Management Strategies
LIVESTOCK PRODUCTION AND PRODUCTIVITY
Alexandre GOHIN UMR SMART INRA Rennes France
Growth Promoting Social Safety Nets
European Commission - Directorate General for Agriculture - A2
Poverty and Social Impact Analysis: a User’s Guide – Economic tools
Presentation transcript:

Jesús Antón, OECD Trade and Agriculture Annual Workshop of ERCA Research Network on SPAA. Ottawa 25 November 2011 Risk Management in Agriculture: Assessing household level risk, Policy layering and analytical challenges

OECD Trade & Agriculture 2 OECD Workshop on Risk Management in Agriculture (November 2010) 1. OECD Work on Risk Management in Agriculture Thematic Review: country studies Australia, New Zealand, Spain, Canada and Netherlands Farm level data analysis: Risk exposure & Optimal Strategies Aggregate Model Analysis of Exogenous Risk : AGLINK/COSIMO application Synthesis Report (April 2011)

OECD Trade & Agriculture 3Outline Why using Household level data... –...for risk assessment? –...and modelling response? Risk layering and good policy Analytical challenges

Why Using farm household level data for risk analysis?

OECD Trade & Agriculture 5 Aggregate ≠ Individual risk Most farmers are exposed to higher yield risk than the aggregate level Yield risk is higher than price risk… but not in all countries Percentage of farms exposed to higher yield variability than aggregate mean *Wheat for UK, Estonia, Australia and Canada Barley for Italy and Spain Percentage of farms exposed to higher yield variability than price variability

OECD Trade & Agriculture 6 Key role of interactions on Risk Assessment Full attention to the interactions between risks, strategies and policies –Correlations, diversification, government’s programmes

OECD Trade & Agriculture 7 Endogenous pro-active risk management strategies: Interesting results from Stochastic simulation model uncertain output price of crop i uncertain yield of crop i cost adjustment factor for crop i area of land allocated to crop i transfer from government or benefit from risk market strategy level of coverage decided by farmer Representative farmer maximize his expected utility of profits degree of CRRA initial wealth Farmer’s welfare is computed as certainty equivalent of profit uncertain variable cost revenue from livestock operation (applicable for only Australia)

OECD Trade & Agriculture 8 a) Are Minimum Intervention prices effective? Reduce risk rather than Manage risk Only effective for very low Intervention prices Beyond certain level, it increases variability: –Less on-farm diversification –less price-yield correlation => less natural hedging

OECD Trade & Agriculture 9 b) Support to Insurance Start-up support  Information databases and sharing arrangements  Public-private partnership Hard to increase demand Insurance subsidies  Reduce diversification  Differentiate catastrophic and marketable policies  Hard to deter ex post assistance

OECD Trade & Agriculture 10 c) Crowding out of BRM policies Accounting Change in CV of Income (without crowd out) Simulated Change in CV of income (with crowd out) Change in Diversification Change in share of land insured Agri-Insurance-23.5%-0.5%-4%+33% Agri-Stability-33.4%-9.0%-18%-16% Agri-Invest-0.7%-1%0% Agri-Recovery+2.5%-8%-0.2% Lagged Agri- Stability -1.4%-4.9%-18%-16% Impacts of some BRM programs in a sample of Saskatchewan farms

OECD Trade & Agriculture 11 d) AgriStability by tier Certainty equivalent income (change in CAD) CV of income (change in percentage) Change in diversificati on index (Initial = 100) Minimum income (change in CAD) Change in the share of land insured (change in percentage points) Overall change Contributing factors Change in mean Change in variability Total impact Contribution of the coverage of TIER % of reference margin TIER 3 up to 70% of reference margin TIER 4 negative margin

OECD Trade & Agriculture 12 Improving AgriStability Simplify the delivery mechanism: –Eliminate the margin adjustments –Link payment directly to income tax declaration –Declaring tax in accrual basis, like other businesses Make an in-depth evaluation of the effectiveness and targeting –Use available databases –Consider the following changes in policy: Eliminate stabilization tier 2 and tier 4 Refocus on Tier 3, addressing the overlap with insurance Increase participation fee and calculate actuarial premiums

OECD Trade & Agriculture 13 e) Crowding-out effects Government compensation for non-catastrophic risks off-sets pro-active risk management strategies: –Diversification: the main strategy –Market instruments Contracts / integration Futures: farmers benefit Private insurance: asymmetric information Strongest crowding out from policies that address normal business risk: –Price support, income stabilization, CCP Weakest crowding out: Fixed highly decoupled payments

Risk Layering and good policy

OECD Trade & Agriculture 15 Governance of Catastrophic Risk OECD Governments will always be called on to provide disaster assistance –Political pressure –Be prepared with some ex ante framework Procedures Delineation of responsibilities Triggering criteria Types or levels of assistance Examples: –New Zealand Crop insurance as a disaster assistance device +Farmers pay, transparent trigger, stable budget -Refrain from non-catastrophes, deter ex post assistance and efficient administration

OECD Trade & Agriculture 16 Catastrophic Risks Rare, high damage & systemic Marketable Risks Middle range Normal Risks Small damage but frequent On farm strategies Market tools Ex-ante Policies Ex-post Policies Good policy response Probability Higher income loss On-farm strategy - Diversification -Saving On-farm strategy - Diversification -Saving Market tools - Forward contract - Private insurance Market tools - Forward contract - Private insurance Disaster Assistance Policies - Ex-ante/ Ex-post payment - Subsidized insurance Disaster Assistance Policies - Ex-ante/ Ex-post payment - Subsidized insurance More government involvement? Good Governance

OECD Trade & Agriculture 17...to RM Policy Overcrowding in Canada... Catastrophic RisksMarketable RisksNormal Risks On farm strategies Production and income diversification Financial management Market tools Forward contracting Use of cooperatives Ex-ante Policies Ex-post Policies Ad Hoc disaster Aid Tier 1: Saving acc. AgriInvest Wheat Board Public Insurance (AgriInsurance) Public Insurance (AgriInsurance) AgriStability countercyclical payment Tier 4 Tier 3 Tier 2 Negative margin % loss 15-30% loss Tier 4 Tier 3 Tier 2 Negative margin % loss 15-30% loss AgriStability countercyclical payment Tier 4 Tier 3 Tier 2 Negative margin % loss 15-30% loss Tier 4 Tier 3 Tier 2 Negative margin % loss 15-30% loss AgriRecovery

OECD Trade & Agriculture 18...plus supply management... Catastrophic RisksMarketable RisksNormal Risks On farm strategies Production and income diversification Financial management Market tools Forward contracting Use of cooperatives Ex-ante Policies Ex-post Policies Ad Hoc disaster Aid Tier 1: Saving acc. AgriInvest AgriRecovery Supply Management Arrangements (dairy, eggs and poultry) Supply Management Arrangements (dairy, eggs and poultry)

OECD Trade & Agriculture 19 Main Policy Messages for Canada a)Improve the definition of the boundaries between programs and layers of risk: enhance farmer’s pro-active strategies b)Improve the delivery and target of AgriStability: not effective for normal nor catastrophic risk c)Develop an ex ante framework for catastrophic risk covering AgriInsurance, AgriRecovery... and avoiding proliferation of ad hoc

OECD Trade & Agriculture 20 Analytical Challenges and Areas for research on Risk 1.Use of micro panel data: –For farm risk assessment and inform the government and the farmer –For simulation models to better understand the interactions between policies and strategies –For estimating the value of risk for farmers (Why governments tend to overestimate?) and the marginal impact of policies / strategies 2.Economics of governance and institutions –How to make good information prominent? –Risks with externalities and co-funding –Boundaries and how to make most efficient institutions emerge?

OECD Trade & Agriculture 21 Contact OECD Trade and Agriculture THANK YOU!