Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework

Abstract

Gurenko and Mahul examine how market-based risk financing instruments could enable asset-poor but productive farmers exposed to production shocks to engage in riskier but higher return agricultural activities. The financing of these exogenous shocks is addressed in a conceptual framework based on an optimal allocation of capital where the farm is viewed as a business unit. The approach allows for (i) testing the business viability of a specified crop by assessing the minimum business capital required to ensure the continuity of the business after the occurrence of an adverse production shock; and (ii) designing an optimal risk financing program to finance the minimum capital requirements using a combination of instruments (insurance, savings, and borrowing). The authors provide numerous numerical and graphical examples to illustrate the relevance of this financial approach to the specific issues of agricultural risk management.

Government Support to Agricultural Insurance

“…In conclusion, high levels of crop and livestock insurance uptake are found with programs that carry high premium subsidy levels, but namedperil crop insurance and livestock insurance penetration rates are equally high in countries with a strong tradition of agricultural insurance. Therefore, this survey does not support the argument that premium subsidies 19981999200020012002Year 200320042006 Corn Wheat Soya Premium subsidy % are necessary if farmers and livestock breeders are to purchase voluntary crop and livestock insurance.…”

“…Goodwin's (2001) study based on a survey of 593 U.S. farmers finds that they can be risk neutral or even risk preferring. A vast body of literature examines how agricultural producers in developing countries manage their risk exposure (see, for example, Holzmann and Jorgensen 2000;Anderson 2001;Varangis, Larson, and Anderson 2002;Gurenko and Mahul 2004;World Bank 2005). Farmers can use various tools, where they are available, to deal with these multiple sources of risk.…”

Integrating Agricultural Risks Management Strategies in Selected EU Partner Countries: Syria, Tunisia, Turkey

“…The strategies adopted by farmers to cope with agricultural risk consist in ex-ante and expost strategies (Gurenko and Mahul, 2004). Among the set of ex-ante strategies, experts argue that diversification is the most adopted, followed by crops specialization and income diversification v .…”

Managing Agricultural Risk At The Country Level : The Case Of Index-Based Livestock Insurance In Mongolia

“…This framework has been extended to natural disasters in agriculture (Goodwin and Mahul 2004, Gurenko and Mahul 2004, Mahul 2005. It can be broken down into five main pillars.…”