Managing Risk in Agriculture

A Holistic Approach

image of Managing Risk in Agriculture
The sources of risk in agriculture are numerous and diverse, ranging from events related to climate and weather conditions to animal diseases; from changes in agriculture commodities prices to changes in fertilizer and other input prices; and from financial uncertainties to policy and regulatory risks. Agricultural risks are not independent, but rather are linked both to each other and as part of a system that includes all available instruments, strategies and policies designed to manage risk. A holistic approach is thus necessary.

This book examines the current magnitude and characteristics of risk-related policies in agriculture and what is known about the quantitative size of agricultural risks. It looks at the on-farm, off-farm, and market instruments available to manage risk, and it explains how the holistic approach helps clarify the role of governments.

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An Overview of Risk-Related Policy Measures

All agricultural policy measures have an impact on risk.1 Some measures, however, are specifically designed to reduce price, yield or income variability, or to smooth consumption, and thus help farmers manage risk, either because they prevent or reduce the occurrence of risk (risk reduction), or because they limit the effect of risk on income (risk mitigation) or consumption (risk coping). Risk reduction measures would be, for example, disease control measures such as vaccination, which aims to limit the occurrence and spread of animal diseases and thus prevent/reduce potential losses in livestock receipts. Market price support (MPS) measures, which stabilise domestic prices, also reduce domestic price risk. Risk mitigation and coping can operate through established (ex ante) mechanisms such as insurance schemes or income stabilisation programmes, or through ex post interventions such as ad hoc assistance to compensate income losses.

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