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  • 10.12.3-RISK AND THE RELATION TO TRADE CREDIT-PRICE RISK MANAGEMENT AND SMALLHOLDERS - SOME INITIATIVES

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  • Price risk management and smallholders

     
     

    With funding support from the Swiss Secretariat for Economic Affairs, the Netherlands Ministry of Foreign Affairs and the European Commission, The World Bank’s Agricultural Risk Management Team - ARMT (www.worldbank.org/agrm) has for some ten years now explored the feasibility and application of market-based measures to manage select agricultural risks in developing countries

    Through the implementation of this work, it has become increasingly clear that the prevalence of the multiple risks facing the agriculture sector, and the failure to address them timeously, i.e. ahead of them occurring and on a holistic basis, continues to leave countries and their agricultural supply chains at risk. The realization of these risks leads to perpetual shock, recovery, and post-event coping that endangers the sustainability of ongoing development initiatives and remains a major impediment to the development of the agricultural sector in many countries. In this context, ARMT has drawn upon its experiences and focused its programs with the aim of assisting developing countries to better comprehend the complexity of agricultural risk management and develop appropriate solutions to mitigate, transfer, and/or cope with agricultural risks.

    Ag-Risk Management Technical Assistance

    Using the full range of risk management strategies and tools, ARMT provides clients with technical assistance and capacity-building services to assist them to manage their risks. Additionally, ARMT collaborates with other departments and units within the World Bank to provide comprehensive solutions.

    Examples of ARMT’s technical assistance activities:

    Agricultural Risk Management Framework

    ARMT works with governments to identify agricultural sector risks, to quantify them and assess their potential budgetary impacts. An outcome of this assessment process is the development of an agricultural sector risk management framework, which is used for planning and investment purposes to reduce sectoral volatilities and improve sustainability.

    Supply Chain Risk Assessments

    ARMT conducts assessments of risk and vulnerability within agricultural supply chains. These assessments focus on:

    • Types of risk,
    • Level and frequency of exposure,
    • Severity of potential losses, and
    • Risk management solutions for individual participants and subgroups within the chain.

    The analysis uses quantitative data and qualitative information (including stakeholder consultations), and the results of the assessments are used for identification of possible risk management solutions. To date (March 2011) supply chain risk assessments have been conducted for the coffee sectors of Cameroun, Haiti and Uganda.

    Price Risk Management

    ARMT provides technical assistance (both at national and intermediate levels) in assessing agricultural commodity price risks and designing price risk management strategies. Solutions can be physical and/or financial strategies. This type of assistance is most commonly sought in relation to government physical stocks and operations of parastatals.

    Capacity Building and Training

    ARMT has developed a number of modular training courses which are available online (www.agrisktraining.org) and on CD-ROM. In addition ARMT provides training of trainer packages to regional organizations, specialized academic institutions and industry associations to enable them to deliver training by themselves on a sustainable basis. ARMT is currently offering a coffee price risk management training course targeted at coffee traders and cooperatives which details the causes of price risk, provides technical training on how to monitor price risk exposure and then provides advice on using physicals and financial instruments to manage and mitigate price risk exposure. The course is available in both English and Spanish and can be accessed online, on CD ROM and is also occasionally offered by the World Bank and partners in workshop settings.