in vulnerable production areas Brussels Policy Briefing 25 Food Price Volatility Implications for ACP Countries Brussels 30 November 2011 Thomas Elhaut Director Statistics and Studies for Development ID: 698841
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Risk Management Strategies of Smallholder Farmersin vulnerable production areas
Brussels Policy Briefing 25: Food Price Volatility: Implications for ACP Countries Brussels, 30 November 2011Thomas ElhautDirector, Statistics and Studies for DevelopmentSlide2Slide3
Typology of Risks
Source: WDR (2000), and DFID (2004)Slide4
The risk-web, trapping smallholders
Slide5
Key message 1: a risky world
The global risks landscape (WEF 2011) is impressive and diversified, with …increased frequency and intensity of incidents, eroding response capacities, and …sharper market volatility exacerbates the world risk profile, andasymmetry in access to market and other risk information constrains coping strategies.Smallholders, women farmers, indigenous farmers and young farmers are particularly vulnerable categories of producers; … especially in remote, marginal production areasSlide6
Key message 2: food security compromised
These risks (and perceptions) and uncertainties compromise (returns to) assets, affect longer-term investment behaviour, generate risk of trapping vulnerable smallholder farmers in risk-averse, low-return and unsustainable production systemsinhibit entry of new (young) entrepreneurs in the excessively risky and poorly remunerated business of agriculture, which …Ultimately compromises global food securityWhile higher (“economic”) agricultural prices should provide and incentive framework for supply responsesSlide7
Key message 3: where there is a will, there is a way
Farmers have mitigated and adapted to risks, with a range of strategies: from soft, traditional knowledge, solidarity based strategies; to harder, know-how and resource intensive strategies;including diversification of incomes and migration We can build on this expertise, enhance risk resilience, develop more robust risk management systems, design risk transfer mechanismsThis requires coordinated action: research, innovation, impact assessment, systematisation, scaling-up, market information management, partnerships, private & public investment and effective brokerageSlide8
Risk management strategies
Source: Adapted from WDR 2000, World Bank (2001), Walker and Ryan (1990), Mathur and Gaiha (2004), and Gaiha and Imai (2004).Slide9
The rural nature of the challenge
Energy security
Food security
Public health security
Environmental security
The problem is rural:
agriculture as a contributing cause;
agriculture as a victim
Is also the solution rural?
Towards a new rurality …
… new rural futures?
povertySlide10
Smallholder agriculture transformation
2 - Modernised farmers: diversified, specialised
3 – Commercial farmers: competitive,
high value commodities,
national and world markets
1- Subsistence farmers:
Surpluses of low value commodities,
local markets
Transformation path
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Market risks and volatility -invisible hands that strangle smallholders
“rien ne va plus”:subsistence farmers, in remote and vulnerable areas were traditionally relatively insulated (decoupled) from markets and global conditions (and opportunities)in globalised economy, exogenous shocks transmit widelythe 2 edges of the sword: market volatility, price volatility the need for innovation and governanceSlide12
Volatility and Growth of Food Prices in Selected Asia-Pacific Countries (1998-2008)
Source:FAOSTAT Slide13
Market and price volatility and responses – the 2008 caseSlide14
Addressing information asymmetry
The underlying logic:World food security depends on smallholder farmersSmallholder farmers need on-farm investmentMarket uncertainty, price volatility and related information asymmetry constrain risk management options and strategies and thus investmentSmallholder access to agricultural market information (transparency) is essential for world food securityThe ultimate goal:From club good to global public goodLevel playing fieldTransparencyEfficiencySlide15
Complex information needs of smallholders
Which information?Non-tariff barriers Quality and safety standards, phyto-sanitary regulations, Certification norms Production costsFarm gate, local markets, national markets, regional marketsRural competiveness and investment climateValue chain data Improving accessInformation systems, versus supply of ad hoc dataProcessed, analysed, visualisedICT (private: cell-phones; public: media)Slide16
Market information, what for?
Micro- or enterprise level:Transmitting market signals to smallholder farmersInclusive agri-businessMacro-level:Pro-poor policy developmentUltimately: global food security Transmitting market signals to smallholder farmers:Transparency, price transmission,price-risk managementSupply responseSales/storage decisionsReduce transaction costsAdjustment along value chain, managing transaction costsOn farm investment decisionsInclusive agri-business: Investment decisions
Procurement decisions, and longer term relationships with farmersFair dividends along the value chain Slide17
Layers that affect price transmission:
Marketing Costs for Rice in Cambodia, 2002 (Riels per kilogram of paddy rice)
Source: World Bank Study Team (July 2002).Slide18
Concluding message 1: the risk cloud over our heads
the global risk landscape is becoming more complex and threatening500,000 smallholder farmers are particularly vulnerable (asset base, returns to assets, diversification options)market volatility (prices, trade) exacerbates these vulnerabilities of small producerstraditional risk mitigation, risk spreading strategies and solidarity solutions are no longer as effective this affects risk perceptions and depresses investment behaviour, whichthreatens longer-term world food securityserious efforts are required to: mitigate smallholder risks, assist producers to adapt to risks, and put in place risk markets, supported with modern risk transfer mechanismsSlide19
Concluding message 2: What will it take?
Coordinated: research; technical, financial and other innovation, related to risk; impact assessments (randomised control trials, participatory RRA, …);systematisation, scaling-up; market information management;partnerships, beyond agriculture, involving the financial sectorprivate & (risk-tested) public investment; andeffective global solidarity and governance (of agricultural markets); and brokerageLeadership: OECD, BRICS and other MICsprice makersinternalising externalities of restrictive policy actionsSouth-south cooperation and Trilateral cooperation Slide20
Thank you for the attention
t.elhaut@ifad.org