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Financing Agriculture: Risks and Risk Management Strategies Ajai Nair, Consultant, World Bank 3rd Agribanks Forum, theme ‘Africa Value Chain Financing’, October 16-19, Nairobi, Kenya . What are the major risks agricultural financing? Systemic/Correlated Risks – Production Risks –weather, pests, farming practice. – Price Risks – for inputs and outputs. – Political Risks – export bans, price caps, debt write offs Idiosyncratic/Independent Risks – Willful default – Over-financing, under-financing, wrong pricing. – Life, Health, Asset What is the impact of these risks? At a proximate level, – Low availability of finance for farming and agribusiness. – Slow adoption of agricultural technology and private sector investments in agribusinesses. Ultimately, – High volatility in household income / food security for households – Higher impact on low income households because of reduction in consumption and liquidation of assets. What are the solutions? Reduce / better manage Systemic and Idiosyncratic Risks – Development and improved access to seeds, farming practices and technology, agricultural development services. – Development and improved access to physical (forward sales, minimum price guarantee contracts, etc) and financial tools (insurance, derivatives) Better credit-risk assessment and management by lenders. World Bank’s work on Commodity Risk Management Ongoing work – Price Risk Management: Options (Tanzania, Zambia, Mozambique, Malawi) – Weather Risk Management: Rainfall Index Insurance (India, Malawi, Ethiopia, Thailand) Users: Governments, Financial Institutions, Producer Organizations, Agribusinesses, and producers. Services offered – Policy advice – Technical assistance: Risk Assessment, Contract Design, Pricing, and Program management.
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