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Good practices in agricultural risk management in OECD countries
Jean Cordier
To cite this version:
Jean Cordier. Good practices in agricultural risk management in OECD countries. Ministry of Agricul- ture, The Ministry of Agriculture of Kazakhstan (MINAGRI). KAZ., Oct 2014, Astana, Kazakhstan.
�hal-01208996�
Good practices in agricultural risk management in OECD countries
Jean Cordier
Professor Agrocampus Ouest, France
Astana, October 28, 2014
• un sol
• un climat
• un environnement économique et politique
• A soil
• A climate
• A structure of farms
• An economic environnement with public policies
Agriculture
The farmer
• His objective = an income today and tomorrow for a fair living standard
• Annual decisions
– What to produce ? How ?
– How to purchase and finance inputs ?
– How to sell production and be guarantee of payments ?
• Investment decisions
– How to improve productivity ?
– How to improve resilience to climate change ? – How to finance investments ?
3
Risky decisions:
- Production risks (climatic and sanitary risks) - Market risks (input and output price volatility) - Institutional risks (change in public policy)
The farmer
Climatic risks in the EU: coefficient of variation of wheat yield
Historical wheat yield
0 10 20 30 40 50 60 70 80
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Romania France EU
Linéaire (Romania) Linéaire (France)
=>
Source: Bielza et al. 2008
Price volatilities
=>
Historical volatility (FAO)
Implicit volatility (FAO)
Price volatilities:
- exogenous volatility (sypply and demand shocks =
climatic, sanitary, institutional - embargo- but also media crisis) - endogenous volatility (OTC financial market = index ETP with transfer of volatility among financial assets)
Source: Jean Cordier
Farm income risk:
=>
Normal(60000; 30000)
Valeurs x 10^-5
Valeurs Milliers 0,0
0,2 0,4 0,6 0,8 1,0 1,2 1,4
-20 0 20 40 60 80 100 120 140
< 5,0% 90,0% 5,0% >
10,7 109,3
Variability: variance σ P 2 , coefficient of variation σ/μ, volatility σ R
Downside risk: Value-at-Risk (i.e. VaR(5%))
1+2
11 Type de
risque
8 4 7
12a 12b Chiffre
d’Affaire (PxY)
Marge (P-C)
Monoculture 5
9 6
Multiculture
Type de culture 13
10 14 15
16 CA total: 11,1 Mds€
Nbred’exploitations:
55 000
CA total: 20,6 Mds€ Nbred’exploitations: 130 000
CA total: 10,1Mds € Nbred’exploitations:79 000
CA total:10,7 Mds€ Nbred’exploitations:
83 000
1+2
Quadrant 1 Quadrant 2
Quadrant 3 Quadrant 4
The farm « France »
Fruit trees Main crops Pig Bovine-Milk
Coeff variation 0.74 0.41 0.84 0.39
VaR(5%) -14 200 16 900 -19 700 22 300
Comparative risk of four major segments of the farm France
<=>
Source: Jean Cordier
Typologie of risks and mapping
Specific issues on private risk management
• Financial contrats
– reference market: futures markets – Basis risk
– O.T.C. market and derivatives (systemic risk)
• Insurance policies
– Moral hazard => deductible (but not franchise), index (area-based, weather, biological)
– Adverse selection => differentiated tariffs, bonus-malus … mandatory
Main crops Pig Bovine-Milk
Coeff variation 0.41 0.84 0.39
VaR(5%) 16 900 -19 700 22 300
Which public policy
in agriculture ? ? ?
Catastrophic risk
« wild »
Normal risk
« wise »
Independent risk Systemic risk
Insurance contracts
Derivative and hybrid contracts
Financial contracts Public safety nets
Fiscal tools for farm income « smoothing » Private risk
market
Cooperative
suppor t
Source: Jean Cordier
Public safety nets and private risk management instruments
- Need of coordinated measures (to avoid crowding out of private contracts and benefit from « best » risk premium)
- Same parameters to estimate losses including area-based or weather index
- From unitary to combined losses (from yield, market prices, input costs to commodity revenue (YxP), commodity margin (YxP – Operational Costs), whole-farm revenue and margin
= ∑(commodity revenue and margin) => natural risk
diversification
Source : from Table 3, CBO 2014
