Risk management as a pillar for agricultural development Georgetown, Guyana December 7, 2009 By Marc Ferland Vice-president Financière agricole du Québec- Développement international
Agriculture in Québec, some of the risks to be covered 2 Drought, flood, frost, hail, freezing rain Source: Le Figaro Source: Radio-Canada Source: Science Presse
Agriculture in Guyana, some of the risks to be covered 3 Drought, flood, heavy rain
La Financière agricole du Québec 4 Organization history 73 years experience in agriculture financing 42 years in agricultural insurance Partnership Government of Québec Farmers Private sector (banks)
La Financière agricole du Québec 5 Mission La Financière agricole du Québec has for its mission to support and promote the agricultural and agrifood sectors development in Québec, within a perspective of sustainable development.
Some figures 6 In 2009 5,0 billion CAN$ of insured values 70 % of all farming acrages are insured 4,3 billion CAN$ in loan garantees (53% market share) Staff: 700 23 client service centres 26 000 farmers as clients
Agriculture in Québec 7 : Vegetation growth period
Agriculture in Québec 8 Growth period from May to October Snow from November to April
Agriculture is a very risky business for the 9
Risks in Agriculture 10 Farmer 2009 Copyright: Financière agricole du Québec- Développement international Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 11 Farmer 2009 Copyright: Financière agricole du Québec- Développement international Financial Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 12 Catastrophic Assistance Programs Ex ante Coverage Diversification of Production Crop Insurance Natural Causes- Related Losses Farmer Infrastructures Research and Agronomic Advice Farming and Breeding Practices 2009 Copyright: Financière agricole du Québec- Développement international Financial Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 13 Income Support Support for Marketing Boards Catastrophic Assistance Programs Ex ante Coverage Cash Advances Diversification of Production Crop Insurance Group Marketing Income Insurance Hedging Natural Causes- Related Losses Storage Diversificatio n of Production Market Access Fluctuations/ Products, Input Farmer Infrastructures Research and Agronomic Advice Farming and Breeding Practices 2009 Copyright: Financière agricole du Québec- Développement international Financial Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 14 Catastrophic Assistance Programs Ex ante Coverage Cash Advances Diversification of Production Crop Insurance Income Support Group Marketing Income Insurance Hedging Natural Causes- Related Losses Support for Marketing Boards Storage Diversificatio n of Production Market Access Fluctuations/ Products, Input Farmer Qualifications Effective Management Availability and Skills Training Requirements Promotion of Consulting Services Life and Disability Insuranc e Planning Infrastructures Research and Agronomic Advice Farming and Breeding Practices 2009 Copyright: Financière agricole du Québec- Développement international Financial Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 15 Catastrophic Assistance Programs Ex ante Coverage Infrastructures Research and Agronomic Advice Cash Advances Diversification of Production Crop Insurance Farming and Breeding Practices Income Support Group Marketing Income Insurance Hedging Natural Causes- Related Losses Support for Marketing Boards Storage Diversificatio n of Production Market Access Fluctuations/ Products, Input Farmer Qualifications Effective Management Availability and Skills Training Requirements Promotion of Consulting Services Life and Disability Insuranc e Planning Regulatory Requirements Support Programs International Trade Talks Compliance with Laws and Market Standards Lobbying Regulatory Relief Concertation/ Communication s Environmental Cross-compliance Measures Support for Farmer s Organizations 2009 Copyright: Financière agricole du Québec- Développement international Financial Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 16 Catastrophic Assistance Programs Ex ante Coverage Infrastructures Research and Agronomic Advice Cash Advances Diversification of Production Crop Insurance Farming and Breeding Practices Insurance/ Financing Linkage 2009 Copyright: Financière agricole du Québec- Développement international Income Support Group Marketing Income Insurance Natural Causes- Related Losses Financial Information System Hedging Storage Diversificatio n of Production Availability and Cost of Capital Reasonable Use of Credit Increased Credit Availability Support for Marketing Boards Market Access Fluctuations/ Products, Input Farmer Financial Qualifications Effective Management Cash Flow Assets Income Diversification Savings Savings Incentives Availability and Skills Training Requirements Promotion of Consulting Services Life and Disability Insuranc e Planning Regulatory Requirements Support Programs International Trade Talks Credit, Liability and Property Insurance Managemen t Tools Compliance with Laws and Market Standards Financial Independenc e Lobbying Training and Information Regulatory Relief Concertation/ Communication s Environmental Cross-compliance Measures Support for Farmer s Organizations Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
Risks in Agriculture 17 Catastrophic Assistance Programs Ex ante Coverage Infrastructures Research and Agronomic Advice Cash Advances Diversification of Production Crop Insurance Farming and Breeding Practices Insurance/ Financing Linkage 2009 Copyright: Financière agricole du Québec- Développement international Income Support Group Marketing Income Insurance Natural Causes- Related Losses Financial Information System Hedging Availability and Cost of Capital Reasonable Use of Credit Increased Credit Availability Support for Marketing Boards Storage Diversificatio n of Production Market Access Fluctuations/ Products, Input Farmer Financial Qualifications Effective Management Cash Flow Assets Income Diversification Savings Savings Incentives Availability and Skills Training Requirements Promotion of Consulting Services Life and Disability Insuranc e Planning Regulatory Requirements Support Programs International Trade Talks Credit, Liability and Property Insurance Managemen t Tools Compliance with Laws and Market Standards Financial Independenc e Lobbying Training and Information Regulatory Relief Concertation/ Communication s Environmental Cross-compliance Measures Support for Farmer s Organizations Legend Farmer s concerns Possibility for the farmer to take action Possibility for the government to take action
18 In this context, where do we start from? So many issues need to be adressed in order to launch an agricultural development process.
Issues for an agricultural development policy 19 Support for the agricultural producer Production or crop insurance, revenue stabilization Agricultural financing Groupings of producers (for buying and/or marketing products Infrastructures enhancements or maintenance Training Research and development Development and availability of new technologies Environmental and sanitary standards and controls Market regulations and standards (ie: traceability) Support for the processing sector
20 Laws of Guyana Insurance funds Risk management agency Allowance funds Agricultural insurance programs Agricultural financing programs
How would a crop insurance work? 21 Region Expected yield (T/ha) II 2.95 III 2.63 IV 2.72 V 2.34 VI 2.51 Expected yield = (Σ yields of last 14 years + Σ yields of last 4 years) 18
How would a crop insurance work? 22 Exemple in region II: - Expected yield of 2.95 T/ha - Measured yields of 2.2 T/ha - 80% coverage Loss = 2.95-2.2 = 0.75 T/ha Insured covers the first 20% Insurer will give a compensation for the remaining 80% 0.75 x 80% = 0.6 T/ha
Farm Plan 23
A farmer is exposed to number of risks, including market risks He can hardly deal alone with all of them without endangering his economic activity He cannot get financing at affordable cost given the risks he has to deal with Climate changes will only increase the frequency and intensity of these risks It is therefore important to implement proper risk management measures 24
As a conclusion 25 The farmers should be at the centre of our concerns and protection, rather than the sole insurance product itself Agricultural policy should be designed and implemented in partnerhip with farmers Farm production insurance and financing should be the keystones of any agricultural policy
As a conclusion 26 Government has a leading role to play in implementing the policy tools The cost (premiums) of agri-insurance needs to be shared with the farmers to obtain enrollement Insurance contract can then be used for edicting better practices, implementing new ones Insurance is the first mean to lower the risk of financing Insurance and financing operations should be designed in a self-financing perspective (in the mean or long term)
As a conclusion 27 Insurance operations are an efficient source of datas for many policies purposes Insurance operations can be provided by a governement agency or an autonomous entity where the governement plays a leading role The fully private insurer would unlikely get into that business before it is proven to be sustainable Financing can be left to private banking under some conditions, especially if governement loan garantees are issued.
Merci!Thank you! This presentation will be available on our website by tomorrow and can be downloaded from there: www.fadqdi.qc.ca