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Enabling productive but asset-poor farmers to succeed : A risk financing framework

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  • Gurenko, Eugene
  • Olivier, Mahul

Abstract

This paper examines how market-based risk financing instruments could enable asset-poor but productive farmers exposed to production shocks to engage in riskier but higher-return agricultural activities. The financing of these exogenous shocks is addressed in a conceptual framework based on an optimal allocation of capital where the farm is viewed as a business unit. The approach allows for (1) testing the business viability of a specified crop by assessing the minimum business capital required to ensure the continuity of the business after the occurrence of an adverse production shock; and (2) designing an optimal risk financing program to finance the minimum capital requirements using a combination of instruments (insurance, savings, and borrowing). The authors provide numerical and graphical examples to illustrate the relevance of this financial approach to the specific issues of agricultural risk management.

Suggested Citation

  • Gurenko, Eugene & Olivier, Mahul, 2004. "Enabling productive but asset-poor farmers to succeed : A risk financing framework," Policy Research Working Paper Series 3211, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3211
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    References listed on IDEAS

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    1. Siegel, Paul B. & Alwang, Jeffrey & Canagarajah, Sudharshan, 2001. "Viewing microinsurance as a social risk management instrument," Social Protection Discussion Papers and Notes 23305, The World Bank.
    2. Christian Gollier, 2003. "To Insure or Not to Insure?: An Insurance Puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 5-24, June.
    3. Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
    4. Takeshi Sakurai & Thomas Reardon, 1997. "Potential Demand for Drought Insurance in Burkina Faso and Its Determinants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1193-1207.
    5. Binswanger, Hans P & McIntire, John, 1987. "Behavioral and Material Determinants of Production Relations in Land-Abundant Tropical Agriculture," Economic Development and Cultural Change, University of Chicago Press, vol. 36(1), pages 73-99, October.
    6. Eugene Gurenko & Olivier Mahul, 2003. "Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy," Working Papers hal-01952124, HAL.
    7. Gurenko, Eugene & Mahul, Olivier, 2003. "Combining insurance, contingent debt, and self-retention in an optimal corporate risk financing strategy," Policy Research Working Paper Series 3167, The World Bank.
    8. Stefan Dercon, 2002. "Income Risk, Coping Strategies, and Safety Nets," The World Bank Research Observer, World Bank, vol. 17(2), pages 141-166, September.
    9. Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
    10. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
    11. Holzmann,Robert & Jorgensen,Steen Lau, 2000. "Social risk management : a new conceptual framework for social protection and beyond," Policy Research Working Paper Series 21314, The World Bank.
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    Cited by:

    1. Santeramo, Fabio Gaetano & Adinolfi, Felice & Capitanio, Fabian & Contò, Francesco & Sasala, Piero, 2013. "Coping with Risks in the Mediterranean Countries? Let the experts explain," MPRA Paper 49852, University Library of Munich, Germany.
    2. Santeramo, Fabio Gaetano & Capitanio, Fabian & Adinolfi, Felice, 2014. "Integrating Agricultural Risks Management Strategies in selected EU Partner Countries: Syria, Tunisia, Turkey," MPRA Paper 58935, University Library of Munich, Germany, revised 2014.
    3. Donatella Porrini & Giulio Fusco & Pier Paolo Miglietta, 2019. "Post-Adversities Recovery and Profitability: The Case of Italian Farmers," IJERPH, MDPI, vol. 16(17), pages 1-12, September.
    4. T. S. Amjath-Babu & Timothy J. Krupnik & Shakuntala H. Thilsted & Andrew J. McDonald, 2020. "Key indicators for monitoring food system disruptions caused by the COVID-19 pandemic: Insights from Bangladesh towards effective response," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 12(4), pages 761-768, August.

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