Enabling productive but asset-poor farmers to succeed : A risk financing framework
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.
|Date of creation:||01 Feb 2004|
|Date of revision:|
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- Robert Holzmann & Steen Jørgensen, 2001.
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Economics Series Working Papers
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- 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.
- 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.
- 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.
- Siegel, Paul B. & Alwang, Jeffrey & Canagarajah, Sudharshan, 2001. "Viewing microinsurance as a social risk management instrument," Social Protection and Labor Policy and Technical Notes 23305, The World Bank.
- 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.
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