Slides from our presenters from ILO and FAO for our E-Workshop discussion on managing risks and seizing opportunities among small holder and subsistence farmers.
Presenter Slides - E-Workshop: Agricultural risk management with FAO and ILO
1. Agricultural Risk Management
Innovations you should know about
Patricia Richter
Technical Officer
Social Finance Programme
Pranav Prashad
Microinsurance Officer of the Microinsurance
Innovation Facility
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Emilio Hernandez
Agricultural Finance Officer
Agribusiness and Finance Group
Rural Infrastructure and Agro-industries Division (AGS)
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2. Agricultural Risk Management
Innovations you should know about
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3. The reactive increase in supply has been
similar across the world
0
200000
400000
600000
800000
1000000
1200000
1400000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total production of different commodities in Asia, LAC and Africa (in thousands of MT)
Source: FAOSTAT
0
50000
100000
150000
200000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Asia Latin America
Africa
0
50000
100000
150000
200000
250000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Cereals
Fruits and vegetables
Meats
3
4. Some agricultural products are increasing
in value more than others
Total export value of different commodities in Asia, LAC and Africa (in millions of USD)
Source: FAOSTAT
Asia Latin America
Africa
0
10000
20000
30000
40000
50000
60000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
10000
20000
30000
40000
50000
60000
70000
80000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
2000
4000
6000
8000
10000
12000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cereals
Fruits and vegetables
Meats
4
5. The supply response has been driven by a
rise in productivity
Average yields for different commodities in Asia, LAC and Africa (in thousands of Hg/Ha)
Source: FAOSTAT
Asia Latin America
Africa
Cereals
Fruits and vegetables
0
50
100
150
200
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
50
100
150
200
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
20
40
60
80
100
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
5
6. A critical determinant of productivity has
been long-term investment in agriculture
Agricultural capital stock in Asia, LAC and Africa (in million of 2005 USD)
Source: FAOSTAT
Asia Latin America and the Caribbean
Africa
680000
700000
720000
740000
760000
780000
800000
820000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1700000
1750000
1800000
1850000
1900000
1950000
2000000
2050000
2100000
2150000
2200000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
100000
200000
300000
400000
500000
600000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
6
7. Dominance of domestic private investments in total
agricultural capital stock
Components of agriculture investment for a sample of 31 developing countries
Source: ODI, 2012
7
8. The lag of formal financial services in rural areas
Credit market served
by informal sector
Savings market served
by informal sector
Source of savings and credit services for the rural population in LAC in 2011
Fuente: FINDEX, 2012
0
5
10
15
20
25
Ahorró dinero el año
pasado, zona rural
Ahorró en una institución
fin. el año pasado, zona
rural
Usó préstamo el año
pasado, zona rural
Préstamo de institución
fin., zona rural
%ofruralpopulation
8
9. Fuente: FINDEX, 2012
0
5
10
15
20
25
30
35
Saved any money in the
past year, rural
Saved at a financial
institution in the past
year, rural
Loan in the past year,
rural
Loan from a financial
institution in the past
year, rural
%ruralpopulation
Credit market served
by informal sectorSavings market served
by informal sector
The lag of formal financial services in rural areas
Source of savings and credit services for the rural population in South East Asia and Pacific in 2011
9
10. Fuente: FINDEX, 2012
0
5
10
15
20
25
30
35
40
45
50
Saved any money in the
past year, rural
Saved at a financial
institution in the past year,
rural
Loan in the past year, rural Loan from a financial
institution in the past year,
rural
%ruralpipulation
Credit market served
by informal sector
Savings market served
by informal sector
The lag of formal financial services in rural areas
Source of savings and credit services for the rural population in Subsaharan Africa in 2011
10
11. The lag of formal financial services to
agriculture from the firm’s perspective
Ag. credit as a share of total credit vs. ag. GDP as a share of total GDP for select countries in Asia during 2010
Source: FAO and WDI, World Bank
0 5 10 15 20 25 30 35 40
Cambodia
Pakistan
Vanuatu
Bangladesh
Bhutan
Indonesia
Sri Lanka
Thailand
Philippines
Samoa
Maldives
Korea,…
Ag credit as share of total credit (%)
Ag GDP as share of total GDP (%)
11
12. The lag of formal financial services to
agriculture from the firm’s perspective
Ag. credit as a share of total credit vs. ag. GDP as a share of total GDP for select countries in Latin America
during 2010
Source: Centro de Estudios Peruanos, 2011
6,06
8,5
0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0
México
Perú
Rep. Dominicana
Colombia
Panamá
Costa Rica
El Salvador
Honduras
Guatemala
Bolivia
Ecuador
Chile
Brasil
Argentina
Nicaragua
Uruguay
Venezuela
Paraguay
LAC / Promedio
América Latina y el Caribe: Porcentaje del PIB agropecuario respecto al PIB
total y del crédito agropecuario respecto del crédito total
Cartera agropecuaria /
Cartera total bruta (%)
2010
PIB agropecuario / PIB
total (%) 2010
12
13. The lag of formal financial services to
agriculture from the firm’s perspective
Ag. credit as a share of total credit vs. ag. GDP as a share of total GDP for select countries in Africa during 2010
Source: FAO and WDI, World Bank
0 10 20 30 40 50
Ethiopia
Liberia
Burundi
Rwanda
Malawi
Ghana
Tanzania
Uganda
Kenya
Sudan
Nigeria
Zambia
Namibia
Botswana
Seychelles
Ag credit as a share of total credit (%)
Ag GDP as a share of total GDP (%)
13
14. Inequality in the economic benefits seized from
agribusiness investment opportunities
There is evidence of feasible agribusiness investment opportunities not being
seized in poorer developing countries where there is more potential for socio-
economic impact.
Source: World development indicators
0
100000
200000
300000
400000
500000
600000
700000
800000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Low income
Lower middle income
Upper middle income
High income
Agriculturalvalueadded(millionsof2005USD)
Low income
Lower-middle income
Upper-middle income
High income
14
16. 16
Two Core Questions
Client value
Whether and under what
circumstances do insurance
services provide value to low-
income households?
How to improve client value of
products and services through
implementation and
innovation?
Business case
Whether and under what
circumstances can insurance
programmes be viable and
sustainable for all stakeholders
How to enhance viability
through processes and tools :
demand enhancement,
products, channels!
17. People in rural areas need access to a range of financial and non-financial
services for various productive and protective purposes:
• Purchase stock, equipment and
agricultural inputs
• Maintain infrastructure
• Contract labour for planting/
harvesting
• Transport goods to markets
• Make/receive payments
• Manage peak season incomes to
cover expenses in low seasons
• Invest in education/ shelter/
health or deal with emergencies
• Climate change adaptation and
mitigation
Farmers, agri-based industry,
non-farm enterprises,
household consumers
18. ILO approach to rural development
1. Innovate,
experiment,
test
2. Analyze,
document and
develop tools
3. Disseminate
4. Promote:
policy dialogue
and capacity
building
Financial
innovations
Non-financial
innovations
Training materials
Research papers
Other
publications
Other tools
ILO internal
ILO external
Policy dialogue
Capacity building
19. Results of rural innovations (1)
AMK, Cambodia => Financial Education Programme to
improve clients’ RM strategies
1) Reduction of 3.4% in late payments
2) Increase of 10% in insurance uptake
3) Reduction of 8% in clients’ believe that it is impossible to
save, increase of 1% in clients’ association of savings and
security, through improved handling of debt, as well as
attitude towards borrowing
NWTF, Philippines => Entrepreneurship Training to improve clients’ RM
strategies
1) 13% effect in perception of lower barriers to entrepreneurship
2) Business profit increased by PHP 2’000 (approx. USD 50)
3) Ownership of motorized vehicles increased by 3.5%
4) Incidents of late repayment decreased by 4%, taking out a loan to repay
another loan decreased by 10%
5) 5% increase in use of microinsurance to cover unforeseen expenses
20. Results of rural innovations (2)
Nyèsigiso, Mali => Integrated client training on child labour,
enhancing agricultural productivity, financial education
to address working conditions (child labour risk ) among
clients
1) Incidence of child labour decreased by 26% for girls
2) Some evidence that training increased awareness on child
labour (perceived age at which children could start full-time
work, importance of secondary schooling)
BASIX, India => Client training on improving productivity by reducing occupational
safety and health risks
1) Positive results in safety and health at the workplace: 11% decrease in workplace
illnesses and injuries, and more clients having a first aid box
2) 37 USD increase in the monthly income
3) Increase in the ability to cover costs (25%)
4) Increase in the adoption of new technologies and practises (to ease physical
labour, reduce cost of inputs or increase yield) (54%)
5) Improved working conditions: average daily work hours reduced by -73 minutes
21. 21
On client value: Better financial choices in
the absence of a shock: productive impact
24. PACE!!
• A client value assessment tool developed by the ILO’s Impact
Insurance Facility
– Assesses value from microinsurance products in relation to
alternatives providing protection for similar risks
– Takes a client’s perspective
– Low-cost; can be applied in a few days
– Measures four key dimensions of value: product, access, cost and
experience
– Looks at both client specifications and related processes
• Developed in response to the microinsurance industry’s
demand for a simple yet holistic approach to understanding
client value in real time
• NOT a substitute for demand or impact studies; PACE focuses
on improving value, not proving it24
25. Technical guide available on our website
PACE: Many dimensions of value
25
Product
Coverage, service quality,
exclusions, waiting periods
Sum insured to cost of risk
Eligibility criteria
Value-added services
simple
affordable
appropriate
Access
Choice &enrollment
Information &
understanding
Premium payment method
Proximity
Cost
Premium to benefit
Premium to client income
Other fees & costs
Cost structure and controls
Experience
Claims procedures
Claims processing time
& quality of service
Policy administration &
tangibility
Customer care
accessibleresponsive
26. Key Points
• PACE can help you improve the value proposition
• Value creation is a process
– Mature products often provide better value
– If your product remains stagnant while others’ evolve, you
will lose market share
– It is important to keep abreast of clients’ risk-management
needs and preferences
• Small changes in product design make a big
difference
26
27. Additional ILO tools for Rural Service
Providers…
MF4DW Diagnostic Toolkit
=> Purpose:
Help interested MFIs to detect DW challenges among
clients.
=> Elements:
• Introduction to Microfinance for Decent Work
• Implementation guidelines for the MFI
• Guidelines for interviewers
• Training materials
– Goals of training
– Training agenda
– Role play
• Decent Work questionnaire
• Interviewer feedback form
28. ILO Rural Capacity Building tools
Title of product Description Type
Empowering rural
communities through
financial inclusion
Policy brief on financial inclusion for rural communities. Policy advise
Protecting the Poor: A
Microinsurance
compendium. Vol. II
Contains chapters on climate change, next-generation index
insurance for smallholder farmers, livestock insurance.
Knowledge
product
Making insurance work for
microfinance institutions: a
technical guide to
developing microinsurance
Guide for MFI managers on the design and operation of basic
insurance products. Introduces fundamental insurance concepts,
outlines the prerequisites needed for an MFI and describes the key
features of five types of insurance products.
Knowledge
product
Financial Education:
Trainers’ Manual
A series of training materials designed to teach vulnerable groups
– including women and men in poverty, families with working
children, youth and migrant workers – financial knowledge and
management skills
Training Tool
Making Microfinance
Work: Rural Microfinance
A chapter and stand-alone course (in development) in the MFI
management training programme “Making Microfinance Work:
Managing Product Diversification”
Training Tool
Village Banking and the
Ledger Guide
Practical tool for strengthening village banks as a means of giving
poor women and men in rural and often remote areas access to
financial services (savings and credit), social empowerment and a
higher quality of life.
Training Tool
Rural Academy: Decent
Work in the Rural Economy
2-week training event with a 3-day elective on rural finance. Training
Course
29. 29
Thank you!
“Agriculture vulnerability and poverty go hand in hand, but
insurance holds out the promise of breaking a part of the
cycle that ties them together.”
Adapted from Jonathan Morduch, Economist, New York University
Social Finance Programme
International Labour Organisation
www.ilo.org/socialfinance
www.ilo.org/impactinsurance
Pranav Prashad
prashad@ilo.org
Patricia Richter
richter@ilo.org
30. • Produce 2 reports (Africa and Latin America) on
effective delivery of agricultural finance services
and risk mitigation tools.
• Publish a set of policy guidelines and training
manuals for designing services and risk
management tools for smallholders.
• Deliver trainings in Africa, Latin America and
Asia on value chain finance analysis as a way of
improving service delivery.
• Make publicly available all policy and training
material related to rural finance and investment
on the Rural Finance and Investment Learning
Centre (www.ruralfinace.org)
• Publish 6 studies on the value of innovative
insurance models and cost effective means for
scaling.
• Expand agricultural insurance activities into 5
new countries by 2017.
• Holding three microinsurance-related webinars
by end 2015.
• Publishing an analysis on how Social Protection
Floors and the financial inclusion can help lift
people out of poverty by end of 2015.
• Produce a publication on how microfinance can
contribute to job creation.
Campaign Commitment Makers in 2014
See more at www.microcreditsummit.org/make-a-commitment.html
Notes de l'éditeur
Private and domestic investors have been the main investors in agriculture, due to very strong informational advantages on complex domestic agricultural markets.
We also see the marginal role of formal financial institutions at the micro level.
For the first time, we have available nationally representative census data on use and sources of financial services world wide. In rural areas of LAC we see an enormous market share captured by informal financial service providers.
And the reason we see so much inequality in rural areas is that this rise in investment has benefited only specific groups. Poorer countries remain stagnant in their ability to generate gross profits from investments (proxied by value added). However there has been a significant pull in lower middle income and upper middle income countries.
A similar distribution of benefits can be inferred within countries.
RISK side: vulnerability coming from income shocks (climate change [changing weather patterns, resulting droughts, floods], accidents, production shocks)/ lack of social security / poor decisions about money management
=> WHO are the farmers? Smallholder profile…
COPING side: fin and non-fin services
Loans, savings, insurance, leasing
Financial education
Entrepreneurship training
Warehouse receipts
Risk / innovation on…
1a) farmer side => improvements in productivity linked to improvements in occupational safety and health
1b) financial institution side => improvements in considering social and environmental risks and impacts in funding decisions / setting up internal system for this purpose that help both FI and client to create value
A client value assessment tool developed by the ILO’s Microinsurance Innovation Facility
Assesses value from microinsurance products in relation to alternatives providing protection for similar risks
Takes a client’s perspective
Low-cost; can be applied in a few days
Measures four key dimensions of value: product, access, cost and experience
Looks at both client specifications and related processes
Developed in response to the microinsurance industry’s demand for a simple yet holistic approach to understanding client value in real time
NOT a substitute for demand or impact studies; PACE focuses on improving value, not proving it
Complements other client value assessment methods