1. Crisis and Risk Management in Food Production
Case of Moldova
From Drought to Rural Development
JULY
2008
Prepared by Armen Mehrabyan, International Consultant, UNDP Agriculture and Rural
Development Expert

2. Country Brief
1.1. Characterization of the economy and relevant demographics
1.1.1.. Population size, urban/rural composition, urban/rural composition
According to the The National Bureau of Statistics (NBS) in the beginning of 2008 population
was 3.58 million, that’s about one percent down from the last census in 2004 and about 10
percent down since 1990 independence. The yearly population growing arte has been negative
on about 1.5 percent since 1970 since. The demographic structure opf poopulation shown that
the rate of residency by sex decrise up to 1,8% since 1990 and currently women per 100 man
number is about 108, it means that about 48,1% of populatrion are man and 51,9% are women.
Current density of population is about 118 people per square kilometr and percentage of
urbanisation is decrised since 1990 up to 12,3% and currently the rural population account for
about 58,7 percent of the total. Population annual growth is about 0.87%1.
Moldova: Demographic structure opf poopulation (Table 1)
Source: National Bureau of Statistics.
The agieng factor of population shown that according to the G.Bojo-Garnier scale when the
value of the indicator is 12 and over the coefficient of demografic agieng incrise from Moldova
independence period up to 5.46%, it means that number of persons fo 60 years over per 100
inhabitants is about 13,5.
Moldova: Agieng factor of population (Table 2)
Source: National Bureau of Statistics.
It is estimated that about 400 000 people or more than 10 percent of the population working
abroad and a further 290 000 people intended to migrate in the following months2. According to
the official data in 2006 its about 854.6 million US$ was transferred through official channels by
1
http://www.worldbank.org.md/
2 http://imf.org/external/pubs/ft/scr/2006/cr06185.pdf

3. the citizens of Moldovan that are working abroad, that about 25 percent increase over 20053 and
that is about 26 percent of GDP.
1.1.2. Poverty line
The housholds income and expenditures ratio shows that the poverty is pervasive (Table 3) with
national poverty rate of 27 percent, where in rural areas exceeding up to 42 percent 4. In the
World Bank Report mantioned that “The Government of Moldova’s Economic Growth and
Poverty Reduction Strategy Paper (EGPRSP) lays out an ambitious plan for sustaining growth
and poverty reduction and reshaping the government to meet the needs of a market economy.
The public expenditures envisaged under this ambitious plan, however, vastly exceed the
domestic resources available to the Government.
Additional foreign budgetary support may help alleviate some of that resource constraint.
Recognizing that the share of tax revenues and expenditures to GDP in Moldova already greatly
exceed comparable international levels, generating additional domestic tax resources risks
crowding out the private sector and undermining growth prospects. This suggests that in order to
finance higher order public expenditures priorities, the Government needs to create fiscal space
from within the existing resource envelope. This will require inter and intra-sectoral reallocation
of expenditures and an increase in the efficiency of public spending rather than increasing the
relative size of government”5.
Whereas urban residents saw their incomes rise and their poverty rates decline, poverty actually
increased among farmers and rural pensioners. A major proportion of a poor man’s expense is
dedicated to food. The lowest quintile spends about 77 percent of its consumption expenditure on
food and non-alcoholic beverages6.
Moldova: Structure of Disposable Incomes of Housholds (table 3)
3 http://www.bnm.md/en/grafic_date
4http://www.worldbank.org.md/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/MOLDOVAEXTN/0,
5 http://go.worldbank.org/VIGIV8ST60
6 FAO/WFP Crop and Food Supply Assessment Mission, , August 2007

4. The Kiel Institute (IOM/SICA) study made in 2006 shows that the remittance play a major role
in the national economy and the reemittance levels strongly depend on the country the migrant is
working in. They are highest for migrants in Europe and lowest for migrants in Russia or
Ukraine. The migrants from rural households remit least amounts of money that is in line with
poverty rates (42 percent rural). Neither public transfers nor private remittances are reaching
relatively poor groups in amounts sufficient to offset the loss of income from other sources, in
particular agriculture.
Nearly 70 percent of the population was considered poor and more than 60 percent lived in
extreme poverty in 1999. Rapid economic growth between 1999 and 2004 reduced poverty up to
26.5 percent and unfortunately economic growth has not been coupled with poverty reduction.
Poverty in the rural areas rising up to 70 percent where agriculture being the main source of
informal employment and income for many households. In 2004 their welfare was below the
absolute poverty line as compared to 40% in 2002 and currently poverty estimated at about 29
percent7.
1.1.3. Size of the economy: GDP, GDP per capita, growth
Together with poverty rate, inequality level also reduced. The problem of inequality is
aggravated by the fact that poor people receive part of their income in kind. Consequently, the
access of poor people to goods and services becomes limited. This trend is reflected by the
Distribution of family income - Gini index that measures inequality at country level and income
and consumption distribution by quintiles. As a result, in the period of 2000 – 2007 the Gini
(Gini 2007 - 37.1 (medium)) coefficient decreased from 0.2 points8. However, inequality remains
at a high level in Moldova compared to other countries9.
Economic growth is a pre-condition for higher living standards and poverty reduction. Between
2003 and 2007, the estimated average poverty elasticity to average consumption growth was
about 2.1 %. That means that with each percent of growth, the poverty rate reduces by 2.1%.
The statistical results relating to the socio-economic development revealed a number of
increasing trends in most sectors of the national economy in 2007. The GDP increased by 6 %
and starting with the year 2000 the GDP increased by over 43%. In 2007, the GDP per capita
exceeded US$296210. However, the structure of growth has not improved and some challenging
trends in the country’s macroeconomic development were not overcome. Economic and
7
http://imf.org/external/pubs/ft/scr/2006/cr06185.pdf
8
IMF, Republic of Moldova: Poverty Reduction Strategy Annual Evaluation
9
Armenia, Albania, Ukraine
10
http://en.wikipedia.org/wiki/Moldova

5. investment growth took place in the context of slow restructuring of the national economy,
reduction of the growth rate in industry and agriculture. The accelerated growth of import led to
higher share of net production and import duties in GDP, while the share of the gross value
added in the GDP decreased.
Moldova's dependence on Russian energy was underscored at the end of 2005, when a Russian-
owned electrical station in Moldova's separatist Transnistria region cut off power to Moldova
and Russia's Gazprom cut off natural gas in disputes over pricing. Russia's decision to ban
Moldovan wine and agricultural products, coupled with its decision to double the price Moldova
paid for Russian natural gas, slowed GDP growth in 2006. However, in 2007 growth returned to
the 6% level Moldova had achieved in 2000-05, boosted by Russia's partial removal of the bans,
solid fixed capital investment, and strong domestic demand driven by remittances from abroad.
Economic reforms have been slow because of corruption and strong political forces backing
government controls. Nevertheless, the government's primary goal of EU integration has resulted
in some market-oriented progress. The granting of EU trade preferences and increased exports to
Russia will encourage higher growth rates in 2008, but the agreements are unlikely to serve as a
panacea, given the extent to which export success depends on higher quality standards and other
factors. The economy remains vulnerable to higher fuel prices, poor agricultural weather, and the
skepticism of foreign investors. However, domestic demand has been a major source of growth –
household consumption and construction fuelled by large remittances from workers abroad,
officially estimated at about 30 percent of GDP.
Figure 1. Moldova: Origins of GDP, 2004
A g ric . &
F i s hi ng
2 1%
S er vi c es Ind us t r y
55% 19 %
C o ns t r uc t i o n
5%
Source: IMF, International Finance Statistics.
Public sector investment has remained very low, about 2 percent of GDP, resulting in
deteriorating public infrastructure, roads in particular, with negative consequences for economic
growth. Private investment, on the other hand, has slowly increased since the recovery,
averaging 17 percent of GDP per year.
The irregular evolution of GDP components led to changes in its structure. Due to an increase of
16.4% of taxes weight in GDP, the share of production sector reduced from 88% in 2000 to
83.6% in 2005, of which the share of goods production shrank from 42 to 31%, whereas the
share of services increased from 48 up to 54%.
Moldova: Key Economic Indicators, 2002–2006 (Table 4)
2002 2003 2004 2005 2006
GDP per capita in Lei (at constant 2000 prices) 5 052 5 401 5 816 6 660 6 914
Real GDP growth rate % change year on year 7.8 6.6 7.4 7.1 4.0
Unemployment rate (incl. underemployment) 18.7 17.1 16.9 17.1 -
Employment in agriculture % of total employed 51.0 49.6 43.0 40.5 40.7
Exchange rate Lei:US$ (annual average) 13.6 13.9 12.3 12.6 13.1
Consumer price inflation % change year on year. 5.2 11.6 12.4 11.9 12.5
Trade deficit in million US$ 378 623 754 1 192 1 591
Total external debt in billion US$ 1.8 1.9 1.9 2.1 2.6
Total debt service in million US$ 175 244 159 305 251
Source: IMF series, the Central Bureau of Statistics, the National Bank of Moldova and the EIU.

6. 1. 2. Agriculture, food production, distribution and demand structures
Agriculture’s share of the economy has declined since independence, both in absolute and
relative terms, with agricultural value added shrinking by 50 percent. However, it remains the
largest real sector of the economy, accounting for more than 20 percent of the GDP (30 percent
if agro-processing is included) and employing more than 40 percent of the labour force. The
agricultural sector also suffers from policy uncertainty, lack of access to adequate farm inputs,
extension services and limited access to financial and insurance services. Inefficient farm sizes,
some exceeding 2 000 hectares, and the continued squeeze on small farmers through lack of
access to sufficient farm inputs (credit, farm power, improved seeds and extension services) as
well as markets have contributed to the underperformance of the agricultural sector.
Land entitlement and ownership security is considered one of the pillars of a market driven
agricultural economy. As part of reforms the government adopted the Land Code and the Law on
Peasant Farms in early 1992, which provided the legal tools and mechanisms for land
privatisation and the establishment of individual private farms. The reforms were half-heartedly
implemented until the USAID-supported National Land Programme (NLP) was initiated in 1997,
which primarily focused on individual land entitlements, carved out of the former collective
farms. Unfortunately, the NLP was not accompanied by efforts to address the agricultural service
industries, including input supply and agricultural marketing. The second phase of the NLP,
which was initiated only in late 2000 and financed by the World Bank and USAID, attempted to
address agricultural servicing. It has been argued that focusing only on land distribution, without
paying due attention to agricultural skills, extension services, marketing for inputs and outputs
and rural finance institutions, had a severe impact on the agricultural sector as a whole. The
agricultural and livestock sectors are still recovering from the shock in the 1990s and ignoring
the agricultural servicing sectors are said to be one of the contributing factors to the shock.
Moldova: Structure of Agric. Land
Ow nership, 2004
Municipal
8%
Reserve
16%
State
Private
9%
67%
Source: State Cadastre. Total Agric. Land 2.5 million ha.
Limited options, lack of adequate access to input and output markets as well as agricultural
finance and farm machinery, have compelled many small holders to lease their land to corporate
farms on unfavourable terms. The terms of the land lease in most cases are such that the
landowners have borne most of the risk. Therefore, a re-collectivisation of farms has taken place,
with very large farm sizes, reminiscent of the former collective farms. It is estimated that half of
the agricultural land is used by 300 000 individual family farms and the rest is managed by
300-400 new corporate farms. The average farm size in Moldova is already 4-5 times larger than
in Western Europe, owing to the rapid spread of leasing arrangements. A World Bank study
(Agricultural Policy Notes: Agric. Land, December 2005), using Total Factor Productivity
measure, has conclusively established that small farms are significantly more efficient than the
large farms, yet, small farms cannot thrive in the current context.
According to the Rapid Rural Household Food Security Assessment made by Centre for
sociological, Political and Psychological Analysis and Investigations CIVIS in the frame of UN

7. Drought Response Project, on average, 1,8 ha belong to one rural household, which corresponds
to the official data, according to which the peasant households (individual farmers) own on
average 1,6 ha.
Area of the available agricultural land
30% 28,4%
26,7%
25%
20%
14,7% 14,5% 14,7%
15%
10%
5%
1,0%
0%
0 ha 0,1-1 ha 1,1-2 ha 2,1-3 ha 3,1-8 ha 10 ha - 30 ha
However, the agricultural land is parcelled very much, more than a half of the households
surveyed (55,1%) possess no more than 2 ha of the agricultural land, half of which own up to 1
ha. Or, this area is sufficient only to provide the household internal consummation.
The practice of the agricultural land tenancy is developed poorly in the Republic of Moldova,
which was confirmed only by 4,9% of the households surveyed. The tenancy of the agricultural
land is practiced more often by the households, which do not have their own agricultural land.
They normally take small plots of land up to 3 ha in tenancy, preponderantly, to satisfy the needs
for their internal consummation. While the households owning more areas of their own land, are
orientated to lease the larger plots of land for the production and sale activities. The minimal area
of tenancy registered in the survey was 0, 12 ha and the maximal one was 120 ha. Besides the
agricultural land, which practically all rural households (99 per cent) had received as a result of
the privatization, they own a plot of land around their households, the surface of which varies
from 0,02 ha to 0,9 ha.
Public expenditure on agriculture in Moldova is relatively low, about 3 percent of the total
budget, which accounts for about 0.9 percent of GDP. Public expenditure in developing
countries is typically 6-8 percent of the total budget, and in the developed industrialised
countries the figure is 3-5 percent. The Medium Term Expenditure Framework (MTEF) agreed
with the IMF and other donors does not envisage room for any increase in the near future.
Agriculture remains the main source of foreign exchange earnings in Moldova, after remittances
from Moldovans working abroad. In 2005 aggregate earnings from agriculture-based exports
(US$528 Million) accounted for more than half the total export value. In 2006, despite the ban
from Russia on Moldovan exports, in particular wine, total agricultural-based export revenue
was US$412.8 million, nearly 40 percent of total export earnings. Prospects are good for easing
restrictions on Moldovan exports to Russia, while the European Union is increasingly becoming
an important trade partner. Improved market outlets are essential for any improvement of the
agricultural sector in Moldova.
Agricultural capital and infrastructure have suffered a dramatic decline during the economic
crisis of the 1990s. Recovery, though significant, have not been able to reach the pre-crisis
productive levels. Nearly 50 percent of the orchards and vineyards are out of production,
irrigation is only 7 percent of the pre-crisis capacity, farm machinery has declined by 50 percent
and existing machinery is on the average a decade old. Most of the high value crops are
converted into high-volume-low-value crops such as cereals and sunflower. Significant

8. investment through a comprehensive agricultural strategy is necessary to revitalise the
agricultural sector.
According to the Matthias Moen, FAO assessment expert, report made during 30th of January –
20th of February 2008 in the frame of UN Drought Response Project, no more than 58 percent of
the households are relying either on agriculture, daily labour or livestock as their main source of
income. For the remaining households, non-agriculture sector activities are their main source of
income.
Main sources of income
20.4%
2.2%
46.5%
17.4%
0.4%
7.9% 5.1%
agriculture Livestock
Casual labour Commerce
Employment Remittances
Pension / social support
The main assets in rural economy in Moldova are animals, houses, mechanical tools (tractors,
vehicles, etc.) and land. In general, animals are considered a valuable asset as households invest
cash savings into livestock holdings. In addition, animal products (milk, wool, skins and meat)
are an important source of income. Of the total number of interviewed households, 67.7 percent
declared that they own animals and 87.4 percent have poultry. Those with big animals have an
average of 6.5 animal units11, split into 0.1 horses, 0.5 cattle, 1.1 sheep, 0.1 goats and 0.7 pigs per
household. On the other hand, those with poultry have in average 13.5 units.
1.3. Food supply/demand balance and market condition /prices.
National food balance sheets show, overall, how a nation deals with inter-annual fluctuations in
the domestic supply of basic foods by adjusting commercial food imports to meet average total
utilization requirements.
The long-term per capita human milled grain consumption trend and the 2006 Household Income
and Food Consumption Survey indicate an average per capita consumption of cereal and derived
products of 392.5 grams/person/day, equivalent to 143.2 kg/capita/year. It is used to set the
target total human utilization level (unmilled) at 787 100 tonnes. To remain at this level of
average consumption, Moldova would have to import about 737 000 tonnes of grain in 2007,
assuming that household stocks are totally depleted at the end of the marketing year.
11
Animal units: estimated average value of the animals on local markets for slaughter use, average of the
different regions, with a sheep or goat as a basic unit, conversion factors as follows:
1 sheep or 1 goat = 1 unit, 1 cattle = 5 units, 1 pig = 3 units, 1 horse = 7 units.

9. Summary Balance Sheet for 2007 (‘000 tonnes)12 (Table 5)
Total gross cereal production 835.2
Losses (%) 153.5
Total cereal seed requirements 181.6
Public stocks 50.0
Total livestock feed 500.0
Net commercial imports 737.0
Total human utilization (unmilled) 787.1
Republic of Moldova is a net exporter of cereals in most years. The estimate total grain
utilization from both net domestic and outside sources, given post harvest losses, requirements
for seeds and livestock feed, household and (since 2003) emergency public stocks, and human
consumption. The evening out inter-annual supply through adding to or subtracting from grain
stocks, long-term average per capita consumption of grain, in milled terms, has been consistent
with the 2006 estimate of 143 kg per year13.
The rough proportional breakdown of utilization for the total net grain supply, for the period
1999-2006 is as follows:
Losses 15 percent
Seeds 10 percent
Household roll-over 3 percent
stocks
Livestock feed 35 percent
Human consumption 37 percent
The most important export market for the Moldovan high value agricultural products, mainly
wine, fruits and vegetables, remains the CIS, in particular the Russian Federation. The Russian
Federation remains Moldova’s strong trading partner despite the ban on Moldovan agricultural
exports in 2006, in particular wine. Russia accounted for nearly 40 percent of the total Moldovan
exports in 2003, which declined to just over 17 percent of the total in 2006. Romania ranked
second in the export destination for Moldovan exports (14.8 percent of total), which has also
been restricted since the former joined the European Union (EU). Russia has gradually eased
restrictions on Moldovan fruit imports, while negotiations still continue to ease restrictions on
wine imports. The IMF and the EIU predict that the current trade deficit, estimated at over 40
percent of GDP, will continue to persist despite the promised easing of import restrictions by
Russia. On the import side, remittances from workers abroad will continue to strengthen demand
for imported consumer goods and foodstuffs, pushing up the trade deficit in 2007-08. The IMF
and the EIU also predict that the remittances and the increase in foreign grants may narrow the
current-account deficit from 12 percent of GDP in 2006 to around 6 percent in 2007-08.
However, this optimism in a narrowing of the current account deficit may have also been
compromised by 2007 severe drought.
High logistic costs, the requirement that all exporters use the state transportation, high
administrative and handling costs, dilapidated road networks and lack of adequate storage and
cold room facilities have combined to reduce profitability and impede further trade development.
Investment in HVAP production, processing and trading is also hampered by lack of adequate
access to credit. The banking system considers the agricultural sector as a risky investment and
interest rates typically range between 20 percent and 30 percent, well beyond the reach of most
farmers.
12 FAO/WFP Crop and Food Supply Assessment Mission, , August 2007
13 Source: National Bureau of Statistics

10. Domestic market for fruits and vegetables are relatively small and saturate rather quickly during
the harvest season. Cold room capacity is very low and only a fraction of the pre-crisis capacity.
Therefore, most of the harvest has to be sold in a relatively short period of time or wasted, which
is reflected in the highly variable seasonal prices. Off-season vegetables and fruits are imported
and distributed through a small number of supermarkets and small shops in towns. Domestically
produced fruits and vegetables are, by and large, directly marketed by small farmers in small
towns and weekly markets. Relatively large-scale fruit and vegetable production are usually for
export markets or larger towns, which require further sorting, packaging and processing.
Kitchen garden and livestock are the most important elements of household food security both in
terms of nutrition and income. Most households directly sell their produce in the local weekly
markets involving little or no marketing costs, i.e. intermediaries, packing and sorting. Dairy
products are marketed either directly by households in the local weekly markets or sold to
processors. The collection points for milk is usually situated closer to a large dairy farm and
households with small number of livestock usually rely on large producers to supply to
processors.
Markets throughout the country seem to be well integrated despite deteriorating road networks.
A WB study (Moldova, Agricultural Policy Notes: Agricultural Markets, December 2005) shows
that domestic input and output prices are highly distorted and there is a net transfer from
producers to consumers. Producers receive significantly lower prices for their output, while
paying much higher prices for purchased inputs compared with international prices. The indirect
taxation of farmers was found not to be the result of Government revenue taxation but rather
other distortions such as (a) inefficiencies and monopoly elements in processing, trading,
marketing and transport (e.g. sunflower seed is bought, transported, processed and traded by only
one company), (b) low product standards and (c) inefficient and distorting government
interventions and regulations.
Wheat bread is the main staple in Moldova and annual consumption, estimated at about 110 kg
per person per year, is similar to the high levels consumed in some Central Asian countries.
Large mills dominate the market for wheat flour and bread, while small mills (up to 5 tonnes/day
capacity) are also important players in the market. Government is weary of bread price hikes and

11. regularly intervenes in the market to ensure stable prices for consumers, sometimes at the
expense of producers.
Domestic food prices have begun to rise following the drought. The FAO/WFP CFSAM Mission
observed in some markets vegetable prices had more than doubled compared with the same time
last year, while bread prices had also increased by nearly 40 percent in some areas. The
government has recently suspended import duties on cereal imports 14, and the VAT on essential
staples, which will ease somewhat pressure on the prices of bread and maize. Figures in table 6
indicates that prices in four major markets in the Centre, North, South and East, respectively as
shown in the graphs, move together, suggesting good market integration. Prices of sunflower
seeds have slightly increased despite the sharp drop in production, while meat prices have
followed an upward trend, especially recently (Moldova is a structurally net importer of live
animals and meat products).
Food Prices in Four Major Markets, Lei/Kg, March 2006–August 2007 (Table 6)
Wheat Prices, Lei/Kg July 06 - July 07 Maize Prices, Lei/Kg, Mar 06-Aug 07
6 7
Chisinau Chisinau
5 Balti 6
Balti
Cahul 5
4
Orhei Cahul
3 4 Orhei
2
3
2
1
1
0
0
6
7
6
7
6
6
7
07
06
-0
-0
-0
-0
l-0
-0
l-0
7
6
07
6
7
06
06
6
7
n-
p-
ay
ay
l-0
l-0
ar
ar
-0
-0
-0
-0
ov
Ju
Ju
v-
p-
n-
Ja
Se
M
M
ay
ay
ar
Ju
ar
Ju
M
M
N
No
Ja
Se
M
M
M
M
Tomato Prices Lei/Kg, Mar 06-Aug 07 Potato Prices Lei/Kg, Mar 06-Aug 07
35 12
Chisinau
30 Chisinau 10 Balti
25 Balti 8 Cahul
Orhei
20 Cahul
6
15 Orhei
4
10
5 2
0 0
7
6
06
7
6
06
06
07
7
7
6
6
7
07
6
06
7
06
l-0
l-0
-0
-0
-0
l-0
l-0
-0
-0
-0
-0
p-
v-
-
n-
p-
v-
ay
ay
ar
ar
n-
Ju
Ju
ay
ay
No
ar
ar
Ju
Ju
Se
Ja
No
M
M
Ja
Se
M
M
M
M
M
M
Beef Meat Prices Lei/Kg, Apr 06-Aug 07 Sunflower Seed Price Lei/Kg Mar 06-July 07
60 16
50 14
12
40 Chisinau
10
Balti
30 8
Cahul
6
20 4 Orhei
Chisinau Balti 2
10
Cahul Orhei 0
0
6
7
7
06
07
6
6
06
7
l-0
l-0
v-0
r- 0
r-0
n-0
p-
y-
y-
Ju
Ju
6
7
07
6
7
6
06
06
7
Ma
Ma
No
Ja
Ma
Ma
Se
l-0
l-0
-0
-0
-0
-0
p-
v-
n-
ay
ay
ar
ar
Ju
Ju
No
Ja
Se
M
M
M
M
Source: National Bureau of Statistics and ACSA (March 2006-July 2007), Mission findings, August 2007.
14
Until July 2008.

12. 1. 4. Effects of food crisis and Drought 2007
Consumer price inflation has remained in two-digit figures since 2002, reaching 12.5 percent in
2006. The International Monetary Fund (IMF) and the Economic Intelligence Unit (EIU)
forecast the CPI inflation to drop to a single digit by the end of 2007 and remain so in 2008 and
2009. However, the 2007 drought that has devastated the agricultural and livestock sectors may
increase pressure on prices and a single digit inflation rate may not be a realistic forecast under
the circumstances. The exchange rate (Lei:US$) remains stable and the strengthening of Lei
against the US$ during the second half of 2006 and the first quarter of 2007 reflects the high
volume of remittances flowing into the country. In addition, the interventions of the Central
Bank (the National Bank of Moldova) in the foreign exchange markets have been praised by
various international organisations, including the IMF, the WB and EIU, as prudent monetary
policies.
The 2007 drought has had severe impacts on the agricultural sector, which directly or indirectly
support more than 60 percent of the population. In addition, more than 70 percent of the poor
live in the rural areas mostly depending on kitchen gardens and small land areas under their
management (1-6 hectares/household) or earn their living from casual farm labour.
All categories of farms, large farms, small individual farms and kitchen gardens have all suffered
reduced output by an average of 60 percent and in some cases the entire crops are compromised.
In addition, relatively high prices for food products, in particular vegetables and bread prices
have eroded the purchasing power of households in both rural and urban areas. Pensioners and
wage labourers are particularly vulnerable to high food prices.
The UN Food and Agriculture Organization and the World Food Programme (FAO/WFP)
CFSAM conducted in August 2007 underline that about 84% of the total area of agricultural land
of the country has been affected by the drought and the cost of lost production, at market prices,
is estimated at nearly €300 million for cereal crops only.
Its about 60 per cent of the households do not have their meals or reduce the meals size, each
fifth household of the total of the households surveyed practice not having their meals or
reducing them to 3-6 days per or week or oftener.
Output of Main Crops, 2004-200715
Output ‘000 tones Decline
over
Crop Region 2004-20
2007 2006 2005 2004 06 (%)
Centre 98 140 258 198 51
Wheat North 185 300 449 276 46
South 181 208 343 319 38
Sub-total Wheat 464 648 1 050 793 44
Centre 118 282 510 314 68
Maize North 89 441 486 744 84
South 70 600 497 552 87
Sub-total Maize 276 1 322 1 492 1 610 81
Centre 19 50 43 50 61
Barley North 24 56 68 80 65
South 43 160 102 142 68
Sub-total Barley 86 266 214 272 66
15 FAO/WFP Crop and Food Supply Assessment Mission, , August 2007

13. Centre 64 115 71 74 27
Sunflower North 142 182 163 170 17
South 38 117 95 90 62
Sub-total Sunflower 244 414 330 334 32
Centre 90 167 186 182 49
Sugar beet North 452 880 758 719 42
South 10 48 3 10 49
Sub-total Sugar beet 552 1 094 947 910 44
Centre 118 194 60 43 19
Vegetables North 104 176 88 64 5
South 44 100 169 173 70
Sub-total Vegetables 265 470 317 280 26
Centre 139 126 138 240 17
Grapes North 2 2 2 3 10
South 217 320 367 442 42
Sub-total Grapes 358 448 507 685 35
Source: National Bureau of Statistics.
The correlated data analysis emphasizes that about 90 per cent of the households use both of the
above practices.
In addition, 30 per cent of the households either purchase the food on credit, or borrow the food.
The service of the social canteens is not offered virtually at all in the rural environment, which is
affirmed by 98 per cent of the respondents. The services of this type are encountered within the
municipality of Chisinau. Another service providing more or less the food security of children is
meals in the educational institutions. However, only 1/4 of the rural households benefit by this
service. Practically half of the households, which have children up to 17 years do not benefit
from the meals in the local educational institution.
Actions undertaken by the rural households in October 2007 to satisfy the food needs
purchase food on credit or borrowing 69,4% 8,1% 13,0% 8,3%
1,2%
2,0%
meal through school feeding 75,2% 11,3% 10,0%
1,5%
meal from social canteen 98,7%
rely on less expensive or less preferred
14,7% 14,2% 26,2% 26,5% 18,4%
foods
skip a meal or reduce portion size 40,9% 19,1% 19,4% 15,2% 5,4%
0% 20% 40% 60% 80% 100%
Never Seldom (1-3 days / month) Sometimes (1-2 days / week) Often (3-6 days / week) Daily
Referring to the daily consummation of the agricultural households, we assert that their daily diet
is preponderantly formed of cereals and root vegetables as well as of vegetable fat/oil, 86,6%
and, respectively 83,0% of the households surveyed consume the respective food products daily.

14. About 31 per cent of the rural households, which have the livestock, were forced to purchase the
fodder on credit or to borrow it. The strategy of the livestock breeding was used by at least 3/4 of
the households.
The percentage of the households, which have sold and/or cut the livestock in March –
October 2007 as a result of the fodder insufficiency
80% 77,8% 74,1%
at least one all
70%
56,4%
60%
44,6%
50%
39,7%
40%
29,5%
26,5%
30%
17,2% 15,9%
20%
10% 4,1%
0%
milk producing cows pigs poultry traction animals sheep, goat, rabbit
Therefore, from the month of March 2007, because of the fodder insufficiency and in order to
meet the family food needs, 40 per cent of the rural households, which have milking cows, were
forced to sell them. Moreover, about half of these households have sold their last milking
cow/cows, remaining without this source of existence, which provide the income both in the
natural products and in money.
As for the pigs, the situation is more impressive, since about 78 per cent of the households,
which own pigs, have sold and/or cut at least one pig as a result of the fodder insufficiency.
About half of these households (46, 6%) have sold/cut all pigs they had in their households.
Likewise, 41% of the households, which have poultry, have sold and/or cut more than half of the
poultry from March to October 2007, but 4% of the households have sold/cut all the poultry they
had.
1.5. The UN Relief and Technical Assistance Response to the Drought in Moldova.
The UN Project “Relief and Technical Assistance Response to the Drought in Moldova” was
launched in September 2007.
The project constitute to a coordinated response to the request for assistance made by the Prime
Minister of the Republic of Moldova to the United Nations Secretary General and aims at
addressing the emergency needs created by the drought which affected the country in 2007.
The project includes five key components:
- Technical expertise, management, coordination;
- Emergency procurement of seeds, fodder and other agricultural supplies;
- Emergency assistance to socially vulnerable groups;
- Aid monitoring; and
- Planning for medium and long-term assistance.

15. Up to now, 20,500 families affected by the drought have received assistance in the form of
packages consisting of seeds, fertilizers and fuel which allowed for the planting of 10,250 ha of
winter wheat.
Also 18,500 pregnant women and nursing mothers from 19 districts have received food
packages.
More than 20,000 socially vulnerable farming households have benefited from nearly 9,000 tons
of livestock fodder.
Other 82,500 farming households have received maize seeds for spring agricultural works.
Beneficiaries from socially vulnerable families had been selected by few NGOs in collaboration
with Local Public Authorities and related ministries, according to vulnerability criteria
established by national / international experts and donors. Aid distribution had been monitored
by NGOs selected by the UN.
And 22 most vulnerable communities from districts severely affected by the drought had
benefited from pecuniary aid in order to implement community works projects. These localities,
included in UN project, were selected based on drought consequences and cereal harvest losses
evaluation report done by Ministry of Agriculture and Food Industry together with Food and
Agriculture Organization and with village categorize report based on deprivation indexes done
annually by Ministry of Economy and Commerce. Totally, 1,800 people participated in
community works. Selected communities/primarias received from the UN Moldova
approximately 20,000 USD each.
The UN project is financially supported by the European Commission through its Directorate-
General for Humanitarian Aid (ECHO), the Swedish International Development Cooperation
Agency (SIDA), the Austrian Development Agency (ADA), Governments of the Netherlands,
Norway, Italy and Finland, the Austrian Federal Ministry of Agriculture, Forestry, Environment
and Water Management, United Nations Development Programme (UNDP) and United Nations
Population Fund (UNFPA).
The project is managed by the UNDP in partnership with the FAO, UNFPA, UNICEF, other UN
agencies and the Government of the Republic of Moldova as well as non-governmental
organizations and local public authorities which are implementing partners of the project.
More than 135,000 vulnerable rural households affected by the drought last year were provided
with winter wheat seeds, fertilizers, fuel, maize seeds, livestock fodder, food packages and cash
for work.
As a result of successfully implemented assistance, more than 400,000 vulnerable people were
able to overcome the difficulties caused by the drought.
Out of 600,000 vulnerable about 400,000 (67% of vulnerable) or 143 845 households received
UN DRP assistance, that covers 98% of rayons and 96,5% of communities.
Total assistance cost was about 9, 9 MLN USD and following results are achieved:
a) Eemergency distribution of Winter wheat seeds
• 86.4% of the beneficiaries fulfilled the criteria of selection
• 80.0% of the population considered that the criteria was correctly followed
• Crop Performance analytical tables accepting on time delivery and success of support
provided

16. • Expected yield will be about 3.3 MT / Ha up to 4.8 MT / Ha (in stand and dependent of
location).
• An increase of up to 35% compared what the farmers are getting usually.
• Up to 20% of losses are estimated during the harvest process.
• The Combine-harvest owner gets in average 15 – 20 % of the harvested yield.
4.1
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b) Animal Feed Distribution:
• 84.0% have fulfilled the main criteria
• 6.7% have fulfilled inclusive at least one or more additional criteria
Analyses shows that about 65.7% of beneficiaries would have had to slaughter or sell their
animals without the UN fodder assistance and about 11% would have had enough fodder for
keeping their animals over the whole winter, due to the mild winter. It needs to be underline that
the feed distribution support helps to moist vulnerable not only to keep the last cow, but also
mitigate destocking and recognize improvement. Improvements records shows milk production
an increase of 51.9% has been recorded when feeding the cows with the received concentrates
For the first time the Transnistria region was part of an operation of such complexity. About
8,200 vulnerable rural households received support in this region, which represents more than
21,000 people.
Situation Analyzes
2.1. The Current Situation with Natural Disasters and Climate Changes in Moldova
This thoughts , conclusion and recommendations made during all my four missions in Moldova,
from July 2007 by May 2008, as an FAO International Consultant and Technical
Adviser/Agronomist, on the base of experience, collaboration with International and National
Organizations and Institutions as well as several reports and important sources such as
Millennium Development Goals, A Hazardous Existence (MNLT in Rural Moldvoa) – 5 FEB
2007, The World Bank Report, Drought Risk Reduction Framework and Practive - International
Strategy for Disaster Reduction – May 2007, Risk measurement in extreme situation –
M.Daradur – Chisinau 2005, 3th National Report on the implementation of UN Convention
Combat Desertisation in RM –Chisinau 2006, DROUGHT : Evaluation of Management and
Mitigation Measures for Central Asia and Caucasus– The World Bank Report No.31998-ECA –
March 2005, Convention on Biological Diversity (CBD), the Global Environment Facility
(GEF), Syntesis Report of Intergovernmental Panel on Climate Change – 17 NOV 1997, United
Nations Framework Convention on Climate Change – Bangkok 2008, Kyoto Protocol and

17. particularly FAO 2007 report on “The State of Food and Agriculture” and 2007 publication of
“Climate change: a growing challenge for development and poverty reduction” in
Commonwealth Heads of Government Meeting (CHOGM) by Mr.Lennart Båge, President of
IFAD and World Bank Repost on Agriculture for Development report presented in 2008 May in
Moldova.
2.1. Problem Statement
Climate change is expected to put almost 50 million additional people at risk of hunger by 2020.
Today about 2.1 billion people live on less than US$2 a day; Almost 1 billion people live on less
than US$1 a day; the world’s population is expected to rise from 6.5 billion people to 9.1 billion
by 2050, with most of the growth in developing countries; to meet projected demand, cereal
production will have to increase by nearly 50 per cent and meat production by 85 per cent from
2000 to 2030; climate change is expected to put 49 million extra people at risk of hunger by
2020, and 132 million by 2050; since the 1949s, the Republic of Moldova has experienced a 15
per cent decline in rainfall; in Moldova, between 2,5 million people will be exposed to increased
water stress due to climate change by 2020.
Climate change makes it more difficult to predict weather patterns and to plant crops at the
appropriate time. Rising sea levels will threaten low-lying coastal areas and cause the
Stalinisation of surface water and groundwater aquifers in some coastal communities. More
frequent flooding will arise from heavy and erratic precipitation and ice melts. At the same time,
more erratic weather patterns will affect the reliability of water sources for irrigation and
livestock. In some regions, climate change will also lead to a higher incidence of vector-borne
diseases, such as malaria, schisto-somiasis and dengue fever, as well as pests affecting livestock
and crops.
The seriousness of the situation must not be underestimated. Climate change is expected to put
almost 50 million extra people of the World at risk of hunger by 2020. In some high-latitude
regions food production may increase with higher temperatures. But in others, yields may drop
significantly.
2.2. Global Climate Changes and Moldova
Following the World Bank Report A Hazardous Existence (MNLT in Rural Moldvoa) – 5 FEB
2007, Risk measurement in extreme situation – M.Daradur – Chisinau 2005 and 3th National
Report on the implementation of UN Convention Combat Desertification in RM –Chisinau 2006
can be mentioned that after 10 years in Moldova, about 90 per cent of smallholders and 50
percent of total farmland area in some extent will be suffer from soil erosion; as much as 80 per
cent of pasture and rangelands will exhibit some form of degradation. Over 95 per cent of
Moldovan agriculture depends on rainfall. Models indicate that about 400,000 hectare of
agricultural land in Moldova currently deemed constrained will improve as a result of drought
and other climatic change. However, this will be more than offset by the estimated 500,000
hectare currently classified as moderately constrained that will become even more severely
affected. This threatens to further affect food security and exacerbate malnutrition on the
continent.
Cereal production in Moldova could drop by over 20 per cent. In drier areas, climate change is
expected to lead to salinisation and desertification of agricultural land. Productivity of livestock
and some important crops are expected to decline.
There will be greater competition over water resources available for human consumption,
agriculture and industry, as a result of changing rain patterns and the disappearance of glaciers
after 5-6 year from now. Agricultural commodity prices will rise, partly due to changing weather

18. patterns, and it is believed they will continue to rise in the foreseeable future. This will have
enormous consequences for poor rural people. For some, it will mean new opportunities -
particularly poor rural producers with access to markets. But, for households that are net buyers
of food commodities, rising prices will cause serious problems.
2.3. Who will suffer from Climate Changes? The poorest will suffer most.
Three out of four of the world’s one billion poorest people live in rural areas and depend on
agriculture and related activities for their livelihoods. More rapid agricultural and rural
development is essential to the achievement of the Millennium Development Goals (MDGs).
The world’s poorest people are subsistence farmers, nomadic herders and day laborers. Many
live on ecologically fragile land. They depend on vulnerable sectors – agriculture, livestock and
forestry – for their livelihoods. Women in rural areas, particularly those responsible for fetching
water and keeping livestock, are expected to pay a particularly high price as the climate changes.
The IPCC has said very clearly that climate change will hit the poorest and most vulnerable
people hardest. There is clearly an economic, social and moral imperative to help poor rural
people adapt to climate change in a sustainable way.
In the World Bank Report of a Hazardous Existence clearly mentioned that “Agricultural
damages are clearly identified while the breakdown of other damages such as earthquakes and
water logging between rural and urban settlements is not available. However, most of these
damages are estimated to occur in rural areas: the rural areas are much prone to and les protected
against water logging.” Per year cost of weather hazards, such as drought, etc are estimated
about 35.76 million USD or 33,7 in per cent of total for the time period of 1996-2005 and
drought only 19.9 in per cent of total or 21.12 million USD. In this case the Drought can be
evaluated as a kind of manifestation of Global Climatic Changes that develops desertification
and soil degradation in Moldova.
It needs to be mentioned that from 2007 severe drought in Moldova were suffered rural poor
manly; about 35% of that who had last milking cow sold them, because of luck of fodder,
another 65% received the feed staff from UN DRP in time. More then 75% of stallholders that
cultivated cereal crops were affected by 2007 severe drought and about 65% of those rural poor
are receiving humanitarian assistance and support from UN DRP and various donors in time, that
make possible to mitigate the impacted of the drought.
2.4. Mitigation
There are several proposals how possible to mitigate the impacted of natural disasters caused by
Global Climatic Changes, but I would like to mention the human factors and particularly an
important role of rural poor in climate change mitigation by using better agricultural practices
and by promoting forestry activities that will contribute to carbon dioxide absorption.
For Moldova particularly, it is very important to:
1. Establish and improve Good Agricultural Practices
2. Promote forestry activities
3. Developing irrigation system and setup rainwater management system as an alternate
source of irrigation water
4. Support to setting up solar power systems to help poor households get energy from the
abundant sunlight in the area.
5. Make possible to produce that will turning human and animal waste into a mixture of
methane and carbon dioxide gases that can be used for lighting and cooking.
Above mentioned are just few proposal points for future consideration for medium and short
term activities that need to be assessed by interagency group of professional. And without clear

19. understanding the existing situation and realistic assessment of the current situation will be not
possible to make a bridge from rehabilitation to recovery and development of rural Moldova and
particularly agriculture sector.
For implementation of all of those activities poor rural can be a part of solution. But, they need
secure access to land and water, as well as to financial resources and agricultural technologies
and services. They need access to markets and the opportunities for enterprise that can help them
diversify and increase their income. They also need effective institutions and the organizational
power and influence required to advocate for their own needs and take advantage of emerging
opportunities.
It is clear that climate change will make reaching the MDGs much more difficult unless donors
and governments in developing countries sharply increase investments in agricultural
development and sustainable land management practices. And IPCC notes that sustainable
development can reduce vulnerability to climate change by enhancing adaptive capacity and
increasing resilience and rural population can pays key role on it.
2.5. Agriculture and Rural Development
It is very clear that the environmental agenda is inseparable from the broader agenda of
agriculture for development. The 2008 World Development Report recognizes that agriculture
can play an important role in mitigation through better stewardship of the natural resource base
on which it depends.
Implementing sustainable agricultural practices is more important now than ever. Agriculture
and forestry are major sources of greenhouse gas emissions. But, through sustainable practices
and management, both also have great potential to mitigate the impact of climate change. This
means that as managers of land, water and forests, poor rural people could have an important
role to play in mitigation measures.
- By using better agricultural practices and by nurturing and protecting forests poor rural people
can contribute to absorb carbon dioxide.
- By improving livestock management and crop practices, coupled with adaptive management of
forests, could have a very significant impact to mitigate the climatic changes.
-By adopting better land use practices, such as conservation agriculture, conservation tillage,
agro-forestry, and rehabilitation of degraded crop and pasture land, would also help to maintain
significant amounts of carbon in the soil.
Soil is the largest reservoir of carbon in the terrestrial carbon cycle. The emerging markets for
trading carbon emissions also offer new possibilities for small farmers to benefit from land uses
that sequester carbon.
Afforestation, reforestation, better land management and sustainable agricultural practices can all
contribute enormously to reducing carbon emissions. For example, the restoration of two billion
hectares of degraded land could compensate for three per cent of global annual carbon emissions.
Avoiding deforestation is even more important.
Poor rural people can play a key role in activities that, but governments and public policies must
also put the right incentives in place for this to happen, particularly compensation and payment
for the environmental services poor rural people provide. With appropriate and innovative
incentives, poor farmers, forest dwellers and indigenous peoples can make an important
contribution to emissions reduction and carbon sequestration.

20. Climate changes are affecting and will affect us all, but it poses a particular risk to development
and poverty reduction, and to the achievement of the MDGs. Our efforts will be more effective if
we recognize poor rural people as effective custodians of the natural resource base, and ensure
they have access to the technology and financing they need to cope with climate change and be
part of the solution. By listening to the voices of poor rural people when planning adaptation and
mitigation processes, we can reduce the risks of climate change, while accelerating progress
towards a world without poverty.
In Moldova drought and overgrazing had degraded vast areas of the rangelands. And because of
FAO/WFP CFAS and donors’ responds on founds mobilization, because of successful
implementation of UN Drought Responds Project - rehabilitation programme has led to
improved rangeland productivity, regeneration of cereal production and all of those are helps to
recover the gap in agriculture sector..
2.6. Helping Rural Poor
It is strongly recommend that future projects and programmes in Moldova needs to be focused
on supporting marginal, rain fed areas that are at risk from water shortage, land degradation and
desertification. Such issues as desertification and changes in cropping patterns due to climate
variability must be main priority. Working closely with poor rural people, most of whom are
smallholder farmers, landless people, herders and small entrepreneurs who depend on agriculture
to survive all UN family members need to play lead role for rural development in Moldova to
draws in helping rural poor to adapt to climate change.
Adaptation will include all activities that help people and ecosystems reduce their vulnerability
to the impact of climate change and that minimize the costs of natural disasters. There is no
universal way to adapt; specific measures need to be tailored to specific contexts. That’s why
Feasibility Assessment to Support Rural Livelihoods and the Agricultural Sector Following the
2007 Drought needs to be taken place.
Crisis and Risk Management
Crisis means that normal livelihood of population is harmed by disaster. It could be any disaster
including natural. That’s why risk identification and management are important.
Livelihood with
development Livelihood
interventions (5) recovered
crisis by own
Normal baseline 4
5
6
means (6)
livelihood 3Livelihood with
2 emergency (3) or
Effect of 1
rehabilitation
crisis on interventions (4)
livelihood Livelihood after
shock (1) Thresholds
- after crisis (1)
- with coping mechanism (2)
Livelihood with - food secure (3)
coping - economical secure (4)
- improved livelihood through
mechanism (2) development (5)
Source: Matthias Molle (Beneficiary Assessment Methodology)

21. Once risks have been identified, they must then be assessed as to their potential severity of loss
and to the probability of occurrence. These quantities can be either simple to measure, in the case
of the value of a lost building, or impossible to know for sure in the case of the probability of an
unlikely event occurring. Therefore, in the assessment process it is critical to make the best
educated guesses possible in order to properly prioritize the implementation of the risk
management plan.
The fundamental difficulty in risk assessment is determining the rate of occurrence since
statistical information is not available on all kinds of past incidents. Furthermore, evaluating the
severity of the consequences (impact) is often quite difficult for immaterial assets. Asset
valuation is another question that needs to be addressed. Thus, best educated opinions and
available statistics are the primary sources of information. Nevertheless, risk assessment should
produce such information for the management of the organization that the primary risks are easy
to understand and that the risk management decisions may be prioritized. Thus, there have been
several theories and attempts to quantify risks. Numerous different risk formulae exist, but
perhaps the most widely accepted formula for risk quantification is:
Rate of occurrence multiplied by the impact of the event equals to risk.
Later research has shown that the financial benefits of risk management are less dependent on
the formula used but are more dependent on the frequency and how risk assessment is
performed.
In business it is imperative to be able to present the findings of risk assessments in financial
terms. Robert Courtney Jr. (IBM, 1970) proposed a formula for presenting risks in financial
terms. The Courtney formula was accepted as the official risk analysis method for the US
governmental agencies. The formula proposes calculation of ALE (annualized loss expectancy)
and compares the expected loss value to the security control implementation costs (cost-benefit
analysis).
3.1. Risk Assessment
Risk assessment is measuring two quantities of the risk R, the magnitude of the potential loss L,
and the probability p that the loss will occur.
Risk assessment may be the most important step in the risk management process, and may also
be the most difficult and prone to error. Once risks have been identified and assessed, the steps to
properly deal with them are much more programmatical.
A risk assessment is an important step in mitigating the impacted of climate changes. It helps
you focus on the risks that really matter with the potential to cause real harm. This proposed
methodology of risk assessment tells you how to achieve that with a minimum of fuss. This is
not the only way to do a risk assessment and there are other methods that work well, particularly
for more complex risks and circumstances. However, we believe this method is on of the most
straightforward.
A risk assessment is simply a careful examination of what could cause harm to people, so that
you can weigh up whether you have taken enough precautions or should do more to prevent
harm. Workers and others have a right to be protected from harm caused by a failure to take
reasonable control measures.
Natural disasters can ruin lives and affect country business. That’s why it is required to assess
the risks so that you put in place a plan to control the risks.

22. 3.1.1. Five steps to risk assessment
⇒ Identify the hazards
⇒ Decide who might be harmed and how
⇒ Evaluate the risks and decide on precautions
⇒ Record your findings and implement them
⇒ Review your assessment and take appropriate measures
Part of the difficulty of risk management is that measurement of both of the quantities in which
risk assessment is concerned can be very difficult itself. Uncertainty in the measurement is often
large in both cases. Also, risk management would be simpler if a single metric could embody all
of the information in the measurement. However, since two quantities are being measured, this is
not possible. A risk with a large potential loss and a low probability of occurring must be treated
differently than one with a low potential loss but a high likelihood of occurring. In theory both
are of nearly equal priority in dealing with first, but in practice it can be very difficult to manage
when faced with the scarcity of resources, especially time, in which to conduct the risk
management process. Expressed mathematically,
Financial decisions, such as insurance, often express loss terms in dollars. When risk assessment
is used for public health or environmental decisions, there are differences of opinions as to
whether the loss can be quantified in a common metric such as dollar values or some numerical
measure of quality of life. Often for public health and environmental decisions, the loss term is
simply a verbal description of the outcome, such as increased cancer incidence or incidence of
birth defects. In that case, the "risk" is expressed as:

23. If the risk estimate takes into account information on the number of individuals exposed, it is
termed a "population risk" and is in units of expected increased cases per a time period. If the
risk estimate does not take into account the number of individuals exposed, it is termed an
"individual risk" and is in units of incidence rate per a time period. Population risks are of more
use for cost/benefit analysis; individual risks are of more use for evaluating whether risks to
individuals are "acceptable".
Risk of losses due to vulnerability and Benefit gain
Potential risk treatments
Once risks have been identified and assessed, all techniques to manage the risk fall into one or
more of these four major categories: (Dorfman, 1997) (remember as 4 T's)
• Tolerate (aka retention)
• Treat (aka mitigation)
• Terminate (aka elimination)
• Transfer (aka buying insurance)
Ideal use of these strategies may not be possible. Some of them may involve trade-offs that are
not acceptable to the organization or person making the risk management decisions.
4.1. Risk avoidance
Includes not performing an activity that could carry risk. Avoidance may seem the answer to all
risks, but avoiding risks also means losing out on the potential gain that accepting (retaining) the
risk may have allowed.
4.2. Risk reduction
Involves methods that reduce the severity of the loss. Modern software development
methodologies reduce risk by developing and delivering software incrementally. Early
methodologies suffered from the fact that they only delivered software in the final phase of
development; any problems encountered in earlier phases meant costly rework and often
jeopardized the whole project. By developing in iterations, software projects can limit effort
wasted to a single iteration. A current trend in software development, spearheaded by the
Extreme Programming community, is to reduce the size of iterations to the smallest size
possible, sometimes as little as one week is allocated to an iteration.

24. 4.3. Risk retention
Involves accepting the loss when it occurs. True self insurance falls in this category. Risk
retention is a viable strategy for small risks where the cost of insuring against the risk would be
greater over time than the total losses sustained. All risks that are not avoided or transferred are
retained by default. This includes risks that are so large or catastrophic that they either cannot be
insured against or the premiums would be infeasible. Any amounts of potential loss (risk) over
the amount insured are retained risk. This may also be acceptable if the chance of a very large
loss is small or if the cost to insure for greater coverage amounts is so great it would hinder the
goals of the organization too much.
4.4. Risk transfer
Means causing another party to accept the risk, typically by contract or by hedging. Insurance is
one type of risk transfer that uses contracts. Other times it may involve contract language that
transfers a risk to another party without the payment of an insurance premium. Liability among
construction or other contractors is very often transferred this way. On the other hand, taking
offsetting positions in derivatives is typically how farms use hedging to financially manage risk.
Some ways of managing risk fall into multiple categories. Risk retention pools are technically
retaining the risk for the group, but spreading it over the whole group involves transfer among
individual members of the group. This is different from traditional insurance, in that no premium
is exchanged between members of the group up front, but instead losses are assessed to all
members of the group.
Risk Management
Risk management is the process of measuring, or assessing, risk and developing strategies to
manage it. Strategies include transferring the risk to another party, avoiding the risk, reducing the
negative effect of the risk, and accepting some or all of the consequences of a particular risk.
Traditional risk management focuses on risks stemming from physical or legal causes (e.g.
natural disasters or fires, accidents, death, and lawsuits). Financial risk management, on the other
hand, focuses on risks that can be managed using traded financial instruments.
In ideal risk management, a prioritization process is followed whereby the risks with the greatest
loss and the greatest probability of occurring are handled first, and risks with lower probability
of occurrence and lower loss are handled in descending order. In practice the process can be very
difficult, and balancing between risks with a high probability of occurrence but lower loss versus
a risk with high loss but lower probability of occurrence can often be mishandled.
Intangible risk management identifies a new type of risk - a risk that has a 100% probability of
occurring but is ignored by the organization due to a lack of identification ability. For example,
when deficient knowledge is applied to a situation, a knowledge risk materializes. Relationship
risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue
when ineffective operational procedures are applied. These risks directly reduce the productivity
of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation,
brand value, and earnings quality. Intangible risk management allows risk management to create
immediate value from the identification and reduction of risks that reduce productivity.
Risk management also faces difficulties allocating resources. This is the idea of opportunity cost.
Resources spent on risk management could have been spent on more profitable activities. Again,
ideal risk management minimizes spending while maximizing the reduction of the negative
effects of risks.

25. 5.1. Steps in the risk management process
Establishing the context involves
1. Planning the remainder of the process.
2. Mapping out the following: the scope of the exercise, the identity and objectives of
stakeholders, and the basis upon which risks will be evaluated.
3. Defining a framework for the process and an agenda for identification.
4. Developing an analysis of risk involved in the process.
5.2. Identification
After establishing the context, the next step in the process of managing risk is to identify
potential risks. Risks are about events that, when triggered, cause problems. Hence, risk
identification can start with the source of problems, or with the problem itself.
• Source analysis Risk sources may be internal or external to the system that is the target of
risk management. Examples of risk sources are: stakeholders of a drought project, employees
of a trading company, etc.
• Problem analysis Risks are related to identify threats. For example: the threat of losing crop/
profit, the threat of abuse of privacy information or the threat of accidents and casualties. The
threats may exist with various entities, most important with shareholder, customers and
legislative bodies such as the government.
When either source or problem is known, the events that a source may trigger or the events that
can lead to a problem can be investigated. The chosen method of identifying risks may depend
on culture, industry practice and compliance. The identification methods are formed by
templates or the development of templates for identifying source, problem or event.
Common risk identification methods are:
• Hazards risk identification. Identification the risks on the base of most frequently hazards.
• Objectives-based risk identification. Organizations and project teams have objectives. Any
event that may endanger achieving an objective partly or completely is identified as risk.
Objective-based risk identification is at the basis of Enterprise Risk Management - Integrated
Framework
• Scenario-based risk identification. In scenario analysis different scenarios are created. The
scenarios may be the alternative ways to achieve an objective, or an analysis of the
interaction of forces in, for example, a market or battle. Any event that triggers an undesired
scenario alternative is identified as risk.
5.3. Risk Charting
This method combines the above approaches by listing Resources at risk, Threats to those
resources Modifying Factors which may increase or reduce the risk and Consequences it is
wished to avoid. Creating a matrix under these headings enables a variety of approaches. One
can begin with resources and consider the threats they are exposed to and the consequences of
each. Alternatively one can start with the threats and examine which resources they would affect,
or one can begin with the consequences and determine which combination of threats and
resources would be involved to bring them about
5.4. Create the plan
Decide on the combination of methods to be used for each risk. Each risk management decision
should be recorded and approved by the appropriate level of management.