4. Agricultural risk financing in
• As part of output of FSRP, desk study and analysis were
conducted on regional options for enhancing food security in
Burkina Faso, Chad, Mali, Niger, Sierra Leone, and Togo with a
• This study aims to complete the following objectives:
• Analyze the relationship between food crop production
and food security in the countries of Burkina Faso, Chad,
Mali, Niger, Sierra Leone, and Togo
• Determine the status quo of the use of agriculture risk
financing instruments in the 6 countries
• Based on this analysis, provide investment suggestions
aiming to use risk financing mechanisms at the regional
level to benefit food security.
5. Study Methodology
• To achieve the outlined objectives, the following steps were undertaken:
1. A probabilistic model of production losses of the most important food crops was developed
for all countries in the ECOWAS region, including the 6 initial target countries.
2. Using outputs of the production analysis, a second model was developed to estimate the
impacts of food crop production on the number of undernourished people in the 6 target
countries for different return periods.
3. For all 6 countries, the existence of disaster risk financing arrangements, including for food
security relief, and their respective financial volumes were assessed. These volumes were
compared with the outputs of steps 1 and 2, in order to get a preliminary sense of the size of
the funding gap for different return periods.
4. Based on the analysis, recommendations were made for potential investments to improve
food security in the face of production shocks.
6. Humanitarian response cost
The 4 Sahel countries request food
security-related humanitarian support of
around $US1 bln. every year, of which
approx. $US360 million get funded. The
funds cover the chronic food insecurity
The modeled number of undernourished
people will require further assistance
and a proxy could be US$40 per person
used by the African Risk Capacity (ARC)
The modeled need for humanitarian
assistance could then be as high as
US$2.5 bln. for extreme scenarios.
A 1:5 years scenario would require a
total funding of more than US$1 bln
Average Annual Food Security Humanitarian appeals Modeled food security humanitarian need
Sahel countries, food security humanitarian need
Funded Unfunded Baseline undernourished 1-5 years 1-10 years 1-20 years 1-50 years 1-100 years
7. Key Takeaways
1) In countries where baseline/chronic food insecurity is elevated, severe shocks could throw the
majority of the national population in undernourishment.
• Niger, Chad and Togo are such cases
2) Chad, Burkina Faso and Niger are countries displaying the highest absolute increase in number of
food insecure people for low severity events.
3) The current level of humanitarian funding provided for food insecurity is only covering
approximately the cost of providing food aid to chronically food insecure people in the six
4) New funding needed to cover the Sahelian countries for severe events is large – e.g. for a 1:20
years event, additional funding needs could rise to $ US 800 mln.
• Using the 40 USD/person value from ARC model and multiplied with new people becoming
undernourished in Chad, Mali, Niger, Burkina Faso.
9. Recommendation: Explore risk financing backstop
to regional strategic grain reserve
• The ECOWAS Regional Reserve (RR) has been established to provide relief
resources to member states to ensure food security
• A risk financing backstop to the RR could help build greater financial
resilience in the face of shocks. The backstop could be in the form of a
pre-arranged funding/ a formal risk transfer (e.g. with ARC). It could
provide finance to the RR upon the occurrence of objective data, e.g.
indicating the occurrence of a major food security shocks in a
participating ECOWAS country.
• A risk financing approach to the RR would provide strong incentives for
countries to use it. Ensuring that a capital injection occurs in the event of
a shock might accelerate utilization and support. Other benefits include:
(i) Create dependable financing for severe shocks and protect RR capital;
(ii) ensure rapid RR replenishment for these events; and (iii) use potential
risk pooling benefits.
• Significant pre-conditions would need to be fulfilled. Technical design of
the RR would need to be reviewed. Governance, Access, procurement and
disbursement rules might require revision via technical assistance.
10. GRiF Funding
THANKS TO THE WORLD BANK TEAM
The Global Risk Financing Facility (GRiF) has approved the proposal “Risk transfer solutions
for building financial resilience of regional mechanisms to address agriculture and food
security shocks in West Africa” for US$ 25 M !
We are looking forward to implementing the proposal in the context of the West Africa
Food System Resilience Program (FSRP), namely in the Component 3.1 (e) and Component
11. In a Nutshell: Proposal approved by GRiF
Technical Assistance - US$2M (to
be executed by the WB)
Systems Building and Start-
up costs - US$3M
Premium subsidies - US$20M
for risk management of the RFSR for ECOWAS to cover the
implementation costs of running the
risk finance solution, including
project management, provision of
technical assistance, etc.
Subsidizing premiums for the
The GRiF has approved the proposal “Risk transfer solutions for building financial resilience of regional
mechanisms to address agriculture and food security shocks in West Africa” for US$25M with the purpose of
strengthening the capacity of the ECOWAS Regional Food Security Reserve (RFSR) to respond to food crises
with an insurance arrangement as a backstop to the reserve.
The GRiF will finance:
1 2 3
12. Technical Assistance - US$ 2 million
This component will be executed by the WBG and will cover among others:
• Technical and analytical work on issues such as
• feasibility study of a risk transfer product to backstop the reserve and the value for money analysis,
• identification of options for sustainable financing of the reserve and the backstop mechanism,
• identification and design of a tailored trigger to cover correlated risks that will be highly disruptive to the
regional reserve operations,
• analysis of alternative transfer modalities, etc.
• Quality enhancement reviews like
• quality assessment review of the trigger, risk models and pricing of the risk transfer solution
• Development of national Agricultural Risk Management (ARM) and Disaster Risk Financing (DRF) strategies/action
plans for participating countries outlining how they plan to cover expected shock-related costs.
• Based on existing work quantifying agricultural risks on Ghana, Senegal, Niger and Burkina Faso, as well as at
regional level (West Africa Agriculture Risk Architecture and Risk Financing, World Bank 2020).
• More work is needed on prioritizing the existing risks to the agri-food sector and the associated impacts (e.g., in
terms of economic losses and resulting food insecurity).
• Knowledge management, capacity building and communications activities
13. Systems Building and Start-up costs - US$3M
This component will support the set-up of the ECOWAS risk team and will cover:
• Expertise and project management: operational support for the day-to-day management of component 3.1 (e) and
5 and to upskill and build capacities on risk finance of a dedicated team within ARAA.
• Technical services such as :
• Work on regional contingency planning and strengthening coordination framework among regional institutions
on contingency planning and response to food security crisis and on complementarity of the different risk
finance instruments as many countries have multiple instruments
• Risk modeling for a risk transfer product that matches key hazards (climate events, conflict, epidemic
(e.g., Ebola), sudden-onset price shock, etc.), exposure and vulnerabilities
• Market placement of the proposed risk transfer product, etc.
• Capacity building and trainings on risk finance for FSRP stakeholders on a menu of topics such as fundamentals
of risk finance, risk layering, risk finance instruments through modular trainings, etc.
• Operation support:
• development of an operational handbook providing details on the implementation considerations related to
the governance, flow of resources, targeting and delivery, provisions on rules to access the reserve etc.
• stakeholder engagement and awareness creation.
• Impact evaluation:
• The evaluation may potentially be carried out by AKADEMIYA2063.
14. Premium subsidies - US$20M
Premium support for a risk financing backstop to the regional reserve will help build greater financial resilience in the
face of shocks. The backstop proposed would be in the form of a formal insurance arrangement with existing insurance
providers in the region.
• Premium financing will take into consideration the InsuResilience SMART principles for premium and capital
Payouts: The payout of such insurance arrangement as backstop to RFSR will be made directly to ECOWAS RAAF/ARAA
in charge of purchasing grains.
Disbursement condition of the premium support (Value for money analysis): requires to research the market for
benchmark solutions for risk transfer solutions for food security, and to quantify the costs and benefits of various
solutions that could be used to strengthen the capacity of the RFSR to respond to food crises in the aftermath of a
• A cost benefit analysis (CBA) framework to compare the opportunity cost of the proposed solution (parametric
insurance) with that of alternative designs (for example, with different financial instruments, including risk retention
and transfer) and counterfactual situations to ensure an appropriate and cost-effective solution.
• This CBA must include sensitivity and scenario analysis to illustrate the conditions under which the proposed
initiative may or may not provide Value for Money
16. Intertwined Shocks Co-Influencing Food Security
Artwork Scarface by Nigerian painter
Segun Bamidele Aiyesan
Agro-Climatic Shocks Food Price Shocks/Market
Conflicts and Socio-Political
First Line of Defense: Village and Community Level
Second Line of Defense: National Level
Third Line of Defense: RFSR
Protecting people and their livelihoods
17. De-Risk RFSR through Various Instruments
Insurance Solution: financial payout
to the insured entity through an
index-based mechanism; regional
risk pooling to more effectively
hedge against systematic risks
Food Security Bond*: risk
securitization to transfer portion
of food security-related risks to
Physical Forward Contracts or
Options: hedge high grain price
in a pre-arranged purchase
agreement* with large suppliers
Other debt instruments
to capitalize: Impact
Bond, ESG Investing
* The term should be customized to support
RFSR’s objective e.g., buy/sell the commodity
at predetermined price upon triggering event
Institutional Investors, Development
Agencies, Trust Fund
* It will likely assume features of catastrophe
bond which the issuer retains the principal of
the bond if a specified event occurs.
Up to $20 M Premium
Subsidy from GRiF
Which one is most feasible?
18. Immediate perspectives = Feasibility study to be
conducted will …
• Perform food security risk assessment
• Understand drivers of food security in the region as well as country-level heterogeneity*
• Analyze peril types, locations and impact of historical events
• Understand data gaps and adjustment
• Stocktaking of relevant database, indices and indicators from multiple sources
• Data quality assessment (e.g., availability, credibility, relevance and affordability) and suitability for payment trigger (e.g.,
real-time monitoring capacity and supporting infrastructure of the indicators)
• Strategy to maximize usage of available data and innovation
• Identify a list of potential risk financing instruments
• Desirable features and customizable terms
• Pros and cons through quantitative/qualitative assessment
• Propose a viable instrument following value-for-money principles
• Contract structure of the deal, trigger options, expected policy terms and conditions
• Indicative pricing through scenario/sensitivity testing with number of beneficiaries to be reached
• Focus on stakeholder consultation throughout the process
• ECOWAS, ARC, WBG, EU and other partners and experts
• Risk writers and investors to assess insurability and investability
• Market consultation in forms of interviews, roundtable discussion and/or surveys
• Legal professionals – regulatory and reporting requirements
19. Navigating the Challenges
• Data availability (data collection and preparation)
• Trigger quality (minimizing basis risk)
• Desired coverage vs. realistic coverage
• Perils to include/exclude – what is marketable/insurable
• Geographic coverage
• Coverage period (single year with renewal or multi-year)
• Protection gap of RFSR vs. risk-return preferences of the market
• Transparency of the methodology and soundness of operational arrangement
• Harmonization of linkages between triggering modalities of RSFR system and that
from proposed risk financing system
• Sustainability of the proposed solution
20. Open for Discussions
• What are the challenges – financial, operational and/or technical - that
• What are lessons learned from past initiatives/programs that can be
applied to this project?
• How can we collaborate? Can you contribute to this initiative?
• Contact persons
• ECOWAS : Alain Sy TRAORE, Dir Agriculture & Rural Development –
• World Bank : Mrs KATIE KENNEDY FREEMAN, TTL FSRP -
23. Disaster risk financing instruments can help to ensure that
response funds are available faster and more reliably
Agriculture risk financing is the application of disaster risk financing instruments and principles to the agriculture
Disaster Risk Financing: „The
system of budgetary and financial
mechanisms to credibly pay for a
specific risk or risks, arranged
before shocks occur.“ (Centre for
Planning and arranging financing solutions ahead of shocks has
many potential benefits:
• Timeliness: Arranged instruments can ensure that response
money is available quickly when it is needed most.
• Cost-effectiveness: For many shocks – especially drought -
early response is much more cost-effective than traditional
• Predictability: By arranging funding instruments in advance,
Governments and households can achieve greater financial
and fiscal stability.
• Accountability: Financial sector instruments can heighten
traceability and efficient use of funds.
Examples: National disaster funds,
contingent credit lines, agricultural
insurance, sovereign risk pools, etc
24. GRiF Support to the Regional Food Reserve (RR) will
study, VfM analysis,
RR to countries
from the RR to the
of the risk finance
to overall RR
Capacity building, partnership with regional entities, M&E, innovation
Notes de l'éditeur
- As such the identification and design of a trigger to cover correlated risks that will be highly disruptive to the regional reserve operations is critical.
ECOWAS’ Regional Agency for Agriculture and Food (ARAA) in charge of the strategic food security reserve on the development a sustainable strategy to finance the backstop, analyze the different transfer modalities between the reserve and countries, value for money analysis of the risk finance solution, improve the rules for accessing the reserve (handbook), and an impact evaluation of the enhanced reserve with a risk finance solution.
Such work on trigger can be informed by work of several institutions, including the Centre for Disaster Protection and the Red Cross and considering Sahel Social Protection and ARC triggers. The appropriateness as well as the trigger timing are important consideration when designing the trigger mechanism.
Impact evaluation to ensure that the results from this GRiF financed activities are assessed and learned from. This will be especially important given that the expectation is that ECOWAS/member countries will continue to finance the backstop arrangements after the project. The evaluation may potentially be carried out by AKADEMIYA2063, given its capacity to conduct rigorous impact evaluations in the agri-food systems sector and experience or presence operating in the West Africa region.
ARC Ltd expressed a strong interest for market placement of such solution and has a strong comparative advantage position with the expansion of the ARC Group’s strategy, allowing them to underwrite risk models developed by third parties and to cover non-sovereign entities, their development mandate and existing MoUs with several members of ECOWAS. Also ARC Ltd is confident with the bidding process given the common objective of their group and FSRP on strengthening countries and regional institutions disaster risk management systems and access to rapid and predictable resources when disaster strikes to protect the food security and livelihoods of vulnerable populations. The following table provides an overview of all costs.