Agricultural risk are element or factor that constraint agricultural production and expose them to danger or loss.
Agricultural risks can range from independent (for example, localized hail losses or an individual farmer’s illness) to highly correlated (for example, market price risk or widespread drought). Managing risks in agriculture is particularly challenging, as many risks are highly correlated, resulting in whole communities being affected at the same time. Clearly, given the widespread nature of resultant loss, financial recovery is particularly difficult and challenging. For governments, the fiscal implications of social safety net payments or the rebuilding of ...view middle of the document...
Risk management strategies available to households can be grouped into three categories.
1. Households and communities employ risk management strategies that include crop and labor (on and off farm) diversification, risk-pooling arrangements among peers or family members, sharecropping, investing in semiliquid assets such as livestock or buffer stocks, farmer self-help groups, and loans from moneylenders.
2. Markets create mechanisms to help farm households manage weather risks, including new technology; improved seed varieties; formal financial services, including savings, lending, and insurance; risk-sharing arrangements with input suppliers and wholesalers; and information technology tools.
3. Governments make investments to help farm households manage weather risks. Governments can provide state-sponsored lending and insurance services; infrastructure, including roads, electricity, and water; educational services; research and development funding to improve technology used in agriculture; weather data and information systems; and disaster relief. Yet, because government resources in lower-income countries are limited, many households will not have access to most of these services. For example, disaster relief is often slow in coming and may not reach the households most in need. Thus, government help can be useful when households receive it, but in many cases, may not be something on which households can rely.
While many of the strategies described above can help households cope with the impact of low and moderate weather risks, these strategies are likely to be ineffective in the case of larger weather shocks. Major disasters render household strategies inadequate for several reasons.
First, diversification strategies...