Risk Management for Survival

The world’s poorest populations are typically those most exposed to hazard, according to risk management expert Nicholas Freeland who offers some lessons on how donors can support vulnerable populations and enhance their coping strategies.

“Life is a risk, and all of us are exposed to risk all of the time,” said Mr Freeland from the Regional Hunger and Vulnerability Programme, speaking at the recent ‘Hot Topics in Agriculture’ seminar in Brussels. “Survival is about effectively managing that risk.”

The world’s poorest populations have the least resources to manage and cope with risk, but that doesn’t mean that they don’t have any coping mechanisms at all.

Large families, the buying or selling of assets and community ties are all important first lines of defence for when rains don’t fall as anticipated, rivers flood or crops fail.

But as erratic and unpredictable weather patters wreak havoc on subsistence farming communities across the world’s poor rural regions, donors should increasingly consider ways of supporting additional coping strategies.

Three areas of support in which the European Commission is taking an active interest is: warehouse receipts, weather insurance and social transfers.

The warehouse receipts system is a way of enabling farmers to deposit surplus produce in an approved warehouse in return for a receipt that can be used as collateral. Alternatively, the stock can be withdrawn from the warehouse and sold when prices are strong, rather than being sold immediately upon harvesting when prices are typically lower due to an abundance of supply. This system works well in relatively developed countries, like South Africa.

Weather insurance enables a group of producers to obtain insurance against adverse weather that might result in a poor harvest, under a single policy. The advantage of such a mechanism is that it can provide financial support quickly and efficiently and farmers can band together to get the financial support that individually they would not be able to access.

Though the most formal of the mechanism outlined by Mr Freeland, social transfers have the advantage of providing a regular payout to famers that enables them to plan ahead and take greater risks in other areas of their operations.

All these mechanisms, and more, are explained fully in the video presentation by Mr Freeland. 

“I think the donors as a whole are recognising the benefits of this kind of risk management, and we are seeing an interest, particularly with the European Commission, in supporting this kind of programme,” said Mr Freeland. “In each of the three areas I have mentioned there are examples where the Commission is getting involved, is supporting programmes, and I think that’s a very encouraging sign.