Enabling productive but asset-poor farmers to succeed: A risk financing framework

Eugene Gurenko and Mahul Olivier

No 3211, Policy Research Working Paper Series from The World Bank

Abstract: This paper examines how market-based risk financing instruments could enable asset-poor but productive farmers exposed to production shocks to engage in riskier but higher-return agricultural activities. The financing of these exogenous shocks is addressed in a conceptual framework based on an optimal allocation of capital where the farm is viewed as a business unit. The approach allows for (1) testing the business viability of a specified crop by assessing the minimum business capital required to ensure the continuity of the business after the occurrence of an adverse production shock; and (2) designing an optimal risk financing program to finance the minimum capital requirements using a combination of instruments (insurance, savings, and borrowing). The authors provide numerical and graphical examples to illustrate the relevance of this financial approach to the specific issues of agricultural risk management.

Keywords: Insurance&Risk Mitigation; Payment Systems&Infrastructure; Environmental Economics&Policies; Banks&Banking Reform; Labor Policies; Banks&Banking Reform; Environmental Economics&Policies; Insurance&Risk Mitigation; Economic Theory&Research; Crops&Crop Management Systems (search for similar items in EconPapers)
Date: 2004-02-01
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (4)

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