CoffeeSectorRisk

Coffee
Sector Risk
Management

MarcSadler
TeamLeader
AgriculturalFinanceandRiskManagementUnit
AgricultureandRuralDevelopmentDepartment
TheWorldBank
Presentationtothe
InternationalCoffeeOrganization
2nd ConsultativeForumonCoffeeSectorFinance
6March2012

About ARMT
TheAgriculturalRiskManagementTeamispartoftheWorld
BanksAgricultureandRuralDevelopmentDepartment
ARMTfocusonassistingclientsinidentifyingandmanaging
agriculturalrisks
ARMTClientsinclude:
Macro Governments
Meso Banks,Insurers,FarmerAssociations,Exporters
Micro Traders,Cooperatives,Farmers
FundingofARMTcomesfromSwissSECOandtheDutch
government

Risk more than just price.

Priceriskisjustoneofmanyrisksfacingthecoffeesector

Riskidentification,assessmentandprioritizationarevitalstepsin
developinganappropriateriskmanagementstrategyforeach
country

Failuretoprioritizeriskscanresultininappropriatefocusbeing
madeononlysomerisks

Forexample:

Weather Weathereventsrangingfromdroughtstofloodscan
generatesubstantiallossesfortheentiresupplychain

Pest&Disease Outbreaksofpestsanddiseasemayresultin
heavylossestoproducersandthewidercoffeesector

Relationship between Risk and Finance

Tacklingthefinancinggaprequiresacomprehensive
understandingofallsectorrisksandthemeansforprioritizing
anddealingwiththem

Majorrisksaffectingcoffeesectorsacrosstheworld:
Production

Drought
Pest&Disease
Erratic Rainfall
ErraticRainfall
Quality

Enabling
Environment

Market
IntraseasonalPrice
Volatility
Long Term Price
LongTermPrice
Collapse
InputPrice
Volatility
Counterparty
ExchangeRate
InterestRate

Reputational
Theft
Logistics
RegulatoryChanges

Developing a Sectoral Risk Management Strategy

ARMThaveconductedsupplychainriskassessmentsforthe
coffeesectorsofHaiti,Cameroon,VietnamandUganda
Theriskassessmentsidentified,quantifiedandprioritizedkey
risks facing the sectors and the stakeholders
risksfacingthesectorsandthestakeholders
Risksvarybycountryintermsofimportance,impactand
significance
Onlyoncerisksareunderstoodandprioritizedcana
comprehensiveriskmanagementstrategyforthesectorcanbe
developeddetailingactionsandresponsibilities
p
g
p
3Tasks

3Risks

3Layers

3Stakeholders

3Strategies

Identify

Production

Idiosyncratic

Macro

Mitigation

Assess

Market

Covariate

Meso

Transfer

Manage

Enabling
environment

Catastrophic

Micro

Coping

Risk Layering - Roles & Responsibilities

Probability

Ariskmanagementstrategyinvolvesassigningandlayeringrisk,
ensuringthatlevelsofriskaredealtwithinanappropriatewayby
themostsuitablestakeholders

Losses
Risk reduction
Riskreduction
Improvedagronomicpractices;
Wateruseefficiencyand
irrigation;
Droughtresistantvarieties;
Improvedforecasting.

Retained
Savings;
informal
coping
strategies.

Farmers&Cooperatives

Risk
Risk
Transfer
Insurance

Public Intervention
PublicIntervention
Catastrophicrisk
pooling;(ARC)Safety
Nets/Humanitarian
Assistance.

Cooperatives

Government

Next Steps /Going Forward

ARMTaimstocollaboratewithICOtoundertakeanexercise
whichexaminescoffeesectorriskandaccesstofinance
Researchwillconsiderhowrisksvaryacrosstheindustryand
considerhowtheycanbestbeprioritizedandmanaged
Abetterunderstandingofhowunmanagedrisksrestrictfinance,
andhowimprovedriskmanagementreleasesfinance,willbe
thegoalofthisexercise
h
l f hi
i

Thank You!
Formoreinformation,pleasevisit:
www.worldbank.org/agrm
www.agrisktraining.org
www.agriskmanagementforum.org