Vergara Air CIRAD 2010

transcript

Information Needs for Agricultural Risk M t i D l i C t iManagement in Developing Countries

Agricultural Market Information Systems in Africa:

Oscar Vergara

Agricultural Market Information Systems in Africa: Renewal and ImpactMontpellier, FranceMarch 29-31, 2010

2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 1

Overview of the MPCI Program: Corn, Soybean and Wheat Dominate the US Crop Riskand Wheat Dominate the US Crop Risk

Source: Risk Management Agency 2009

Weather Is the Key Source of Uncertainty Affecting Yields

% Crop Loss

Drought & Heat 37%Drought & Heat 37%Excess Moisture 33%Hail 13%Cold, Frost & Freeze 5%Flood 1%Wind, Hurricane 4%

Subtotal – Directly related to weather 93%Disease 5%Insects & Wildlife 1%Insects & Wildlife 1%Other 1%

Subtotal – Other perils 7%

Total 100%

Still … Every Billion Dollar Weather Disaster Came as a Surprisep

---- 1988 ----

D h /H W S 1988 1988 d h i lDrought/Heat Wave Summer 1988. 1988 drought in central and eastern U.S. with very severe losses to agriculture and

related industries; estimated $40.0 (71.2) billion damage/costs; estimated 5,000 to 10,000 deaths (includes

heat stress-related).

Midwest Flooding Summer 1993. Severe, widespread flooding in central U.S. due to persistent heavy rains and

thunderstorms; approximately $21.0 (30.2) billion

---- 1993 ----

thunderstorms; approximately $21.0 (30.2) billion damage/costs; 48 deaths.

The 2008 Iowa Flood Event

Traditional Approach for Estimating Crop Losses

Observed Corn Yields

Statistical

lity Expected Yield

Yield Distribution

70 73 76 79 82 85 88 91 94 97 00 03

Yield – bushels/acre

Market information

• Significant weaknesses with traditional approach that inaccurately accounts for ty

Loss Distribution

accounts for– Changes in technology– Changes in market information– Weather variability

– Weather variabilityLoss distribution

Probabilistic Agricultural Model Components

YIELD / PRICEHAZARD

Price ModelDetrended Yield

Distribution

AWI Calculation

Exposure Information

Event Yield Generation

FINANCIAL

Gross Loss

Market Information

Gross Loss Calculations

Government Donor

Interventions

Net Loss Calculations

Subsidies

AWI (Agricultural Weather Index) is a Measure of Yield Variability Due To Weather

Temperature Precipitation

County-Specific AWI

IndexAvailable Water Capacity

(Soil)Crop Specific Data

County Specific AWI Index

AWI Removes Weather Variability from the Historic Yields to Reveal True Technology Trend

Yield Time Series

17 Bushels

True Technology Trend with Weather Variability -B

y yRemoved

Trend Line Influenced by Weather Variability

1990 1995 2000 2005 2010

20081990 1995 2000 2005 2010

The Choice of Methodology Can Have a Large Impact on Insurance Contracts

Probability Density Function of Detrended Yield Time Series

Without AWIWith AWI

Yield Guarantee

Without AWI

100 150 200 250

Yield – Bushels/Acre

100 150 200 250

YIELD / PRICEHAZARD

Distribution

AWI Calculation

FINANCIAL

Gross Loss

Market Information

Government Donor

Interventions

Subsidies

Corn Price Volatility During 2008

2008 Price Volatility for Corn2008 Price Volatility for Corn

(CME December Corn Contract)

Planting Price

Harvest Price

Corn Price Model

180%e)

Historical Values

2008 Example of

0%60% 80% 100% 120%

Harv Example of

a yield scenario

Event Yield (Percent of Normal)

YIELD / PRICEHAZARD

Distribution

AWI Calculation

FINANCIAL

Gross Loss

Market Information

Government Donor

Interventions

Subsidies

County Loss Distributions Form Basis of Event Catalog

• 10,000 outcomes based on variation from historical dataC t t h l l l d• Current technology level and spatial correlations

• Current market information• Not biased by recent years• Not biased by recent years

YIELD / PRICEHAZARD

Distribution

AWI Calculation

FINANCIAL

Gross Loss

Market Information

Government Donor

Interventions

Subsidies

Different Applications of the Agricultural Risk Model

Household Risk

ManagementManagement

Planting and Harvesting D i i

Financial Planning

Agricultural Risk Model

DecisionsPlanning

for Crop Producers

Input Risk pPurchases

Transfers

Sales Planning

AIR Crop Model Clients

Expected Yields (Corn) – RMA and AWIIS

Iowa Corn GRIP (Harvest Revenue Option) 90% Coverage

Probability of Loss

2008 2009

Real-Time MonitoringMaximum Temperature Weekly Accumulated TemperatureMinimum Temperature

Growing Degree Days Surface Moisture LevelGrowing Degree Days Surface Moisture LevelCrop Moisture Index

AWI C t Yi ld Di t ib ti AWI – County-Specific IndexSt d di d P i it ti AWI – County Yield Distribution AWI County Specific IndexStandardized Precipitation

CropAlert: Real-Time Crop Yield and Weather Forecast Information Service

USDA - NASS Crop Production 2009 Summary

AIR Proven Technology: USDA Validation and Commodity Trading Simulation Awardsy g

Summary

• Traditional approaches for estimating crop losses need toaccount for changes in technology, price volatilities, marketaccou t o c a ges tec o ogy, p ce o at t es, a etinformation changes and, most significantly, the effect of weather

• A weather-based agricultural risk model based on a fullyprobabilistic yield and price catalog can take into account thep y p gspatial and temporal correlations of crop losses

• Extension agents, agricultural educators and donors shouldcouple their marketing information systems with agricultural riskp g y gmodels that can better quantify the potential crop portfolio riskunder future adverse weather conditions and improve the type ofinformation that producers receive for risk management

Data Requirements for Agricultural Risk Modeling

Modeling Agricultural Perils in Developing Countries: What is Needed?

Validation

Calibration

ModelsData

Calibration

Sources of Information for Agricultural Risk Modeling in the United States

Weather InformationNational Oceanographic and Atmospheric Administration (NOAA)National Weather Service (NWS) Climate Prediction Center (CPC)

Soil InformationUnited States Geological Survey (USGS)United States Forest Service (USFS)

Crop and Livestock InformationCooperative Research, Education and Extension Service (CREES)Cooperative Research, Education and Extension Service (CREES)Agricultural Research Service (ARS)

Price and Yield InformationNational Agricultural Statistics Service (NASS)National Agricultural Statistics Service (NASS)Economic Research Service (ERS)

Historical Loss InformationRi k M t A (RMA)

Risk Management Agency (RMA)

Sources of Information for Agricultural Risk Modeling in Developing Countries

Weather InformationProduction Estimates Crop Assessment Division (PECAD-FAS)

Food and Agriculture Organization (FAO-METART ARTEMIS)Soil Information

Famine Early Warning System Network (FEWS-NET)Food and Agriculture Organization (FAO-METART ARTEMIS)

Crop and Livestock InformationGlobal Information and Early Warning System (FAO-GIEWS)Global Information and Early Warning System (FAO GIEWS)Agricultural Ministries, Educational Institutions

Price and Yield InformationAgricultural Ministries Trade AssociationsAgricultural Ministries, Trade AssociationsFood and Agriculture Organization Statistical Database (FAOSTAT)

Historical Loss InformationA i lt l L d P d A i ti

Agricultural Lenders, Producer Associations

Number of Weather Stations in Central America

Honduras

52 weather

Guatemala

102 weather stationsstations stations

Ni El SalvadorNicaragua

31 weather

stations

El Salvador

30 weather

stations

Source: World Meteorological Organization, 2009

Coverage of Weather Data in the United States

United States

9,000+,

weather

stations

Source: National Oceanographic and Atmospheric Administration, 2009

In Crop Production, Every Growing Season is Different

Agricultural production is very risky due to weather uncertaintiesWeather experienced by crops at different stages of development will have anWeather experienced by crops at different stages of development will have an impact on harvest outcome

Seedling Stages

adequate soil moisture

and temperature

needed for germination

Pod Filling Stages

adequate soil

moisture needed forVegetative Stages moisture needed for

grain filling

more resistant to

environmental stress

Global Perspective on Enhanced Vegetation Index (EVI)

Global tropical cyclone tracks, 1985 - 2009

Vergara Air CIRAD 2010

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