Risk Reduction, Mitigation & Transfer

Common mitigation strategies (to reduce exposure to, severity of, or probability of loss from an event) include irrigation, integrated pest management systems, the adoption of risk-reducing technologies such as improved seed varieties, and diversification across commodities, regions, and/or off-farm enterprises.

Other mechanisms, however, focus on transferring exposure to risk using market transactions that shift risk from some participants or institutions onto others that might be better able to cope with it. These mechanisms include instruments designed to help manage price risks, such as futures market contracts (or derivatives) and options, or crop insurance to help manage yield risk. In developing countries, share tenancy has perhaps been the most commonly used risk transfer mechanism, yet innovations in market-based transfer mechanisms (such as index-based insurance products) are opening opportunities to expand the use of these types of innovative instruments.

As illustrated in the table below, a wide menu of tools and strategies is available. Investments in infrastructure, improved production and marketing practices, and market-based risk transferring mechanisms, in combination with measures applied at a macro level, are critical for the holistic management of agricultural risks.

Supply Chain Specific Production, Marketing, Processing

Support Service Providers

External to Supply Chain

Source: Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework, The World Bank Agricultue and Rural Development (ARD) Team.