March 2013 Number 182 76204 www.worldbank.org/enbreve A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank‘s Latin America and Caribbean Region (LAC). Agricultural Supply Chain Risk Assessment in the Caribbean by Diego Arias Carballo and Laura dos Reis consisting of all the functions, players, and relations associated with the production, transformation, and distribution of a given food or agricultural product. Figure 1 presents a simple schematic description of an agricultural supply chain. Modern agricultural supply chains are networks that typically support three major flows: • Physical product flows: The physical product movements from input suppliers to producers to buyers to final customers; • Financial flows: The credit terms and lending, payment schedules and repayments, savings, and insurance arrangements; • Information flows: Flows that coordinate the physical product and financial flows. Rapid Agricultural Supply Chain Risk Framework1 Figure 1 Agri-Food Supply Chain Framework Given the pervasiveness of risks and recent structural changes in global and national agri-food systems, farmers, agribusiness, and Enabling Environment, Domestic and International governments face new challenges in the design of risk management Global Markets strategies. A Rapid Agricultural Supply Chain Risk Assessment, Physical Flows recently developed by the World Bank, constitutes a useful tool for Support National Market a system-wide approach to identify risks, risk exposure, the severity Services Exporters Retailers of potential loses, and options for risk management either by supply Financial Flows chain participants (individually or collectively) or by third parties Logistical Processors (government). Financial Intermediaries Information Flows Supply chain risk management is the systematic process of managing Technical Producers the most damaging events that can negatively affect the supply chain, and their likely incidence and impact(s). The proposed unit of Input Suppliers analysis for risk and risk management assessment is the supply chain, 1. Based on: Rapid Agricultural Supply Risk Assessment: A Conceptual Framework, Agricultural and Rural Development Discussion Paper 47. World Bank, 2010. 1 Logistics and communications are embedded in all these flows, structure information. The early stages of analysis may identify a and poor logistics and communications are often a major source of number of priority (tentative) risks for further investigation. risk facing an agricultural supply chain. The agri-food system also includes farmers and a diverse range of firms, including backward- Component 2—Risk analysis: Various risk events related to linked input suppliers and forward-linked intermediaries, weather, price, food safety, policy, labor, environment, logistics, processors, exporters, wholesalers, and retailers. The main activities and other factors are identified, characterized, and, where possible, for direct supply chain entities are as follows: quantified. The assessment team assesses the risk exposure of supply chain participants (examining the probability and potential • Input supply: The production and distribution severity of different risk events), thus estimating the expected of material inputs—such as fertilizer, seeds, losses arising from different risks for individual supply chain entities packaging, and such needs—utilized in the primary and for the supply chain as a whole. production, processing, and trade of the finished Component 3—Risk management and vulnerability assessment. commodity. Risk management capacities—existing risk management • Farm production: The primary agricultural instruments and their evident effectiveness and sustainability— production through the sale of a raw commodity at are assessed. Combining this assessment with information on the farm gate—either at literally the farm gate or expected losses, the assessment team is then able to identify areas at some other point where the farmer hands over of residual (high and low) vulnerability. ownership of the product to the next supply chain participant. Depending on the crop, some type of Component 4—Recommendations and suggested follow-up actions. The team identifies recommendations and suggested primary processing, such as the shelling or bagging actions for follow-up based on the conclusions of the rapid of dry grain, may take place at the farm level. agricultural supply chain risk assessment. This component includes • Processing: The transformation of agricultural suggestions in areas where additional information and analyses raw materials into one or more finished goods— are needed and recommendations regarding priority areas for through drying, canning, freezing, or many other investment and capacity building. methods. Raw commodities, of course, are also traded and distributed; thus, this stage may not The Case of the Haiti Coffee Supply Chain apply to every crop. Risk Assessment • Domestic and international logistics: The delivery of marketed commodities to their final market A coffee supply chain risk assessment was conducted in Haiti in destination. order to identify specific production constraints in the coffee sector and to develop a work plan to improve the financial management Figure 1 also maps out private and public sector entities that provide of systemic weather and price risks. Based on the four components support services, such as finance and insurance, advisory services, of the basic sequence, the assessment developed the following and logistics and information. Conditioning the entire supply work plan: chain are the domestic and international enabling environments. Domestic conditioning includes fiscal and financial sector policies, pricing and investment incentives and institutions, the regulatory Figure 2 and legal framework, and the like. The international, or global, Haiti: Vulnerability to Risks Based on Expected Loss and enabling environment includes international trade regulations Capacity to Manage Risks and agreements, other international protocols, and the policies or regulations of nations and trading blocs from whom the focal – - - - - - - - - - - - - - - - Capacity to manage risks - - - - - - - - - - - - - - - + supply chain sources and to whom it sells inputs or products. Expected losses 1 2 T1 3 T2 4 5 T3 Scolyte T4 High The basic sequence for a rapid agricultural supply chain risk Decline of Failure to Sharp exchange Non-cyclone cross-border regenerate rate appreciation excess rain assessment can be sub-divided into four major components: trade with the plantations Dominican Cooperative Transportation T5 Republic failure blockage due to damaged roads Component 1—Supply chain situation analysis: Secondary data Medium Hurricanes Exporters related to the supply chain structure, conduct, and performance Political risk default on loans T1 are gathered and analyzed. The assessment team gathers baseline Steep increase in banks’ interest and contextual information, maps the supply chain according to its T2 rates T3 T5 sectoral and spatial dimensions, and, where possible, gathers cost Low T4 2 Component 1—Supply chain situation analysis. The Haitian coffee adopting all three consistently and rigorously the infection can be industry has been constrained by systemic production problems greatly reduced. that have contributed to its decline over the years. These problems are related to the particular structure of the “creole garden,� which Improve capacity of exporters, in particular cooperatives. contributes to low on-farm coffee productivity and a land tenure Managerial problems among exporters can affect trade destinations system which inhibits long-term investments. Additional factors and production. Failures of coffee exporting cooperatives due to include: poor infrastructure, limited access to credit, aging coffee managerial, operational and financial problems have affected the trees, an aging farmer population, waning government interest in volume in the cross-border trade with the Dominican Republic. the support for the coffee sub-sector, and a lack of (international and This risk is considered high since current exports to the Dominican domestic) promotion of the Haitian coffee industry. Environmental Republic represent 28 percent of Haitian total coffee production degradation and an increase in annual infestation rates have also and Dominican traders help to set the Haitian coffee price (“café contributed to the rapid decline in production and yields. pile�). So any decrease in demand from Dominican traders can lead to a decline in prices paid to farmers since they have no alternative Component 2—Risk analysis. The assessment identified multiple markets but to sell domestically at lower prices. risks within the Haitian supply chain. These included production, market, political, and other risks. The Case of the Guyana Rice Supply Chain Risk Assessment Component 3—Risk management and vulnerability assessment. Figure 2 summarizes the supply chain’s vulnerabilities and Haiti’s ability to manage the different levels of risks. The report Figure 3 summarizes a supply chain risk assessment conducted also describes the risks affecting the existing supply chain and for Guyana’s rice sector. Agricultural risk management challenges prioritizes the areas requiring attention for risk management, include: investment, and capacity building. Risks considered are evaluated along five dominant supply chains: (i) artisanal coffee supply Component 1—Supply chain situation analysis. The number of chain for domestic consumption (58 percent of total volume); participants in the supply chain has dropped sharply over the (ii) commercial/industrial coffee supply chain for domestic past 30 years due to production consolidations. The number of consumption (6 percent of total volume); (iii) “café pile� supply farmers has dropped from 12,600 in 1978 to approximately 8,000. chain for export (6 percent of total volume); (iv) coffee supply chain The number of millers declined from 96 in 2000 to 69 in 2009. for informal trade with the Dominican Republic (28 percent of total Currently, the supply chain of rice is primarily geared towards volume); and (v) gourmet, fair trade, and other coffee supply chain the export market. Approximately 70 percent of the total rice for export (2 percent of total volume). The analysis reviewed and production is exported. Until 2010, the two major export markets rated from 1 (low capacity) to 5 (high capacity) the effectiveness for rice were the European Union (52 percent of total exports) and and capacity for managing risks. The resulting matrix provides five the CARICOM countries (34 percent). Since 2010, when Guyana’s tiers of vulnerability (T1 to T5) to the identified risks in terms of their preferential market access to the European Union was suspended, priorities: from risks with the highest vulnerability (T1), to risks with export destinations have shifted to Jamaica, Trinidad, and Haiti, the lowest vulnerability (T5). which currently represent 90 percent of Guyanese rice exports. Component 4—Recommendations and suggested follow-up Component 2—Risk analysis. Identification and ranking of major actions: The report provides a detailed description of possible risks is based on frequency and impact. The assessment also measures for risk management based on the diagram above. Potential high priority policies include: Figure 3 Guyana: Vulnerability to Risks based on Expected Loss and Improve government and on-farm management practices to Capacity to Manage Risks reduce annual infestation rates. The reduction in yields and quality can be attributed to the increased (–) - - - - - - - - - - - - - - - Capacity to Manage Risks - - - - - - - - - - - - - - - (+) incidence of diseases and lack of investments. In particular, Scolyte Expected losses 1 2 T1 3 4 5 infestation (coffee berry borer, an insect that damages the coffee T2 Flood risk : 1. due to Erosion of T3 T4 bean by boring holes in the cherries) has affected production and inadequate drainage preferential infrastructure, 2. duee market acce access yields with annual infestation rates ranging from 20 to 50 percent High all to excessive rainfall wat and 3. due to water T5 Reg Regulatory risk and production losses between 15 and 20 percent. Programs to managementent issues Blast eradicate this infestation have been cut over the years, including Weed pest and Weed, carc of Scarcity ed Delayed Price risk Risk of di disease : 1) red rice w water for yme payment re in increase the government agricultural services. In order to control this type Medium and 2) paddy borer irrigation In Increase ran in input transportation T1 prices co cost of pest a consistent program based on a triple action approach is y to Accessibility Low T2 dam roads T5 needed, including cultural, biological, and ecological controls. By T3 T4 3 evaluates risks for the three actors in the supply chain: farmers, shortages. During dry periods, farmers can pump as much water processors (millers), and exporters. as they want from the water streams in the irrigation canals; as a consequence, farmers who are located downstream do not have Component 3—Risk management and vulnerability assessment. water for irrigation. The government does not have any mechanism The assessment identified and classified risks in four categories— to solve this problem. Secondly, improved water management production, market, political, and other—and then by levels (high, during seasons of excessive rain can help improve crop yields and medium, and low). The resulting matrix classifies vulnerabilities the management of pest diseases. Excess rain exposes the crop to from the highest (T1) to the lowest (T5). The importance of this pests such as rodents and birds increasing the risks of lodging and matrix is that, through a process of prioritization, it is possible to grain shattering and affecting the final quality. identify those risks in T1 and T2 that are mainly responsible for causing volatility of earnings. Managing these risks will, to a large Improve mapping and targeting of infected regions, especially extent, reduce vulnerability of the rice industry. for red rice infestations. Component 4—Recommendations and suggested follow-up Sources of red rice are contaminated rice seeds, the existence of actions. The report provides a detailed description of possible red rice seeds in soil, and poor weed management. The incidence measures for risk management based on the risk assessment. of red rice leads to considerable volume and quality losses. An estimated 10 percent infection of red rice weeds reduces yield Increase public sector support for flood management. by 25 percent and crop losses could be as high as 60 percent The increased frequency of severe rainfall events exceeds in heavy field infestation. In 1998, 46 percent of the planted current capabilities. Greater public sector coordination is needed area experienced light red rice infestation, 15 percent experience to support a stronger flood management structure, including moderate infestation, and 5 percent experienced high infestation. additional investments in new infrastructure and in new drainage equipment. Flooding is one of the main causes for rice paddy Going forward crop losses. Paddy production is heavily reliant on the effective operation of drainage systems, which are a complex network of As the two cases show, in order to improve the competitiveness canals and secondary canals, many of which are outdated and of agricultural supply chains, it is important not only to look require major rehabilitation work. at value added opportunities, but at the improvement in the management of risks that can significantly set back returns from Improve water management at the farm level. investments. The Rapid Agricultural Supply Chain Risk Assessment Additional support to farmers is needed to improve operations of methodology is a useful tool, which, complemented with other the water management system. Improved water management value chain analyses, can provide the public and private sector with at the farm level can help to solve two vulnerabilities at the same a prioritization of investments and a sense of the magnitude of the time. First, it will help to reduce the lack of irrigation during rainfall potential damage and frequency of various hazards. Bibliography About the Authors Guyana Rice Supply Chain Risk Assessment. World Bank, 2011. Diego Arias Carballo is Senior Agriculture Economist and Laura dos Reis is Market Based Agricultural Risk Management in the Caribbean. World Bank, a Consultant, both in the Agriculture and Rural Development Department 2012. (LCSAR) Rapid Agricultural Supply Risk Assessment: A Conceptual Framework, Agricultural and Rural Development Discussion Paper 47. World Bank, 2010. Disclaimer: The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. About “en breve�... “en breve� is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of The World Bank – http://www.worldbank.org/lac. 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