vergara air cirad 2010
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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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 2
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%
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 3
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.
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 4
The 2008 Iowa Flood Event
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 5
Traditional Approach for Estimating Crop Losses
Observed Corn Yields
100
120
140
Statistical
lity Expected Yield
Yield Distribution
0
20
40
60
80
70 73 76 79 82 85 88 91 94 97 00 03
Yiel
d
Yield – bushels/acre
Prob
abil
197
197
197
197
198
198
198
199
199
199
200
200
Year
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
Prob
abili
t
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 6
– 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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 7
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
Index
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 8
County Specific AWI Index
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 9
AWI Removes Weather Variability from the Historic Yields to Reveal True Technology Trend
000
Yield Time Series
180
2018
020
180
20
17 Bushels
re
140
160
y
140
160
y
140
160
y
True Technology Trend with Weather Variability -B
ushe
ls/A
cr
0012
0
y
0012
0
y
0012
0
y yRemoved
Yiel
d
8010
8010
8010
Trend Line Influenced by Weather Variability
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 10
1990 1995 2000 2005 2010
x
20081990 1995 2000 2005 2010
x
20081990 1995 2000 2005 2010
x
2008
The Choice of Methodology Can Have a Large Impact on Insurance Contracts
Probability Density Function of Detrended Yield Time Series
0.01
5
Without AWIWith AWI
0.01
50.
015
0.01
5
Yield Guarantee
0.01
0
Without AWI
0.01
00.
010
0.01
0
Prob
abili
ty
0.00
50.
005
0.00
50.
005
100 150 200 250
0.00
0
100 150 200 250
0.00
0
100 150 200 250
0.00
0
100 150 200 250
0.00
0
Yield – Bushels/Acre
100 150 200 250
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 11
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 12
Subsidies
Corn Price Volatility During 2008
2008 Price Volatility for Corn2008 Price Volatility for Corn
(CME December Corn Contract)
Planting Price
Harvest Price
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 13
Corn Price Model
180%e)
Corn
ntin
g Pr
ic(%
of P
lan
vest
Pric
e
Historical Values
2008 Example of
0%60% 80% 100% 120%
Harv Example of
a yield scenario
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 14
Event Yield (Percent of Normal)
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 15
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 16
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 17
Subsidies
Different Applications of the Agricultural Risk Model
Household Risk
ManagementManagement
Planting and Harvesting D i i
Financial Planning
Agricultural Risk Model
f C
DecisionsPlanning
for Crop Producers
Input Risk pPurchases
Sales
Transfers
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 18
Sales Planning
AIR Crop Model Clients
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 19
Expected Yields (Corn) – RMA and AWIIS
ILLI
NO
II
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 20
Iowa Corn GRIP (Harvest Revenue Option) 90% Coverage
Probability of Loss
2008 2009
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 21
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 22
CropAlert: Real-Time Crop Yield and Weather Forecast Information Service
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 23
USDA - NASS Crop Production 2009 Summary
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 24
AIR Proven Technology: USDA Validation and Commodity Trading Simulation Awardsy g
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 25
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 26
Data Requirements for Agricultural Risk Modeling
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 27
Modeling Agricultural Perils in Developing Countries: What is Needed?
Validation
Calibration
ModelsData
Calibration
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 28
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)
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 29
Risk Management Agency (RMA)
Sources of Information for Agricultural Risk Modeling in Developing Countries
Weather InformationProduction Estimates Crop Assessment Division (PECAD-FAS)
g p g
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
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 30
Agricultural Lenders, Producer Associations
Number of Weather Stations in Central America
Honduras
52 weather
t ti
Guatemala
102 weather stationsstations stations
Ni El SalvadorNicaragua
31 weather
stations
El Salvador
30 weather
stations
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 31
Source: World Meteorological Organization, 2009
Coverage of Weather Data in the United States
United States
9,000+,
weather
stations
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 32
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
g g
more resistant to
environmental stress
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 33
Global Perspective on Enhanced Vegetation Index (EVI)
Global tropical cyclone tracks, 1985 - 2009
2010 AIR WORLDWIDE CORPORATION AGRICULTURAL MARKET INFORMATION SYSTEMS IN AFRICA WORKSHOP 34
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