Agribusiness Supply-Chain

Risk Assessment
Session 6
Agribusiness Management I
What is Agri Supply Chain?
 The agricultural supply chain includes input supply, production, postharvest, storage,
processing, marketing, distribution, food service, and consumption functions along the
farm-to-fork continuum. This encompasses various functions, institutions, and
organizations across different sectors and boundaries.
 The primary goal of agricultural supply chain management is to deliver the right
products in the right quantities, at the right time and place, and at a competitive cost, to
generate profits.
 Primary activities within the supply chain include input supply, farm production,
processing, and domestic/international logistics.
Three Major Flows: Modern agricultural supply chains involve three main flows:
1. Physical product flows: Movement of products from input suppliers to consumers.
2. Financial flows: Credit, payments, savings, and insurance arrangements.
3. Information flows: Coordination of physical and financial flows.
The framework on the right is necessarily
simplified. In reality, supply chains are more
complex with many participants. They involve
product, finance, and information flows often
traversing large geographical and international
areas and with distinct intra- and inter-seasonal
dimensions. Thus analysis is done on various levels:
1. Dyadic level: The two-party relationship, such
as between input supplier producer, producer
and buyer, producer and financial institution.
2. Sub-chain level: A set of dyadic relationships,
such as input supplier and producer, and buyer.
3. Chain or network level: The entire supply chain
and network of operations (backward and
forward linkages, horizontal linkages, and
enabling environment)
Risks in Agri Supply Chains
 Weather-Related Risks
 Natural Disasters
 Biological and Environmental Risks
 Market-Related Risks
 Logistical and Infrastructural Risks
 Managerial and Operational Risks
 Public Policy and Institutional Risks
 Order of Risk Magnitudes
Transmission Of Risks Within Agri Supply-chains
 Risks in supply chains can be either idiosyncratic (local and affecting specific
participants) or covariate (snowball effects impacting broader market conditions).
 Risks and risk management within a supply chain are interconnected and require a systems
approach.
 Understanding interdependencies among risks derived from supply chain participants and
functions is crucial. Risk management actions by one party can create additional or
different risks for others.
 Understanding interdependencies among risks derived from supply chain participants and
functions is crucial. Risk management actions by one party can create additional or
different risks for others. (Transmission among supply chain)
For example, a processor power outage can affect farmers' market opportunities and result in
unfulfilled trade orders. Also, power outages affecting stored materials can lead to product
contamination and recalls, impacting traders and distributors.
Risks Management in Agri Supply-chains
Risk management can be approached through ex-ante (before the event) or ex-post (after
the event) strategies.
 Ex-ante measures include risk avoidance, sharing or transfer, retention with proper
budgeting, risk reduction, and risk mitigation. Ex-ante actions aim to reduce or eliminate
risks, but they come with costs and may transfer risks to other parties.
 Ex-post activities involve responding to realized losses, such as selling assets, seeking
temporary employment, or relying on government safety nets like subsidies and food aid.
While they address immediate impacts, they can have negative long-term consequences.
Risks in supply chains can be managed at various levels, including individual enterprises,
interactions with other participants, community networks, industry associations, and
external entities like banks and government agencies. Risk management can take both
informal (self-insurance, community-level arrangements) and formal (contracts, financial
instruments) forms.
Risks Management in Agri Supply-chains
Alternative instruments of risk management:
 Technology Development and Adoption: This includes research and development efforts to improve
agricultural practices, postharvest technologies, software tools, education programs, and information
technology systems.
 Enterprise Management Practices: Strategies such as diversification, just-in-time management,
improved forecasting, inventory control, food safety practices, certification of best practices, and logistics
planning.
 Financial Instruments: These encompass formal and informal credit and savings mechanisms, insurance
(both formal and informal), warehouse financing, price hedging instruments, and other financial tools.
 Investments in Infrastructure: Funding and development of transport, communication, energy,
information transfer, storage, processing facilities, and marketplaces, as well as weather stations and
other relevant structures.
 Policy and Public Programs: Institutional arrangements, government policies, regulations, property and
human rights, labor laws, disaster management units, safety nets, and similar public initiatives.
 Private Collective Action: Commercial and non-commercial actions taken by farmer groups,
cooperatives, industry associations, contractual arrangements, and partnerships.
RapAgRisk Assessment
 The RapAgRisk Assessment aims to identify major risks, vulnerabilities, and priority
areas for investment and capacity building in agricultural supply chains. It is a time-
bound process conducted by a small study team over approximately three months.
 It combines quantitative and qualitative analyses to map risks and vulnerabilities
throughout the supply chain.
 The assessment combines secondary data analysis with consultative processes involving
interviews and field exercises with a diverse range of supply chain participants, service
providers, and policy-makers. The goal is to achieve common understanding and agreed
commitments among stakeholders.
RapAgRisk Assessment
 Supply Chain Situation Analysis: Gathering
and analyzing secondary data related to
supply chain structure, conduct, and
performance.
 Risk Analysis: Identifying and characterizing
various risk events such as weather, price
fluctuations, food safety, policy changes,
labor issues, and logistics challenges.
 Risk Management and Vulnerability
Assessment: Evaluating existing risk
management instruments and their
effectiveness.
 Recommendations and Follow-up Actions:
Providing recommendations and suggested
actions based on the assessment's findings.
Supply Chain Situation Analysis
This analysis involves:
•Contextual Analysis: Evaluating the role and significance of the commodity in the
economy, market demand, structural patterns, policies, institutions, and recent performance.
•Mapping the Supply Chain: Depicting activities, actors, relationships, and dimensions of
the supply chain structure.
•Cost Structure: Determining the supply chain's cost structure, which can be used for
simulations and understanding the impact of adverse events.
 For this assessment, the baseline data is collected at the beginning, covering aspects such
as commodity market characteristics, supply chain structure, and risk factors. Data
sources include existing surveys, studies, meteorological data, production information,
interviews with various stakeholders, and more.
Risk Analysis
The risk analysis and risk management involve several steps:
•Characterizing key players, critical flows, and transactions within the supply chain.
•Identifying and characterizing various risks faced by different participants, ranking risks
based on probability and severity.
•Examining existing ex-ante and ex-post risk management strategies taken by participants.
•Assessing the effectiveness, costs, and benefits of these strategies and proposing
improvements.
Risk Management and Vulnerability Assessment
Risk Management Assessment Vulnerability Assessment
1.Identify and characterize existing risk 1.Focus on potential vulnerabilities to fall
management strategies and measures of below performance benchmarks due to risky
supply chain participants and third parties. events.
2.Consider the locus, timing (ex-ante/ex- 2.Consider underlying future conditions, recent
post), formality, type, and breadth of changes' impact on risk management capacity,
application of risk management approaches. resilience in the face of shocks, and changes in
production and marketing arrangements.
3.Questions to explore include accessibility,
affordability, effectiveness, constraints, and 3.Identify vulnerabilities that can be addressed
preferences of risk management strategies. and those requiring substantial resources or
capacity-building.
4.Utilize a 1-5 scale to rate the
effectiveness and capacity for managing 4.Quantify and rank-order vulnerabilities,
risks. clustering them even in qualitative analysis.
Recommendations and Suggested Follow-Ups
1.Conclude the assessment with recommendations to improve existing risk management
measures and promote additional measures.
2.Focus on ex-ante measures to reduce, mitigate, or share risks, while also considering
coping strategies for adverse shocks.
3.Address both formal and informal risk management options, with attention on enhancing
formal mechanisms and improving informal approaches.
4.Prioritize areas with high vulnerability for individual participants or the entire chain,
considering past experience and unfolding market changes.
5.Lay the groundwork for new approaches and instruments where needed, addressing data,
capacity, policy, and regulation shortcomings.
6.Develop an action plan highlighting areas for near-term investment, capacity building,
and facilitation, and identify subjects for further quantitative assessment.
THANK YOU