Managing Risk in Agriculture: A Holistic Approach (PDF)

Chapter 3. An Overview of Risk-Related Policy Measures (S. 73-74)

Which policy measures have a direct risk dimension?

All agricultural policy measures have an impact on risk. Some measures, however, are specifically designed to reduce price, yield or income variability, or to smooth consumption, and thus help farmers manage risk, either because they prevent or reduce the occurrence of risk (risk reduction), or because they limit the effect of risk on income (risk mitigation) or consumption (risk coping). Risk reduction measures would be, for example, disease control measures such as vaccination, which aims to limit the occurrence and spread of animal diseases and thus prevent/reduce potential losses in livestock receipts. Market price support (MPS) measures, which stabilise domestic prices, also reduce domestic price risk.

Risk mitigation and coping can operate through established (ex ante) mechanisms such as insurance schemes or income stabilisation programmes, or through ex post interventions such as ad hoc assistance to compensate income losses. In this chapter, the policy measures that are specifically designed to reduce price, yield or income variability, or to smooth consumption are referred to as “risk-related” measures. Following the conceptual framework developed in OECD (2009a), they are classified as either contributing to risk reduction or risk mitigation/coping.

Among risk reduction measures, MPS is identified separately as it dominates any other risk reduction measure in many countries in terms of support level. Other support measures that provide a stable (fixed rate) transfer to income can also have risk impacts and enter into farmers` risk management strategies. This is the case for direct income payments, in particular those that are highly decoupled. Decoupled income payments provide stable support, which contributes to reducing the coefficient of variation (ratio of standard deviation to mean) of