Risk and Vulnerability Mailing List Archive

["Vinay Chand" <<address removed>>]

The usual picture portrayed about the farmer is that they live with risk mainly 
in the form of natural factors such as weather, disease and pests. These are 
wild cards that the farmer is vulnerable to. Many try to work out insurance 
schemes that will protect farmers against these. The trouble is that when 
natural problems come they can come in series, so it may be possible to do 
something about one bad harvest but two or three bad ones in a row would be 
difficult to provide for. In any case, the vulnerability of the small farmer is 
best expressed by the fact that he is in a week position to take out insurance 
in any form. The Government can pay the premiums for a private insurance scheme 
but if the Government recognises its role as protector then there is no reason 
to pay premiums.

Purely or mostly subsistence farmers are most vulnerable to natural factors 
since they are mostly out of the cash economy. The others are most at risk, 
weather excluded, to their management of cashflow. Assuming that they can sell 
their labour, their allocation of labour time to their own farm depends on 
money they have. Those lifted above poverty line such as many farmers in 
Punjab, India do often have enough saved to finance themselves for most of the 
crop cycle. Others may seek to borrow if they are confident of the returns. The 
only lenders for small farmers are traders who expect repayment when the crop 
is sold through them. 

Application of inputs too needs cash. Credit may be obtained from suppliers 
directly or through traders allowed to channel inputs. This credit too is 
repayable when the crop is sold and often ties the sale to the immediate credit 
provider.

The two above are commercial risks and if the farmer can finance the two 
through loans, he would have to pay at least half his expected farm gate 
revenue for them. The farmer would also be tied to selling through the lender 
and thus maybe not the best price and to minimise exposure the farmer has to 
harvest as soon as possible. The poor farmer often gets a terrible farm gate 
price. It is rigged against them due to their poverty.

Social costs are a reality and often a nightmare. There is no cover for 
unexpected costs and an illness or accident can lead to long term indebtedness 
to money lenders at rapacious rates. The quality of life often depends on being 
able to meet the social costs. 

Therefore, the farmer is in a debt trap. Lenders are unlikely to finance 
anything unusual and it is far and most safest to stick to the crops in which 
the farmer has experience and which are the normal ones traded in the area. 
Everything is geared to trying to keep going on an established track. The same 
crops, the same lenders, the same borrowers. Provided farmers stick to the 
formula there is an element of private sector cover for risks, the farmer can 
borrow to cover one bad harvest although repayment may be more difficult.

To help the farmer take on risk by changing what they are doing in the form of 
diversification or technology, requires reducing his degree of dependence on 
the system. This is not easy to do since the farmer needs long term assurance, 
they do not believe do gooders or bureaucrats over those they have worked with 
for a long time. Backing their ideas may be very risky and thus costly. This 
makes observers sometimes think that farmers are risk averse or stupid and that 
what they require is education however that reaches them. In reality, face to 
face contact, time and practical demonstration are required and most of all 
relief from debt.

As for the wild cards-weather. Cover against that requires truly deep pockets. 
Far deeper than those of the farmer. Even with increased income, the farmer's 
ability to insure is dubious. The economics of such insurance is even more 
dubious. Paying for insurance can amount to trading possible trouble for 
guaranteed trouble. The state can and sometimes does insure the farmer against 
price movements but that is a costly exercise that few countries are rich or 
committed enough to undertake. 


Best wishes,

Vinay Chand,
230, Finchley Road,
London NW3 6DJ, UK
Tel: 44-20-7794 5977
Fax: 44-20-7431 5715
<address removed><mailto:<address removed>>