Gurenko, EugeneMahul, Olivier2013-08-012013-08-012004-02https://hdl.handle.net/10986/14743This paper examines how market-based risk financing instruments could enable asset-poor but productive farmers exposed to production shocks to engage in riskier but higher-return agricultural activities. The financing of these exogenous shocks is addressed in a conceptual framework based on an optimal allocation of capital where the farm is viewed as a business unit. The approach allows for (1) testing the business viability of a specified crop by assessing the minimum business capital required to ensure the continuity of the business after the occurrence of an adverse production shock; and (2) designing an optimal risk financing program to finance the minimum capital requirements using a combination of instruments (insurance, savings, and borrowing). The authors provide numerical and graphical examples to illustrate the relevance of this financial approach to the specific issues of agricultural risk management.en-USCC BY 3.0 IGORISK MANAGEMENTAGRICULTURAL INSURANCEFARM INCOMECROP INSURANCEFINANCIAL INSTRUMENTSAGRICULTURAL ECONOMICSAGRICULTURAL MANAGEMENTPOVERTYFARMERSFOOD & AGRICULTURE ORGANISATION ACTUARIAL SCIENCEADVERSE SELECTIONAGRICULTURAL ACTIVITIESAGRICULTURAL BUSINESSAGRICULTURAL INSURANCEAGRICULTURAL PRODUCTIONAGRICULTUREANALYTICAL APPROACHAVERAGE YIELDSBANANASCAPITAL MARKETSCAPITAL REQUIREMENTSCATASTROPHE COVERAGECATASTROPHESCATASTROPHIC RISKSCDFCOCOACOMMODITYCONCEPTUAL FRAMEWORKCONTRACTUAL SAVINGSCOVERAGECREDITCROPCROP INSURANCECROP ROTATIONCROP YIELDCROP YIELDSCROPSDEBTDEFORESTATIONDISASTERSECONOMIC CONSEQUENCESEXCHANGE RATESEXPECTED RETURNFAOFARMFARM INCOMEFARMERFARMINGFARMSFEASIBILITY STUDIESFERTILIZERSFINANCIAL PERFORMANCEFINANCIAL RISKFINANCIAL SECTORFINANCIAL STRUCTUREGOVERNMENT INTERVENTIONGOVERNMENT SUBSIDIESHERBICIDESINCOMEINSURABILITYINSURANCEINSURANCEINSURANCE COMPANIESINSURANCE MARKETSINSURANCE PREMIUMSINSURANCE PRODUCTSINSURERSINTEREST RATEINTEREST RATESLIQUID ASSETSLIQUIDITYMARGINAL PRODUCTIVITYMARKET RISKMORAL HAZARDOPERATING LOSSESPOLLUTIONPOOR FARMERSPRICE RISKPRODUCERSPRODUCTION COSTSPRODUCTIVITYPROFIT MARGINPROFITABILITYPROGRAMSREINSURANCERESERVESRISK MANAGEMENTRISK MANAGEMENT POLICIESRISK TRANSFERSAVINGSSOCIAL SAFETY NETSSYSTEMIC RISKTRANSACTION COSTSVALUE ADDEDWEALTHWorld Bank10.1596/1813-9450-3211