Agricultural Risk Transfer

CHAPTER 1Agricultural Markets and Risk Management

1.1 INTRODUCTION

Agriculture has always been a core human activity, and over the past century it has made enormous progress in increasing the production of food and agricultural raw materials. Much of the growth is due to specialisation, verticalisation, expansion in land use and water resources, the improvements in farming techniques and risk management. At the same time, food production has become globalised, is dominated by a few producing countries, and has managed to keep pace with population growth and increasing demand.

The large growth in production, verticalisation and industrialisation has led to increased stress on natural resources and a higher vulnerability to unexpected shocks, including natural disasters and epidemic diseases that impact local and global markets. Climate change, including more extreme weather events, and future economic developments are major factors that drive supply and demand for agricultural products and food security. Risk management, including risk transfer, has been an integral part of advancing agricultural production in coping, mitigating and transferring production risks. The (re)insurance industry and capital markets have been developing products to satisfy the growing need of farmers, agribusinesses and governments to transfer risks.

This chapter provides a brief introduction of the main trends that drives demand and supply in agriculture, while trends in the individual sectors are discussed ...