The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1158

117.1 Managing the Stranded Assets and Protecting the Food value Chains from Natural Disasters Managing the Stranded Assets and Protecting the Food value Chains from Natural Disasters Venkatachalam Anbumozhi and Vangimalla R Reddy Managing the Stranded Assets and Protecting the Food value Chains from Natural Disasters Venkatachalam Anbumozhi1 and Vangimalla R Reddy2

Abstract

Stranded assets are those that have suffered unanticipated or premature write downs and lose value or turn into liabilities due to external shocks. Environmental risk factors such as natural disasters, , water scarcity etc. that could cause asset stranding of agriculture are poorly understood in the context of food value chain (FVC). The value at risk (VaR) globally is significant in agriculture due to over-exposure to stranded assets throughout our financial and economic systems. Our objective is to discuss the issue of stranded assets and the environmental risks involved with food value chains. This paper provides an overview of the environmental risk disasters and climate change as agriculture asset stranding in FVC. We present the impact of disasters triggered by natural hazards on the economic losses of the agricultural value chain and loss of value added growth with further discussion on the principles of effective disaster risk reduction in FVC. Disaster when combined with climate change poses challenges by creating fluctuations in yields, supply shortfalls, subsequent global trading patterns, and substantial effects on FVC. Finally, we present strategies for building resilient FVCs in partnership with communities. Keywords: Climate change, Disasters, Food Value Chain, Stranded Assets,

Introduction

The escalated agricultural commodity prices recently have increased an interest in agriculture as an asset category. It has made the flow of the capital into much-needed productivity enhancing investments and has added to rise in the value of underlying assets like farmland. Stranded assets, where assets get affected to obligations from early or unanticipated write-offs, down revaluations or conversion, can result from a range of environment-related hazards (Caldecott and McDaniels, 2014). Environment associated risk factors such as natural disasters and climate change are substantial and can risk agricultural stranded assets throughout the entire food value chain (FVC). The amount of value possibly at risk in agriculture worldwide is considerable due to environmental risk factors, which could be more than $11.2 trillion loss annually measured by the 0.5 percent VaR (value at risk) under the extreme loss of scenario. This would clearly represent significant stranding of assets (Caldecott et al., 2013). To date much of the debates and research into stranded assets – broadly defined as incurring significant unanticipated or premature write downs or devaluations – has focused on

1 Economic Research Institute for ASEAN and East Asia (ERIA), Jakarta, Indonesia 2 United States Department of Agriculture (USDA), Belstville, Unites States of America

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1159 energy sector With the growing understanding that disasters and climate change are becoming a major factor in the creation of stranded assets (Thorbecken and Hseieh, 2010), it has become clear that it is not just energy sector that will be affected. Assets in agriculture may also be at risk of stranding, because physical impacts such floods, droughts affects food value chain. Regulatory and technological change amplifies them. Stranding risks have a potential impact on various actors poisoned along the food value chain. In FVCs, everyone along the chain from the producer (farmer/rancher) to consumer becomes invested and tend to be collaborative than merely transactional in ensuring to produce sustainable value added product. Food value chains have the potential to supply nutritional and food security to the whole global population. Accumulation of greenhouse gases and accelerated global population growth are more emerging pressures on agricultural assets that increase exposure and their susceptibility to disasters and climate change threat. Natural disasters and climate change are the sorts of threats that restrict the ability of the global FVCs to provide entire food and nutritional security, which can result in economic losses and internal equilibrium in some vulnerable nations (Hill and Pittman, 2012). This causes an advantage loss to agricultural assets and effect the total FVC. Food produced and consumed in an increasingly complicated global system, where environmental shocks in one part of the system can have major impacts on others. These pressures will probably demand adaptation of agricultural value chain systems to effectively meet the challenges presented (Hill and Pittman, 2012). Reducing the hazards of agriculture to environmental risks such as natural disasters and climate change in FVC is critical to ensuring the resilience of the global food systems. Analyzing disaster risk in FVCs is an emerging field of study that can assist the development of effective disaster risk reduction strategies (Hill and Pittman, 2012). Agricultural value chains provide linkages between global food system components and mechanics through which food travels from manufacturers to consumers. Using various risk management and adaptation strategies can address the threat in these systems to protect the value of agricultural assets that will be at risk. The objectives of this chapter are to provide an overview of both agriculture as a stranded asset and of the risks to the food value chain due to environmental risks, especially natural disasters and climate change. Challenges faced by the food value chains due to environmental risks and principles to reduce the risk are discussed. The chapter also provides illustrative case studies of disaster risk reduction and building climate resilient food value chains to provide insights into ways of transitioning to a more resilient future to protect agricultural stranded assets.

Stranded Asset and Agriculture as Stranded Asset

Stranded assets can be defined as those which have endured prior to the end of their economic life to obligations from conversion or devaluations. While standing may occur for many different reasons, in the context – the risk of stranded assets can be divided into broad categories. First, physical risks – such as disaster and climate variability, which have various

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1160 consequences on food production, trade and distribution, Second, regulatory and economic risks affecting food value chain – such as new legislation to support Sendai Framework of Action on Disasters and the standards that avoid mal-adaption. It is critical to recognize that various factors underlying the risks of stranding do note operate in isolation; rather, they have influence over on another. Assets risk becoming stranded as an effect of sudden change driven by environmental or social factors. The recent boom in prices of the agricultural commodity (Figure 1) has ignited an interest in agriculture as an asset class. “Stranded assets”, where environmentally unsustainable assets have problems with unanticipated or early write-offs, down revaluations, or conversion to obligations, can result from a variety of environment- related hazards (Caldecott et al., 2013). The food sector is one of the least prepared for future megatrends, such as natural disasters and climate change (KPMG, 2012). Exposure to the stranding of assets will be highest where the value of assets is high and the susceptibility to drivers is high. It is important to take into account, nevertheless, that a major element of the value of agricultural assets will not be priced by marketplaces (Caldecott et al., 2013). So far most of the studies assets that were stranded has centered on particular assets or individual firms and sectors, specifically those associated with extraction. The economical operation of markets at the national level could be changed if asset stranding linked to environmental risks happens on a large scale yet (Kepler Chevreux, 2014).

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0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Meat Diary Cereal

Figure 1 Changes in agricultural commodities price index Source: FAOSTAT There's no established definition of “stranded assets” in the current literature covers. While some have concentrated narrowly on or other fossil fuel reserves ( Kepler Chevreux, 2014), others have taken a much more comprehensive strategy that takes into account any asset whose value may be endangered by environmental risks (Caldecott et al., 2013). The list of the assets regarded by Caldecott et al., 2013 as stranded in agriculture by environmental hazards was provided in Table 1.

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1161

Table 1 Classification of stranded assets Type of Stranded Asset Example

Natural assets Farmland, land improvements, ecosystem services, poorly defined water property rights

Physical assets Animals, plantation crops, farm buildings, infrastructure, processing facilities, dams, , towns Financial assets Farm loans, financial derivatives of commodities, well-defined water rights Human assets R&D expertise, agricultural technologies, and management experience Social assets Policy, business and community networks

Environmental Risks

Environmental risk can be described as the probability value of an unwanted event and effects that arise from a spontaneous natural origin or from a human action that is transmitted through the environment (Fisher, 1980). There are many emerging risks that may lead to assets stranding. Environment associated risks impacting agriculture resources may strand assets through the entire food value chain and are candid (Caldecott et al., 2013). The report by the Stranded Assets Programme at the University of Oxford’s Smith School of Enterprise and the Environment recognizes numerous risks to agriculture assets of the environment including increased weather variability, climate change, water scarcity, land degradation, biodiversity reduction, land-use regulations, changing regulations and the greening of the agricultural value chain. Comprehensive effects that work to alter system function are usually produced by the combined results of different environmental risks like natural disasters, climate change, water scarcity and land use change. Thresholds are anticipated to be crossed more frequently in the coming decades due to individual agitations (Caldecott et al., 2013). These environmental risks are inadequately comprehended and therefore are often mispriced, which has resulted throughout our economic and fiscal systems in a significant over- exposure to assets that were environmentally unsustainable. Value at risk, arising from unexpected unanticipated changes in output and/or input prices; can change one or more investors determined by its origin. Research at the Smithsonian business school from the University of Oxford, determined value at risk computations under three situations: current, moderate and extreme. The statement identified one in twenty chance the world’s agricultural assets and stock investments may fall per annum amongst $ 4.4 billion for the present circumstance, $6.2 billion for moderate and $ 8 billion for the extreme case scenario at 5% VaR and at 0.5% VaR losing can almost double from $ 6.3 billion from current scenario to $ 11.2 billion for extreme circumstance. (Caldecott et al., 2013). It is crucial to adopt strategies by traders, company and public policy makers to manage agricultural stranded asset from environmental hazards as critical infrastructure, trillions of dollars and value across the agricultural value chain at risk. In an effort to consider the effects

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1162 of environmental risks on the economy it additionally may require discussions on global risk, resilience, and adaptation.

Food Value Chain and Environmental Risks

Overview of Food Value Chain

A value chain is series of organizations or players working together for a specific product to meet market demand. FVCs are fundamental elements of the global food system. FVCs represent a model of action by which farmers and consumers of agricultural products form vital cooperation with other actors of the chain (for example aggregators, processors, distributors, retailers, and customers) to enhance financial returns through product differentiation that progress environmental or social principles. Associates in these business partnerships understand that producing the highest quality of the product and maximizing its value depends on mutuality, cooperation, and shared support (Diamond et al., 2014). The FVC incorporates a network of partners required in growing, processing, and selling the food that consumers eat, from farm to table. The FVC includes various steps and participates diverse actors.

Figure 2 Components and actors of Food Value Chain As illustrated in Figure 2, FVC embodies the actors and functional values of an FVC reveals the fundamental set of activities, which in some situations symbolizes. Each of the components in these chains is going to have their own unique requirements, which the producer should take into consideration, together with those of the consumer. The nature of the assets class and the vulnerability of each actor is described in Table 2. The characteristic magnitude of risk associated each actor in FVC is discussed below.

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Table 2 Overview of disaster risk at component level along a Food Value Chain Value Chain Asset Vulnerability Components Standing crop, irrigation Increased costs of farm inputs such as system, livestock shelters, fertilizers, seeds, livestock feed and hatcheries, grain reserves, veterinary care etc, reduced demand for dams, farm access roads, input, decreased production, limited Producers equipment, farm schools support of technology, increase and co-operatives, loans, ineptness and erode livelihoods, deplete bio diversity, eco system, savings, sale of vital productive assets R&D, agriculture etc. technologies etc. Infra structure, processing Lower revenues, high operational cost, facilities, roads, dams, unexpected expenditure to meet, Processors towns, facilities for reduced quality, high price index, low storage, loans etc. revenues etc. Buildings, roads, dams, Income loss, lower purchasing power, towns, facilities for Distributors/Retailors reduced quality, loss of market access, storage, management, weak social support networks etc. community networks etc. Commodities price index, Food inflation, Reduced quantity and eco system, infrastructure, Consumers quality of food, food insecurity and roads, dams, towns, malnutrition community networks etc.

Producers

The producers grow, control production, and trade food products to ensure the quality and value added of their products and also to function in a cost-effective way. Producers adopt safety requirements and rigorous quality and regulations in the food markets (Dolan and Humphrey 2004). Producers related to food production includes crops, lives stock and fisheries. Together with the production they also do essential processing for example sorting, grading, and bagging (Deloitte, 2013). Food production typically includes all agricultural stranded assets specified in section.2 and firmly associated with the natural environment like soils, water bodies, and ecological systems. Production consequently can be affected by the environmental risk factors which are, beyond the control of producers, to a varying amount. And has social and environmental effects which are progressively shifting from externalities to production expenses that are internalized.

Processors

Processors are involved in both the preparation of fresh foods for the market as well as the generation of prepared food products. Both primary and value added manufacture processors process and market food products. Processing may also occur on the farm with food safety precautions and proper facilities to downstream packaging. Aggregation facilities, frequently called regional food hearts, permit multiple smaller companies to unite capabilities and their products to fulfill with bigger marketplace demands (Deloitte, 2013).

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Processors are also generally more susceptible to disasters and climate change. All components in FVC are interdependent on one another so environmental risk impact on the producers makes processors access fewer commodities and also have an effect on processing equipment that can lead to increased market prices. Processors are additionally inclined to have limited diversification capacity and face an unfavorable policy environment. They are often constrained by a lack of startup capital and insurance to cover loss and damage on their infrastructures from environmental risks and high-interest rates charged on loans with an overall effect on physical, financial and social assets.

Distributors and Retailers

Distributors are the chain of intermediaries including wholesalers and retailers, who market and distribute food from one business to another eventually reaches the consumer. The implications for retailers are essential, and the strong observation of vendors’ quality assurance procedures is becoming an ambitious and vital effort that increases in complexity as a number of providers grow (Deloitte, 2013). In extreme environmental events that are intense, restricting agro-processing capacity and leading to higher production, processing and promotion costs with distributional impacts not only at the farm level but across a wide array of industries and sectors. The transportation costs could be increased by extreme weather events. In some nations that are poor, a big share of perishable food is lost during the food distribution as a result of inefficiency or lack of refrigerated transport due to extreme weather conditions. This will cause an impact on physical, financial, social and human assets of agriculture.

Consumers

Consumers purchase and consume food. They can affect the complete FVC to some degree by their preferable dietary options, which may determine what the companies produce. Buyers also can influence other elements in the FVC by their choices, which comprise, for value improvement, for example, branding, and accreditation. Reduced commodity options, effect on transportation, quality of food and food prices due to environmental risks impacts the consumers causing food insecurity which will effect physical, human and social assets.

Stranding Factors and Its Impact on Actors

The physical and economic factors that may lead to stranding create physical, financial and societal risk along the value chain are shown in Table 3. All the four categories of actors positioned along the FVC may be affected. They include producers and land owners, who benefit directly from agricultural production, and lease holders, for example those who have long-term rights to crop production such as plantations of banana, coffee, tea etc In the case of delayed business continuity after the disasters, to the extent that lease-holders have options to

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1165 exit concessions early, the risk may ultimately face by the government or the private owner of land, as happened in 2011 Thai floods (Anbumozhi, 2014). For small holding farmers, who are likely to have few alternative options, or those locked into long leases, the cost of stranding will be borne directly by concession-holders. Small farmers may be particularly at risk as they lack resources to invest in adaptation measures to manage physical and environmental risks or to diversify into alternative investments/business models in the face of regulatory risks. Larger scale standing can impact actors involved in the FVCs. Such as the owners of infrastructure such as dedicated roads, railways or port terminals etc to transport process food commodities that have become obsolete. Distributors and retailers may also be exposed to risks, especially, if there are major changed in food production patterns over a long period. While global food commodity value is dominated by small number of very large corporations, which may well be able to absorb the impact of individual risks and by adopting diversified portfolio, maintain market dominance, there may be none the less be impacts on company value, if production and consumption patterns shift as a result of disasters and climate change. Given the FVC progresses from producer via the distributor, the risk of the significant impact frons stranding is likely to diminish the closer the position is to the consumer, which applies not only to private companies but also to the shareholders and investors in publically traded companies. The scale of risks to financial and insurance sectors may be determined by the same factor.

Table 3 Relationship between actors and impact on stranded asset risks Stranding Risk Physical Assets Financial Assets Societal Assets factors

Physical Increased Degradation of food Loss of value for Loss of natural vulnerability production producers and capital and infrastructure due to retailers reduction in eco- Loss of Natural disasters system services Capital Loss of value of Damage to transport infrastructure Increased risk of infrastructure owners both private health and government

Economic Making resilient Change in demand Loss of value for Impact on FVC for agricultural upstream and national commodities both downstream employment, tax Adapting to local, national and producers of revenues and Climate Change regional level unsustainable food trade variability through Regulations related production in technological to Sendai Frame disaster and climate changes work and COP 21 prone areas

Stranded assets along FVC could be influence by natural capital. Natural capital is not currently included in accounting of farmers income and corporate balance sheets, and hence the role that natural assets play in underwriting financial value and the risk associated with those assets is often insufficiently recognized. Caldecott et al (2013) identified that there is 0.5% chance and annual natural capital loss of $6.3 trillion, $8.7 trillion and $11.2 trillion in the current, moderate and extreme scenarios, respectively. Regulatory efforts may be

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1166 forthcoming aimed at giving more weight to natural capital considerations in determining financing value and therefore increased risk values of those stranded assets.

Disaster Risk and Stranding in FVC

FVCs represent an essential part of the global food system. Exposure and the susceptibility of agricultural value chains to external shocks and natural hazards can have cascading and far-reaching effects on global food security. The discussion of disaster risk on agricultural assets in this chapter is framed around the FVC. Between 2003 and 2013, natural disasters such as storms, floods, drought, tsunamis, and earthquakes caused an estimated loss of $1.53 trillion with 2.02 billion individuals affected and causing death to 1,159,925 individuals (CRED). Markets are additionally affected by disasters by affecting food prices. For instance, more than double its value had been reached by the food price index by 2011 when compared to 2002, which signifies the longest sustained cyclical rise in actual agricultural commodity costs experienced over the last 50 years. This was due to the factors such as three droughts in Australia, between 2001 and 2007 and a heat wave during the summer of 2010 in central Asia and other calamities (FAO, 2013). Also, economic losses connected with land degradation have recently been estimated as $ 490 billion per year which was 5% of total agricultural gross domestic product (GDP) (UNCCD, 2013). Food value chains are considered as systems that were vital to focus on when studying disaster risk because of their asset value loss that was significant. Disaster risk additionally threat disintegration or lack of agricultural value chains. In the case of extreme disaster risk events, few elements of the value chain may become disengaged leaving other components potentially more susceptible. An outline of disaster risk and vulnerability in FVC was listed in Table 1. Most of the literature has concentrated on disaster risk merely at the level of production as it's the critical component of the FVC. Disasters can cause considerable damage to physical assets of agriculture such as farm lands, crops, irrigation systems, livestock shelters, and equipment, all of which will affect the production. Disasters strand natural assets through ecosystem degradation and loss, including increased soil erosion, declining rangeland quality, salinization of soils, , and biodiversity loss. Accumulative eco system loss or degradation reduces the availability of commodities and opportunities to producers (FAO, 2013) thus affecting the human assets of agriculture. Reduced production from crop, livestock and aquaculture, and forestry causes significant economic losses to farmers (Figure 3) which frequently includes a ripple effect on the FVC (FAO, 2013). The data in the figure are from that total of 75 disasters both storms and floods occurred between 2002 to 2011.

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100 Storms 90 80 Floods 70 60 50 40 30

20 Pecentage Damage of Pecentage 10 0 Crops Livestock Fishries Forestry Figure 3 The percentage of damage reported for the agriculture Source: FAO, 2013 Reduction in agricultural production after disasters can induce modifications in agricultural trade flows, which thus can boost imports and lessen export revenue effecting social assets of agriculture. In a comprehensive analysis conducted by FAO of 116 disasters influencing 59 developing countries between 2003 and 2011 disclosed that food imports expanded by $ 33 billion after disasters over the interval regarded, relating to 28 percent of the estimated value of imports (Figure 4). Production losses can lessen agriculture value added or sector growth, a vital driver of GDP and economic development of the country. According to the appraisal of 125 disasters that impacted 60 developing countries between 2003 and 2013 by FAO, a substantial fall in agriculture value-added growth after disasters was noticed.

13 13

6 Increase in Imports

1 USD Billion USD

-1 -1 Decrease -3 -4 in Exports Africa Asia Latin Near East America and Carribean Figure 4 Decreases in exports and increases in imports after disasters (in USD billion) Source: FAO, 2013

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1168

In 55 percent of the events assessed, a decline in agriculture value-added growth in the year of disasters was observed with 1.6% in Asia disasters between 2003-2013 by region (Figure 5). (FAO, 2013). At the level of processing and distribution, disasters can cause destruction to infrastructures for example facilities for storage, processing, marketing and transport, buildings and equipment of farm and cooperatives. Damage to transportation and storage services ultimately will have an effect on the distribution of meals and on consumers. They will encounter heightened threat to the nutritional values along with uncertain but undeniable adverse effects on food quality and quantity. More frequent disasters are already having significant impact on agriculture sector in developing countries. For eg, severe droughts followed by flooding in 2014 caused sharp decline of sector in Indonesia (Falatehan, 2016).

Latin America Africa Asia and Carribean Near East

0 -0.7 -0.5 -1.6 -1 -2.7 -1.5 -3.5 -2

Percentage -2.5 -3 -3.5

Figure. 5 Average share of agriculture value added growth lost after Source: FAO, 2013 From an investment perspective, such declines are not necessarily problematic in the medium term. In mid-2015, for example, it was predicted that a 6% decrease in production in the event of moderate El Nino in South East Asia and 15-20% drop if the occurrence was extreme. However, while the initial impact can be downturn in business, price increases usually follow. El Nino events in 1997-98, 2006 -10 contributed to price increase of 75%, 40% ad 22% respectively (Malay Mail, 2015). This would suggest there is awareness of risks in the business community need to be enhanced, to manage the impacts along the value chain.

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Climate Change Risk and Stranding in FVC

Rising temperatures, altered precipitation patterns, and recurrent extreme weather events are being perceived due to climate change across the globe and all have significant negative effects on the world economy (Olesen et al., 2007). Climate change impacts the typical temperatures as well as extreme temperatures, raising the livelihood of environment related natural disasters. Climate change is among the key factors influencing the agro-food production and farming practices globally (KPMG, 2013). Climate change will basically rely on the environment and affects FVCs, notably at the production phase because farmers are the least prepared to adapt (KPMG, 2013). Climate change risks so are very important and are extended from production to additional elements of FVC. Over the past several centuries, rapidly expanding human-induced emissions of greenhouse gases have triggered changes in rain patterns increases worldwide average temps, and rising ocean levels. Changed rainfall patterns, and greenhouse gas emission, increasing temps have immediate effects on crop yields (IPCC, 2012). For example, yields of maize and wheat are sensitive to heat, each day above 30°C in the growing period reduces the final yield by one percent under optimum rain fed conditions and by 1.7% under drought conditions (Lobell and Field, 2007). Not just will crop yields diminish as a result of high temperatures but growth rates including dairy production and meat from animals, fisheries decrease in extreme warm or cold scenarios (OECD, 2009). Therefore, the physical assets of agriculture for example multi-year plantation harvests have been designated exceptionally susceptible to changes in the annual precipitation patterns and amount (OECD, 2009). Processing, packaging and storage are liable to be influenced by altered temperatures that could raise spoilage and prices. and rain fall patterns change water levels in the lake and rivers, and severe heat can obstruct rail , water, and street transport. This will have an impact on producers, distributors and retailers. Rising temperatures could also make utilization more challenging by raising food safety risks and may be a concern for consumers and human assets of agriculture (Caldecott et al., 2013). Social assets such as agricultural cooperatives, networks for distribution and marketing produce, finance relationships between farmers, agribusiness are less vulnerable to climate change. Financial assets including farm loans, banks and other financial organizations can handle and are also less susceptible to stranding (Caldecott et al., 2013). Climate change is additionally affecting water supply in a few zones of the world. A large volumes of water required for pumping, treating, and moving expansive volumes of water require a lot of vitality. This will be a huge problem for the world’s food producers who should overcome the challenges of climate change. Climate change appears to influence increased interest in agricultural exports from regions that experience production problems yet have sufficient finance to purchase imports, and it is likely that improved export demand will be met in the near-term (Figure 6). The data was predicted for 2030 calculated relative to 2010 for both 2030 base line and 2030 climate change scenarios.

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180 160 2030 baseline 140 120 100 80 60 40 20

0 Increase in market export prices relative to 2010 2010 (%) to relative prices export market in Increase

Figure 6 Predicted impact of climate change on world market food export prices. Source: OXFAM, 2011 In grazing farming that is intensive, climate change risks can result in significant reduction in forage that is available to livestock. Particularly, famine may cause decreased rate of the herd or in extraordinary instances the liquidation of gain (Stockton et al., 2007). In summary, the stranding of asset from change climate is already occurring. Inertial in the climate change system means that the decision makers and investors need to seriously think about the adoptive measures and mitigation options along FVC. However, research and public debate have not yet made the connection between climate induced impacts and the stranded assets.

Regulatory Risks of Stranded Assets

As discussed earlier, the impact of disasters and climate change is largely studied and to some extent quantified. A lack of detailed data along FVC and modelling means that it is not possible to state in detail the potential financial losses. Nevertheless, depending upon the time frame in which certain policies are implemented will also likely to impact investment, shares and assets. At global level, the Sendai Frameworks on Disaster Risk management, Sustainable Development Goals and Paris Climate Agreement posses both regulatory risks and

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1171 opportunities to increase the value of stranded agricultural assets. The Sendai Framework is a 15-year, voluntary, agreement which recognizes that the State has the primary role to reduce disaster risk but that responsibility should be shared with other stakeholders including local government, the private sector and other stakeholders. It sets out seven targets as (i) (a) Substantially reduce global disaster mortality by 2030, aiming to lower average per 100,000 global mortality rate in the decade 2020-2030 compared to the period 2005-2015. ii) Substantially reduce the number of affected people globally by 2030, aiming to lower average global figure per 100,000 in the decade 2020 -2030 compared to the period 2005-2015. (iii) Reduce direct disaster economic loss in relation to global gross domestic product (GDP) by 2030. (iv) Substantially reduce disaster damage to critical infrastructure and disruption of basic services, among them health and educational facilities, including through developing their resilience by 2030. (v) Substantially increase the number of countries with national and local disaster risk reduction strategies by 2020. (vi) Substantially enhance international cooperation to developing countries through adequate and sustainable support to complement their national actions for implementation of this Framework by 2030 (viii) substantially increase the availability of and access to multi-hazard early warning systems and disaster risk information and assessments to the people by 2030 This along with other international goals and agreements reached in 2015, Sustainable Development Goals (SDGs) and COP21 Paris Agreement represent another source of change that may affect investments in FVC. The SDGs will influence international development priorities within the period 2016-30, ie within the time from that is highly relevant to stranding. SDG2.4. By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters and that progressively improve and soil quality. In addition to SDGs, the ratchet mechanism in the Paris Agreement, whereby pledges will be revisited every five years to close the gap with below 2 0 C trajectory. Should result in increasingly ambitious mitigation targets. If resources are adequate, Sendai Framework, SDGs and Paris Agreement could have significant impact not only on agriculture production systems through regulations that do not support sustainable development targets but also investments into those systems. It is difficult to assess the extent to which investment mechanisms as a part of FVC resilience have the potential to cause stranding. Much depends on whether active markets for such instrument is created, and the international financial flows are coming into developing member countries in Asia. Another concern is the time lag between ratification of the Paris Agreement in 2020 and its scheduled entry into force in 2020. It means that the necessary incentives for FVC resilience may not be in place for some time to come. Other domestic disaster risk management and climate adaptation policies could enhance risk stranding. For example, government aim to mainstream climate change and disaster management in agricultural sectoral planning. Regulations that affects future food production

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1172 through domestic policy aimed at actions to limit unsustainable agriculture, could result in stranding risks along the FVC.

Principles of Enhancing FVC Resilience to Disasters

The degree to which disasters cause disruptions along the FVC and create food insecurity changes; depending on several variables include the nature, location, scale, timing and size of the disaster, the vulnerability of the populations to shocks as well as the strategies introduced by governments to alleviate the effect of disasters. Disaster risk reduction strategies may be executed at quite a few levels. Foods value chain resilience to disasters and protecting the agricultural assets relies upon various factors such as like prior experience, perceiving the danger, studying characteristics and understanding the value of risk etc. A number of disaster strategies are discussed below centered on previous studies and various factors.

Disaster Profiling and Preparedness

Strategies to implement disaster risk reduction should be established on an evaluation and prioritization of the risks that people face, as well as their ability to adapt and resist the effects of those risks and protecting their assets. The assessment of the disaster incorporates typology, recurrence, and severity of the hazard. Recognize geographical communities and areas which are most exposed to disasters and evaluate the function of livestock, agriculture, fishery and forestry line in disaster risk management and linkages with other associated institutions (FAO, 2008). Involving the communities in disaster management and transforming them into disaster resilient communities includes understanding the risks and creating response plans that are appropriate. Disaster management relies upon the source of information and early warning (Eiser et al., 2012). Preparedness measures are taken immediately ahead of time of an estimated or introduced risk to reduce possible impacts. Essential elements of disaster preparation are the forecast, issuing warnings and alerts, contingency planning the post-disaster scenario, protective infrastructural actions, and household level readiness actions. Nonetheless, to be able to be effective and assure a disaster risk reduction in the agriculture value chains, alerts must be linked to information on the possible impact on the agriculture market and precautions to reduce the hazard. The risk measurements in agricultural value chains include raised seeds beds, proofing of storage facilities, livestock shelters and strategic animal fodder reserve etc. that ensure the protection of agricultural physical assets and their value.

Diversification

Diversification is considered as an important aspect of disaster risk reduction. Diversification in agricultural is fundamentally adding new crop varieties and new strains of

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1173 livestock. Diversification is a vital resilience strategy for agro-value chains and is required to preserve ecosystem functioning (Lin et al., 2011) and the natural assets of agricultural systems. This essentially entailed research and development for the production of new varieties which could withstand natural disasters. There are national and international level research organization produced many tolerant varieties and producing much more. This strategy minimizes susceptibility by increasing the commodity choices for producers. This, in turn, allows a manufacturer to improve their versatility and control uncertainties (Hallegatte, 2009). Crop diversity using locally adapted varieties is widely used as a method that may support the adaptive capability (Muller and Niggli, 2013). The project of USAID office of US foreign disaster aid, executes disaster risk reduction Hyogo frame work program to target disaster prone areas in southern Africa. In the program, through crop diversification communities have raised the diversity of their plots with more drought tolerant legume species and types. Diversification improved the soil fertility, assisted to consumption proteins and diversify their diets (Heady and Kennedy, 2012). Diversification also consists of the ability to obtain different markets, or things like the ability to alter livestock or cropping choices fast with minimal consequences. Overall, diversification can offer resilience to agricultural systems by protecting natural, physical and human assets of agriculture.

Risk Transfer

Risk transfer refers to the transfer of the potential financial consequences of particular risks from one party to another saving the financial assets of the agriculture. It has been critical components of disaster risk reduction management in agriculture around the globe. Resources are commonly included insurance, government-managed contingency finance devices, and subsidies. It enables the poor, small hold and most vulnerable farmers to make investments that increase their profitability (Hill ad Pittman 2012). Insurances are employed to reduce hazards by pooling regular payments of several clients and paying out to those impacted by disasters. Payment schedules are set according to statistical information of loss occurrence and offset the results of loss from natural disasters to farmers in the value chain. Another initiative is micro financing to promote investments to producers, the value of micro-credit that allows to safeguarding potential disaster shocks to the production (Johnston and Morduch, 2007). With the safety of risk transfer, when an adverse event like a drought or flooding hits, farmers receive automated insurance payouts, in order that they would not have to consider desperate measures including attempting to sell off their physical assets like their land, livestock etc. or getting their kids out of school. For example, the impact evaluation of R4/HARITA (Horn of Africa Risk Transfer for Adaptation) project in Ethiopia shows that insured farmers save more than twice than those without any insurance, and they invest more in seeds, fertilizer and productive assets, such as plough oxen. Farmers in one cluster of villages tripled their grain reserves compared with

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1174 uninsured farmers. Women, who often head the poorest households, achieved the largest gains in productivity, through investing in labor and improved tools for planting (OXFAM, 2014).

Sustainability Intensification

Sustainability options in the context of disaster risk reduction direction in FVCs deliver disaster reduction that was cost effective, aid biodiversity conservation, and enable progress in economic livelihoods and individual well-being, especially for vulnerable and the poor producers (Hill ad Pittman 2012). The adaptation strategies for the sustainable intensification based on eco system, including crop improvements, soil conservation, conservation agriculture, forest conservation like conservation, sustainable forest, integrated pest management, livestock and fodder crops and fisheries management, also minimize the scope for maladaptation in developed and developing countries (Keys and McConnell, 2005; Pretty et al, 2011). Sustainable intensification will be the potential to meet future demands on agriculture to conserve the natural assets of agriculture by farmland improvement and eco- system management. In the past intensification is most successful when followed by associated institutional ability, when it comes to strategies for technology exchange and risk management (Keys and McConnell, 2005; Pretty et al., 2011). For instance, integrated sustainable palm oil production project by conservation international (CI) to supports demand of sustainably produced palm oil from processors and traders, as well as manufacturers and retailers. Demand signals from companies that use and sell palm oil within their products or process palm oil can create strong incentives to producers to adopt more sustainable practices, as well fortify market-based sustainability initiative. CI is having a driving influence in the improvement of national and international policy incentives for sustainable palm oil (CI, 2014).

Efficient Use of Resources

Effective use of natural resources assists in less susceptibility to multiple natural disaster risks in several circumstances. In a broad sense, elevated efficiency typically results in lowered vulnerability through lowered dependence on resources that are essential and more resource management. Given that 40% of global food production comes from irrigated systems on about 20% of the arable land location it is required to invest more in enhancing water productivity in current schemes and safely expanding irrigated agriculture may be needed for long-term food security (Rosegrant et al., 2009). This requires the strong focus on procedures and new technologies that ensure maximum effective water use and protect essential natural and financial agricultural assets. This involve crop varieties that use water efficiently (more yield/water used), drip or low pressure irrigation system to water crops, lining waterways (canals/pipes) to decreasing water losses in delivery systems and to help target the water where it can be used most effectively (Pittman et al., 2011).

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Micro irrigation or low pressure irrigation systems, coupled with filters to clean water, smart metered solar utility models for irrigation pumps in Sub-Saharan Africa helped to deliver water, nutrients, and other nutrients directly to root zone of crops which has resulted in high efficient use of resources to gain high yield (Burney et al., 2010; Burney and Nolan, 2012). Resource use efficiency also offers several other benefits as well as disaster risk reduction. Regarding nitrogen and phosphorous use, efficiency may assist handle rising difficulties and externalities. Important opportunities exist to increase nutrient use efficiency and hence also reduce in the circumstances of integrated utilization of both inorganic and organic fertilizers.

Good Governance

Good governance will be crucial in managing human and social assets of agriculture by supporting farmer groups, supporting private sector investment in agriculture, implementing resources and accountability actions, but also set restrictions that are clear on unsustainable exploitation of forests, water, land and fisheries. Governance of disaster anchored in a whole ecosystem and society based strategy provides the basis for the successful execution of a disaster risk reduction. It is essential to support cooperation between public and private sectors in creating incentives and supporting activities and policies that encourage risk reduction. Policy makers, scientists, agricultural professionals from all sectors and farmers are required to have the right knowledge and information. Institutional mechanisms and disaster risk reduction policies are required to support the implementation of proper actions at local community level. Accessibility to value chains for small-scale agricultural producers, as related to market governing, can contribute significantly with their abilities to handle disaster risks by improving access to resources used in coping or adapting. These small-scale producers in many cases are competing with altering food system dynamics, like the development of large scale super marketers and shifting consumer demands. Several changes have happened through public investment, market liberalization, urbanization and rising incomes in developing countries (Reardon et al., 2009). Good governance always requires a linkage between traders, processors, markets, producer associations and the R&D community needed to develop new market opportunities. Collaboration between traders and the producers ensures quality and the quantity of production in discrete geographic areas (Thiele et al. 2011).

Disaster Risk Reduction Case Studies

Resilience relates to the ability of people to absorb and recover from shocks and stresses while adapting and changing their communities and livelihoods to defy potential events to protect their assets. Resilience to disaster management and adding value to value chain depends on communities and their environmental risks. Approaches to resilience by the communities should be according to an environment and their specific needs. Mbeere County in eastern Kenya is a semi-arid region encountering droughts that are frequent every 18 months to two

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1176 years and farmers are more dependent on rain-fed agriculture. With frequent droughts, the crop yields and more vegetation produces are lost by the communities. CRS (Catholic relief services), Kenya, Caritas Embu and the International Small Group and Tree Planting Program initiated a project called “Green gram value chain project” in 2009 to increase food security through innovative agricultural and livelihood diversification initiatives. Following strategies have been executed in the “Green gram value chain” to improve the livelihood of the farmers and add value to the value chain and protect their agricultural assets. The project reinforced the green value chain via diversification by helping 2,200 farmers to plant drought tolerant green gram over maize and beans to mitigate drought, which was essentially built upon the previous lucrative legumes project funded by the United States Department of Agriculture, CRS and Caritas. The project additionally formed producer advertising group to distribute the seed, construct seed storage space, negotiate with traders for higher green gram costs. The project encouraged conservative agriculture by training the farmers optimize water retention and to minimize land disturbances. Many trees were planted to save natural assets and minimize the temperatures and to intensify sustainability. CRS helped the farmers to invest money into fertilizers and seeds and also helped farmers to get entree to small-scale loans. They involved small-scale farmers and motivated women to participate in the project. The outcome of the project include improved yields despite low rain due to drought tolerant seeds, improved accessible resources, more savings than other farmers not participated in the project. The farmers who participated in the producer marketing groups discovered the groups continue to carry out activities on their own and to be extremely useful. The region is covered with more trees improved soil conditions and preserved natural resources (DeVoe, 2013).

Climate Resilience and Managing the Stranded Assets Along FVC

Unpredictable weather can be devastating for agricultural production, but climate change effects stretch beyond production; affecting the whole food value chain, from the quality of seeds through to how food is processed, transported and consumed. A changing climate can change the whole chain of value-adding activities for agricultural commodities, from production and processing to marketing and consumption of the ultimate product. Sustainable food value chain development can only be achieved if all actors along the value chain work together to address climate change hazards. This implies that actors must look beyond their own actions on the value chain to consider how activities and other actors may be impacted by risk management choices and climate risks (OXFAM, 2013). The demand to assess climate change risks recognize opportunities, and increase resilience is clear. The World Bank, FAO, the International Institute for Sustainable Development (IISD), Oxfam America, the World Food Programme (WFP) and some industries are taking the road towards climate resilience by value based approach. The most successful approaches to climate resilience span the value chain, integrated within core corporate strategy, projects, and endeavors. Distinct frameworks are proposed to construct paths towards climate

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1177 resilience. Here some recommend steps forward to build food value chains that are climate resilient and also to conserve agricultural assets, a) Risk evaluation: Investigate the vulnerability of the FVC to climate, identify the areas of risk to agricultural assets and across the entire value chain. The environmental risks can also evaluate based on the information from different sources. The exposure can be assessed based on the understanding of preceding crop and livestock losses on account of extreme climate conditions like high temperatures, heat waves, drought, etc. This will enhance the capacity to build climate resilience FVCs and protecting the value of assets. b) Strategy development: Design and execute climate change risk reduction strategies based on the identification of the main impacts of climate change on agriculture. While developing the strategies the risks that farmers are now facing must be considered along with the threats may face in the future. Assemble the right team to address the climate resilience involving local small-scale farmers, women and are vulnerable to climate change impacts. Raising awareness on climate change and capacity building to address its impacts along food value chain can be significant. Operations, production supply, transport and logistics, government affairs, investor relations, and regional department should be aware of climate change problems and impacts. The strategies are implemented in a way to reduce the value of risk to agricultural assets. c) Exploring the opportunities: Fostering R&D to generate crop/livestock varieties that are tolerant to the changing climate. Recognize opportunities for new markets to help communities adjust and prospects to utilize new tolerant crop or livestock varieties to create a green agriculture value chains. Partnering with private and government sectors is vital to achieving climate resilient value chains. Concentrate on extension services of agricultural research to create knowledge/helping centers that support farmers and encourage sustainable agriculture. d) Strategy implementation: Implement the strategies by prioritizing the actions by testing the new varieties of tolerant crops or livestock. Attempt alternative water resources or new irrigation techniques to handle more varying drier climates and maximize the use of resources. Execute climate resilience actions in partnership with those who can mutually benefit from them. Assist producers to avert, cope, or recover from climate change impacts. Enhance access to finance through loans and subsidies that can support climate adaptation value chains. e) Progress evaluation: Research and track the on-going impacts of climate change on livestock and crop production and the progress of the value chain from producers to consumers. Identify possibilities to maintain climate resilience across the entire value chain and protecting the assets of agriculture. And also assess the economic benefit to cost ratio. f) A value chain approach to climate resilience case study: In a case study, Conservation International (CI) partnering with Starbucks, the largest coffeehouse business in the world followed a value chain method to make coffee which is environmentally sustainable, transparent and climate resilient that is beneficial to people and the planet. CI and Starbucks have planned and implemented a program called CAFÉ (Coffee and Farmer Equity) with coffee farmers to encourage environmentally sustainable growing practices, create new income flows from conservation and carbon markets and supply loans for sustainable business development.

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CAFÉ practices include maintaining coffee canopy shades, cover assistance to control the temperatures and extreme heat. Conserving processed water and minimizing irrigation by resource use efficiency assisted the farmers to be ready for potential fewer water resources. Starbucks additionally supported the medium and small-scale scale farmers by supplying loans through Verde enterprises. Both partners continued their support by creating a farmer support centers to provide guidance and resources to lower the price of production, reduce fungus diseases, improve coffee quality and raise the yield of superior premium coffee. The results of the project are the advantages to the farmers practicing the CAFÉ with improved income and higher sales in comparison with farmers not following the practices that are CAFÉ. Perceive decreased use of chemical fertilizers, and pesticides, herbicides and greater equilibrium of local natural habitats. CAFÉ practices lead to more climate resilient coffee value chains communities as well as encourage economic development (CI, 2012). There are potentially significant risks of standing, both from regulation and climate change impacts on Starbucks Value chain. In order to minimize standing risks, corporate and community will increasingly have to consider both changes to regulatory frameworks. A focus on sustainable coffee production with right adaptation strategies may be able to manage some physical risks.

Conclusions

This paper discussed the effects of the environmental risks such as natural disasters and climate change that cause asset stranding in agriculture. Evaluation of where and how environment-related risk factors could affect assets across the food value chain and therefore the components of it. The amount of value potentially at risk and the reduced value added economic growth globally is considerable. There are credible reasons why stranded assets in agriculture may result from increased frequency of disasters and climate change. This will be driven by both the physical impacts and by regulatory responses by the actors along the FVC. The plan of action to protect agricultural assets and different components of food value chain to develop disaster and climate change resilient chains are summarized in the chapter. The actors of FVC play roles that are distinct in managing environmental risks right from the preparedness. As each of the element in the FVC are interdependent and all must work in coordination to ensure an effective response to disasters. Working towards resilience of agricultural systems can be an effective way of reducing disaster risks and protecting the assets of agriculture. As illustrated in this paper, there are a number of options to pursue this goal. The discussions in the document include disaster profiling and preparedness, diversification, risk transfer and sharing, maximizing resource use efficiency and good governance. This list provides some fundamental knowledge regarding the resilience to be achieved. There are several benefits associated with a value chain approach to climate resilience because climate change impacts all the actors in the FVC and value added activities of agricultural commodities from production and processing to marketing and consumption of the

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 1179 final product. Value chain approach is an integrated approach which provides opportunities that are important for creative collaborations to develop sustainable value chain to protect the value of agricultural assets. This approach concentrates on the local communities and natural ecosystem as a result of their essential functions within food value chains. Ecosystems supply services and natural products of significant economic value to business, for example water treatment and flood protection. These activities are recommended for climate resilient value chain improvement. Decision makers should evaluate the risk to develop the strategies, implement the strategies by exploring the opportunities and track them from time to time. Enhance marketing and partnerships for climate adaptation along the value chain by strengthening existing platforms. Government and the financial services business need to develop fresh and flexible financial products to support climate resilient and inclusive agro value chains through innovative public private partnerships and capacity building. Comprehension environment associated risks that strand assets in agriculture affect FVCs and building risk management strategies that are successful may help traders and policy makers minimize value at risk and to improve resilience. It is at present difficult to analyze stranding risks preciously in economic terms. The likelihood of stranding is subject to a range of uncertainties, among them how the disaster and climate change affects geographies, how different actors respond, an how farmers and consumers adapt. Further study of the risks of stranding is greatly needed, as are the strategies for how these can be managed by investors and companies. Assessing the physical impacts on investments of extreme weather events, taking into account the role of insurance industry as well as price fluctuations generated by production decline and the resulting impact on assets and their performance. Research in this area, could be used to initiate discussions within key producers, retailers and consumers along the FVC, about the risks of stranding that may result from their strategies and policies.

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