Agriculture and Rural Development Discussion Paper 47 The World Bank Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework Agriculture & Rural Development Department World Bank 1818 H Street, NW Washington, DC 20433 http://www.worldbank.org/rural Steven Jaffee Paul Siegel This report was generously funded by: Colin Andrews RRapApRisk_Vol1_Cover.inddapApRisk_Vol1_Cover.indd 1 44/22/10/22/10 11:59:0011:59:00 AMAM Agriculture and Rural Development Discussion Paper 47 Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework Steven Jaffee Lead Economist, World Bank Agriculture and Rural Development Department Paul Siegel Consultant, World Bank LAC Agriculture and Rural Development Department Colin Andrews Social Protection Specialist, World Bank Social Protection Team 00_RapApRisk_Vol 1_fm_i-VIII.indd i 4/22/10 11:49:37 AM © 2010 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org/rural E-mail [email protected] All rights reserved. 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Cover photo: Ray Witlin - Sifting grain, India. 000_RapApRisk_Vol0_RapApRisk_Vol 11_fm_i-VIII.indd_fm_i-VIII.indd iiii 44/21/10/21/10 111:20:301:20:30 AAMM Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework Table of Contents List of Tables ..............................................................................................................v List of Figures ............................................................................................................v List of Boxes ...............................................................................................................v Executive Summary .................................................................................................vi 1. Introduction and Rationale .............................................................................1 1.1 Objectives and Overview ..........................................................................1 1.2 Approach and Limitations ........................................................................2 1.3 Changing Risk Landscape ..........................................................................3 2. Conceptual Framework ......................................................................................6 2.1 Agricultural Supply Chains .......................................................................6 2.2 Major Risks ..................................................................................................9 2.2.1 Weather-Related Risks ..........................................................................9 2.2.2 Natural Disasters ................................................................................11 2.2.3 Biological and Environmental Risks.................................................... 11 2.2.4 Market-Related Risks ...........................................................................12 2.2.5 Logistical and Infrastructural Risks ....................................................12 2.2.6 Managerial and Operational Risks ......................................................13 2.2.7 Public Policy and Institutional Risks ..................................................13 2.2.8 Order of Risk Magnitudes ...................................................................14 2.3 Transmission of Risks ................................................................................14 2.4 Risk and Vulnerability .............................................................................. 19 2.4.1 Risk .......................................................................................................19 2.4.2 Vulnerability ........................................................................................21 2.5 Risk Management Measures ...................................................................23 2.5.1 Ex-Ante Versus Ex-Post Measures ....................................................23 2.5.2 Location and Formality of Risk Management .....................................24 2.5.3 Alternative Instruments for Managing Agricultural Supply Chain Risk ...................................................................................................... 26 2.5.4 Support Service Providers: An Illustration of Agricultural Supply Chain Finance ......................................................................................31 3. Guidelines for the Application of RapAgRisk Assessment ..................... 33 3.1 Basic Assessment Principles ....................................................................33 3.2 Assessment Process ..................................................................................34 3.3 Stakeholders ..............................................................................................35 3.4 Data and Information................................................................................. 37 iii 000_RapApRisk_Vol0_RapApRisk_Vol 11_fm_i-VIII.indd_fm_i-VIII.indd iiiiii 44/21/10/21/10 111:20:301:20:30 AAMM Agriculture and Rural Development 3.5 Supply Chain Situation Analysis ...........................................................38 3.5.1 Contextual Analysis ............................................................................38 3.5.2 Mapping the Supply Chain .................................................................39 3.5.3 Cost Structure ......................................................................................40 3.6 Risk Analysis .............................................................................................40 3.7 Risk Management and Vulnerability Assessment ................................43 3.7.1 Risk Management Assessment .............................................................43 3.7.2 Vulnerability Assessment .....................................................................45 3.8 Recommendations and Suggested Follow-Ups ....................................47 3.9 Feedback, Monitoring, and Evaluation .................................................48 Conclusions 49 References 51 Endnotes 53 iv 000_RapApRisk_Vol0_RapApRisk_Vol 11_fm_i-VIII.indd_fm_i-VIII.indd iivv 44/21/10/21/10 111:20:301:20:30 AAMM Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework List of Tables Table 1 Categories of Major Risks Facing Agricultural Supply Chains .....10 Table 2 Prominent Risks Affecting Developing Country Commodity Supply Chains Involved in Trade with Major International Markets ............................................................................................... 15 Table 3 Risks Impacting Farmers and the Transmission of Impacts to Agro-enterprises ................................................................................ 17 Table 4 Expected Loss Scenarios (Probability 3 Severity) ....................... 21 Table 5 Illustration of the Differential Impacts of Insufficient Rainfall Affecting Maize.................................................................................. 22 Table 6 Vulnerability: Expected Losses and Capacity to Manage Risk .. 23 Table 7 Informal Risk Management Strategies ...........................................25 Table 8 Formal Risk Management Measures ..............................................25 Table 9 Possible Instruments for Risk Management for Agricultural Supply Chains ....................................................................................27 Table 10 An Illustration of Supply Chain Finance: Uganda Cotton Transaction Points, Risks, and Opportunities ...............................32 Table 11 Multi-level Stakeholder Matrix of Motivations and Perceived Impacts: An Illustration from a Staple Food Supply Chain ....... 36 Table 12 Expected Loss Ranking Matrix (Probability 3 Severity) ............ 42 Table 13 Ranking of Expected Losses: “Separating the High from the Low” .................................................................................................... 43 Table 14 Capacity to Manage Risk Scale ......................................................