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Complexity, uncertainty and risk: Agriculture. John Mumford Centre for Environmental Policy, Imperial College London 22 January 2007. Overview. Agriculture is an extensive industry 2.6 billion people Risks relate to production and price Weather, pests, markets

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complexity uncertainty and risk agriculture

Complexity, uncertainty and risk: Agriculture

John Mumford

Centre for Environmental Policy,

Imperial College London

22 January 2007

overview
Overview
  • Agriculture is an extensive industry
      • 2.6 billion people
  • Risks relate to production and price
      • Weather, pests, markets
      • Long-term and short-term factors
      • Natural events and human interventions
  • Continuous risks
      • Pest induced losses
  • Single event risks
      • Quarantine failure
scale of introduced pests
Scale of introduced pests
  • US losses estimated at $137 billion/yr
      • 50,000 species since Columbus
  • Major new pests continue to arrive
      • Particularly pests of the natural environment
  • Response to risk can be expensive
      • ISPM15 costs around $2 bn/yr
asian longhorned beetle
Asian longhorned beetle
  • Pallets and wood packaging from China since 1996
  • Potential N American losses over $100 bn/year
    • Wide impacts: Amenity trees, timber, tourism, maple syrup
  • $75mn eradication in US completed in 2005
  • Now followed by Emerald ash borer
pallets and packaging
Pallets and packaging
  • Wooden pallets - Asian longhorn beetle
    • Heat treated at $1 for each pallet; certification
    • Only 2-3% were treated previously
    • Approximately 2 billion new pallets/yr for international routes
    • Reliable monitoring and enforcement?

US

005

HT

emerald ash borer is current news in the us sep 2006
Emerald ash borer is current news in the US! (Sep 2006)

Chicago Tribune 16 Sep 2006 Front page

Trees doomed in bid to stop pest

….chewing up more than 2,800 ash trees around the spot where the emerald ash borer first was found in Illinois.

….nearly double the total number of trees taken out by the Asian longhorned beetle, another imported pest that ravaged the North Side of Chicago in the late 1990s.

….next on Evanston, Wilmette and Winnetka, cutting into the leafy canopy of three other areas where the ravenous ash borer has turned up since June.

….again and again across Illinois, home to more than 130 million ash trees.

slide8

New pest records in Europe

First records of new arthropods (left) and plant diseases (right)

in Europe by decade. Smith, 1997

inflection due to action
Inflection due to action?

?

?

First records of new arthropods (left) and plant diseases (right)

in Europe by decade from 1900. Smith, 1997

quantifying the risk
Quantifying the risk
  • Interceptions reflect post-intervention risk
      • Sample of what gets through control
  • ~25,000 interceptions/year in US
      • Majority in baggage (~6% has something)
      • Cargo, ~1 interception per $3mn worth
      • 4% of postal parcels
  • 1 in 400 air passengers fined in NZ
  • How is the catch/effort changing?
      • How to measure effort?
      • How to interpret catch?
baggage interceptions cargo in us
Baggage interceptions > cargo in US

250-300 more interceptions/year on both cargo and baggage

variable inspection efficiency
Variable inspection efficiency

30, then 27

inspectors

36 inspectors

USDA

insurance in agriculture
Insurance in agriculture
  • Risk assessment
      • Catalogue risk factors and distribution
  • Loss assessment
      • Loss and responsibility post facto
  • Moral hazard
      • Define compliance and enforcement
  • Compensatory factors
      • Allowance for natural variation in risk factors
  • Attribution
      • Free riders, and share of risks amongst stakeholders
israel citrus marketing board
Israel Citrus Marketing Board
  • Centralised control for fruit flies
  • Levy on growers for expected cost
  • Board insures with private insurer
      • Covers any extra cost of additional control
      • Pays compensation for control failures
  • Levy and insurance rates adjusted
      • Insurance acts as a short-term overdraft
      • Annual term
us all risk farm insurance
US All-risk farm insurance
  • Proposed by Franklin in 1788
  • Multiperil (hail, drought, pest risks) since 1930s
  • Government agency (USDA Risk Management Agency – www.rma.usda.gov)
  • Private insurers act as agents for government backed crop insurance
  • 1.2 million policies in operation; 10,000+ loss adjusters
  • Good actuarial data for risk assessment, annual review
  • Well prescribed mitigation practices
crop indemnity usda rma18
Crop indemnity USDA RMA

Drought

Drought

Hurricanes

Hurricanes

us all risk farm insurance19
US All-risk farm insurance
  • Loss assessment set against discounted recent average yields (for example, ~90% of past 3 years)
  • Loss set against average for region or farm, group risk cover is less uncertain and cheaper
  • Compulsory or voluntary, may depend on externalities
  • Government, grower cooperatives, private insurers
crop insurance basis
Crop insurance basis
  • Actual production history
      • Farmer sets % of average yield and price
  • Group risk plan
      • Farmer chooses % of county average yield as threshold
  • Dollar plan
      • Farmer insures against a threshold of a preset $ value of production, not yield directly
      • Tends to be for high value crops with high price/quality effects from pests or weather
  • Catastrophic coverage
      • Pays 55% of established price on yield losses in excess of 50%

www.rma.usda.gov

short term yield variance
Short-term yield variance

Pioneer Hi-Bred International Inc, 2004

short term yield variance22
Short-term yield variance

USDA Economic Research Service 2006

quarantine failure
Quarantine failure
  • Poor actuarial data for risk assessment
      • Exotic pest risks
  • Often poorly prescribed mitigation practices
  • Priority is set against potential range of loss
  • Pooled response agreements
      • Government, and sometimes import bonds
  • Generally no compensation due to moral hazard,
      • political exceptions (citrus canker, FMD)
interstate pest control compact
Interstate Pest Control Compact

Green=in Compact

http://pestcompact.org/

interstate pest control compact25
Interstate Pest Control Compact
  • 37 parties belong
  • Fund raises 10% on per state basis and 90% on ag/forest production basis
  • Range from RI $2366 to CA $174,469 to cover $1mn total
  • Assessments as needed to keep fund around $1mn
  • State can apply for central funds to support action in another state
  • 28 claims since 1969
  • Approximately $1mn in total paid out

http://pestcompact.org/

bioterrorism criteria
Bioterrorism criteria
  • Pathogen properties
      • survival; toxic; multi-host; virulent
  • Production and dissemination
      • easy growth; transmissible
  • Detection
      • difficult and non-traceable
  • Controls
      • No chemicals or resistant varieties
  • Impact
      • Psychological; quarantine; yield and control

Schaad et al., 2006

risk classes for pests
Risk classes for pests
  • Management actions are in classes
  • Describe risk in classes?
      • Frequency of events
      • Impacts by interest
  • A method used in DEFRA Non-native Species Risk Assessment Scheme
      • Based on system from ERMA New Zealand
fisheries insurance ec prone project
Fisheries insuranceEC PRONE Project
  • Two parties
      • Fishing industry and regulator
      • Shared role and responsibility
      • Industry is the principal beneficiary
  • Two major variables
      • Accepted fishing effort (industry)
      • Agreed enforcement effort (regulator)
  • Share of premium?
      • Maybe relate to sensitivity of axis
long term yield collapse
Long-term yield collapse

ICES, 2002, 2005

what to insure
What to insure?
  • Stock collapse
      • Single event covers the whole industry
      • Like quarantine failure or nuclear cleanup
      • May not be responsive, all or nothing
  • Catch per effort
      • Continuous performance assessment
      • Affects individuals
      • Like crop loss, or mileage based car insurance
      • Allows mitigation and feedback