40 Questions
What type of risks are associated with politico-social instability within a country or in neighboring countries?
Political Risks
What type of risks are associated with changing and/or uncertain monetary and fiscal policies?
Policy Risks
What is a risk reduction/prevention strategy at the farm/household/community level?
Diversification in production
What is an example of a non-extreme weather event that can affect agricultural supply chains?
Too much or little rainfall
What is a cause of systemic impacts on decision-making and productivity and market options?
Weather Related Risks
Which of the following is a risk mitigation strategy at the market level?
Futures market
What is a risk reduction/prevention strategy at the government level?
Macroeconomic policies
What type of risks are associated with governance related uncertainty and corruption?
Institutional Risks
What is a risk mitigation strategy at the farm/household/community level?
Diversification in production
What is a result of non-extreme weather events on agricultural products?
Reduction in quality
What type of risks are associated with nationalization/confiscation of assets?
Political Risks
Which of the following is a risk mitigation strategy?
Off-farm work
What is a characteristic of non-extreme weather risks?
Usually associated with a specific geographic location
What is a risk reduction/prevention strategy at the market level?
Insurance
Which of the following is a risk mitigation strategy at the government level?
Counter-cyclical programs
What is a risk mitigation strategy at the farm/household/community level?
Partnerships
What is a consequence of enterprise diversification?
Loss of efficiencies and returns
What does flexibility in a business organization enable the manager to do?
Respond more quickly to new information
What represents a firm's credit reserve?
Unused borrowing capacity
What is the purpose of insurance?
To protect an asset or flow of income against specified events
What is insurance designed to do?
Protect the financial well-being of an individual or company
What is agreed upon when an insurance policy is created?
A formal contract
What is a characteristic of some forms of insurance?
Some are required by law
What is the purpose of a credit reserve?
To provide a source of liquidity
What is an example of an unfavourable weather pattern that can be a risk to agribusiness?
Flooding
Which of the following is NOT a natural disaster?
Burglary or armed robbery
What is a risk that can occur during the transportation of goods in agribusiness?
Lorry accidents
What is a credit risk in agribusiness?
Default or non-payment
What is a risk that can occur during storage in agribusiness?
Damage of produce in storage
Which of the following is a risk management strategy that an agribusiness firm may adopt?
Identifying and assessing risks
What is a risk that can occur during the production phase of agribusiness?
Diseases and pest incidence
Which of the following sectors would be most affected by a risk such as a power outage?
Agro-processing Sector
What is an important protective measure against credit officers and borrowers colluding?
Effective credit review department
What is a consequence of banks lacking a sound pricing methodology?
They will attract a disproportionate share of under-priced risks
Who should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk policies of the bank?
The board of directors
What should senior management have responsibility for?
Implementing the credit risk strategy approved by the board of directors
What should banks identify and manage?
Credit risk inherent in all products and activities
What happens when income prospects and asset values rise in the ascending portion of the business cycle?
Credit analysis may incorporate overly optimistic assumptions
What is a principle for managing credit risk in a bank?
Establish an appropriate credit risk environment
What should reflect the bank’s tolerance for risk and the level of profitability the bank expects to achieve for incurring various credit risks?
The credit risk strategy
Study Notes
Unforeseen Risks/Natural Disasters
- Unfavourable weather patterns, including temperature, hail, flooding, and drought
- Fire outbreaks
- Earthquakes
- Terrorist attacks
- Sinking of consignments on the high seas
- Lorry accidents
- Trike actions by workers
- Civil unrest and communal conflicts
Agribusiness Risks
- Bad weather
- Poor or low yield
- Diseases and pest incidence
- Fire outbreaks
- Delay in supply of raw materials
- Poor quality products
- Credit risk (default or non-payment)
- Glut/excess supply over demand
- Lower produce price
- High input price
- Damage of produce in storage
- Accidents involving goods in transit
- Power outages
Risks in Agriculture/Agribusiness
- Policy and institutional risks:
- Changing and/or uncertain monetary and fiscal policies
- Changing and/or uncertain financial (credit, savings, insurance) policies
- Changing and/or uncertain regulatory and legal policies
- Changing and/or uncertain land policies and tenure systems
- Governance-related uncertainty (e.g., corruption)
- Weak institutional capacity to implement regulatory mandates
- Political risks:
- Security-related risks and uncertainty associated with politico-social instability
- Interruption of trade due to disputes with other countries
- Nationalization/confiscation of assets, especially those belonging to foreign investors
Weather Related Risks
- Non-extreme weather events (e.g., too much or little rainfall, or too high or low temperatures) can affect agricultural supply chains
- Weather-related risks can have systemic impacts on decision-making and productivity and market options
- These risks can lead to yield reductions, affect product quality, and disrupt the flow of goods and services
Risk Management Strategies
- Risk reduction/prevention strategies:
- Technological choice (adopting superior technologies)
- Training on risk management (building capacity to take precautionary measures)
- Macroeconomic policies (e.g., inflation management, exchange rate management, lending rate management)
- Disaster prevention (e.g., flood control, enforcing building regulations)
- Prevention of animal diseases (e.g., immunization, quarantine methods)
- Risk mitigation strategies:
- Diversification in production
- Share cropping
- Partnerships
- Flexibility
- Staggering planting periods
- Futures market (hedging)
- Insurance
- Production/marketing contracts (contract farming)
- Vertical integration
- Spread sales (especially to reduce the effect of low prices)
Insurance
- Insurance provides a specialized form of liquidity to counter losses due to risky events
- Insurance protects an asset or flow of income against the occurrence of specified events
- It is a promise of compensation for specific potential future losses in exchange for a periodic payment
- Insurance can be required by law or be optional
Credit Risk Management
- Establishing an appropriate credit risk environment
- Identifying and managing credit risk inherent in all products and activities
- Senior management should implement credit risk strategy and develop policies and procedures for identifying, measuring, monitoring, and controlling credit risk
This quiz covers unforeseen risks and natural disasters that can affect agribusiness, including unfavorable weather patterns, fire outbreaks, earthquakes, and more. Learn about the different risks that can impact agribusiness and how to manage them.
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