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Critical success factors for weather risk transfer solutions in the agricultural sector: a reinsurer’s view

Critical success factors for weather risk transfer solutions in the agricultural sector: a... Agricultural yield and commodity prices are very sensitive to weather patterns such as drought, excessive rain, or frost. Consequently, unseasonable weather can cause major losses for players in the agricultural value chain, including input providers, farmers, commodity traders, and food processors. In this paper information recorded by PriceWaterhouseCoopers on behalf of the Weather Risk Management Association is complemented by Swiss Re’s market intelligence to examine demand patterns for weather risk transfer solutions. There is a particular focus on the evolution of demand from the energy sector compared to the agricultural sector as a means of identifying the critical success factors needed for a prospering market. Our findings show that recent growth in the weather risk transfer market is mainly related to speculative trading in the energy sector. Stakeholders in the agricultural sector around the world are growing increasingly interested in weather risk transfer products. However, the lack of exchange‐based instruments in this field, the relatively high basis risk between weather indexes and agricultural markets are still highly regulated, and inadequate information and training are all impeding the growth of this business. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Critical success factors for weather risk transfer solutions in the agricultural sector: a reinsurer’s view

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0002-1466
DOI
10.1108/00214660880001215
Publisher site
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Abstract

Agricultural yield and commodity prices are very sensitive to weather patterns such as drought, excessive rain, or frost. Consequently, unseasonable weather can cause major losses for players in the agricultural value chain, including input providers, farmers, commodity traders, and food processors. In this paper information recorded by PriceWaterhouseCoopers on behalf of the Weather Risk Management Association is complemented by Swiss Re’s market intelligence to examine demand patterns for weather risk transfer solutions. There is a particular focus on the evolution of demand from the energy sector compared to the agricultural sector as a means of identifying the critical success factors needed for a prospering market. Our findings show that recent growth in the weather risk transfer market is mainly related to speculative trading in the energy sector. Stakeholders in the agricultural sector around the world are growing increasingly interested in weather risk transfer products. However, the lack of exchange‐based instruments in this field, the relatively high basis risk between weather indexes and agricultural markets are still highly regulated, and inadequate information and training are all impeding the growth of this business.

Journal

Agricultural Finance Review – Emerald Publishing

Published: May 5, 2008

Keywords: Agricultural sector; Demand patterns; Weather risk transfer

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