A severe pandemic would harm health, economies, and communities in all countries, but especially in poor and fragile states. Pandemic prevention requires robust public health systems (veterinary and human) that collaborate to stop contagion promptly.
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Ladies and Gentlemen,This morning, I would like to talk about risk management in agriculture. In particular, I would like to draw some lessons from international experience in dealing with risk m... Show More +anagement in agriculture that I believe are particularly relevant for Romania.I would limit my remarks to three.The first is that risk management in agriculture is important, and likely to become more so in the future, and that the tools to manage risk are many, with agricultural insurance being only one of them.My second point is that experience with traditional, multi-peril crop insurance schemes throughout the world has been rather disappointing. Romania should learn from these costly and ineffective policies, and avoid repeating similar mistakes.My third message is that new tools, based on catastrophic insurance instruments, if used smartly in combination with already existing public policies and tools can be made very effective in managing weather and climate related risks facing Romanian agriculture. Let me elaborate a bit on each of these points.Risk Management in AgricultureAgriculture is inherently risky. Because it is risky, it can have large negative impacts on agricultural income, on food security, and the capacity of the sector to develop, invest, and compete in particular among the large, commercial farm enterprises. As a result, governments and public policies have historically and throughout the world trying to address this problem.Agriculture faces 3 broad sets of risks:Regulatory riskPrice riskProduction risk: weather (drought, floods, hail) and other natural risks (pest attacks, crop diseases, pandemics: Avian Flu).Regulatory risk, derives from possible changes in agriculture policies and regulations, has come down significantly with the entry into the EU due to stable and predictable policies under the CAP.Price risks made of price fluctuations continue to exist (witness the recent spike in world food prices), but the CAP – directly through its income support policies and indirectly through its support programs in market development and integration— and other tools (e.g., forward and futures markets, social assistance programs) have reduced those risks as well.Production risks are very much here. The succession of floods, droughts, pandemic (AI) over the last 5 to 6 years are a stark reminder of the importance of weather-related and other “natural” events. Climate change may induce more permanent changes to Romanian agriculture such as drier summers, and warmer and drier winters. It is also likely that climate change will make weather events more unstable, and catastrophic events such as floods and droughts not only more frequent but also more severe. How do you manage such production risks? There are both ex ante and ex post strategies:Ex ante strategies are those strategies that allow you to reduce your exposure to production risks (crop diversification, changes in cropping patterns or seeds on the farm; or public programs: irrigation systems, agricultural extension services, pest management systems, preparedness to pandemics, adaptation to climate change), or those that allow you to transfer risks –in part or whole-- through risk-sharing mechanisms such as crop insurance.Ex post strategies are those strategies that allow you to cope with the shock once it has happened. Asset sale, re-allocate labor, take credit, migration are typical private responses. Public responses include catastrophic or disaster assistance, and social assistance programs.Summary: my key message is that there is a wide range of tools for managing weather-related risks in agriculture, and agriculture insurance and catastrophic assistance are some of them. Some work better than others, and each have different objectives in mind –some to reduce exposure of farmers’ income to risk, some to share risks, some to cope with the shock after the fact. When setting public policies, it is important to be clear about the goals and objectives you are trying to achieve, and find the most effective way to get there; and to acknowledge that these various tools are not mutually exclusive, but can or need to complement each other.Crop Insurance: Lessons from International ExperienceLet me now turn to my second point, about learning from the mistakes and successes from elsewhere.Crop insurance schemes have been implemented in many countries across the world, rich and poor. What have we learned? What are the stylized facts, and lessons from international experience?Such schemes, implemented both in developed and developing countries, often proved fiscally expensive for the respective governments, had a limited outreach to few farmers – typically, the large, commercial farms - and agricultural activities, and have not eliminated the need for disaster assistance. More on these lessons will be further presented in a later session.In summary, the heavily subsidized crop insurance provided by governments elsewhere is both costly and questionable. Romania should learn from these mistakes. It should avoid introducing traditional crop insurance schemes that would require large fiscal resources, and, in a world of limited fiscal resources, take away resources from alternative agricultural risk management tools that would be more effective and better adapted to the structural characteristics of its agriculture and farming population.Way Forward: New and existing tools and policies.New tools are being added to the tool box which could help avoid the pitfalls discussed earlier. These new tools combined with improved other risk management tools, either ex ante (better irrigation systems, more adapted seeds, better flood prevention works, better advisory services) or ex post (e.g., more and improved funding for social assistance programs) would be powerful instruments to manage effectively risks in agriculture.Index-based insurance products are part of the new tools being added to the tool box and they introduce two attractive features:First and foremost, index insurance products do away with many of the problems (high correlated risks, asymmetric information, and high transaction costs) plaguing traditional crop insurance, hence making them more viable and less reliant on public subsidies. However, they introduce new ones such as basis risk.Index insurance mechanisms make possible the layering of risk, and facilitate the transfer of risks, including that of CAT risks (low probability, high consequence losses) through markets instruments. I do not want to say much more about these new instruments, since this topic will be addressed in greater details by experts through presentations that follow.Let me just conclude by saying that index-based insurance is potentially a new and useful tool that is being added to the tool box government of Romania has at its disposal to manage its agricultural risks better and more effectively. This new tool, alone will not solve all problems, but it can help solve important ones, and avoid repeating costly mistakes of others. This new tool can be smartly combined with other risk management tools, either ex ante (better irrigation systems, more adapted seeds, better flood prevention works, better farm advisory services) or ex post (e.g., more and improved funding for social assistance programs targeted at smaller and poorer farmers; financial coverage for contingent liability under disaster relief programs through CAT bonds or re-insurance mechanism) to provide the Government with powerful and cost effective instruments to manage risks in agriculture. Show Less -
Statement Made Via Videoconference to the International Pledging Conference on Avian and Human Influenza, Beijing, ChinabyPaul WolfowitzPresident, The World Bank GroupJanuary 18, 2006Good morning... Show More + from Washington to you all in Beijing at this important pledging conference.Let me offer a very special word of thanks to the Chinese Government, and the European Commission, for co-sponsoring this event together with the World Bank. I would also like to thank the OIE, FAO, and WHO for their excellent technical work, as well as other partners in the UN family for coordinating the international response to avian influenza. My own staff at the World Bank led by Vice President Jim Adams, who is with you today, has been devoting enormous time and energy to this effort because we recognize how important it is.By hosting this event in Beijing, the Chinese Government is sending a powerful message…that we urgently need a global commitment to share information quickly and openly, and to find ways to work together effectively.We need no reminders of why this pledging conference must deliver results. All countries could be affected if a pandemic occurs. All countries share a responsibility in fighting the spread of the disease, and putting human and financial resources behind the effort. We know from experience that if the international community does not support these control measures now, the potential cost to the world will be much higher in the long-term. Past outbreaks have already cost more than $10 billion dollars in economic losses, even though governments have moved quickly to control the disease by disposing of infected poultry flocks. Although that is a large sum, it is small compared to the economic damage that would result if we were to fail to control the disease.To prevent the spread of avian flu, we need leadership at the highest levels to deliver programs that address both animal and human health concerns, while also preparing for a possible human pandemic. These programs must include sufficient financing to support the culling of infected birds, and compensation for farmers who surrender their sick birds. And it is vital that donors coordinate their efforts to provide the maximum help possible to ensure successful implementation. The World Bank and its partners estimate the cost of such prevention and preparatory programs could reach between US$1.2 to $1.4 billion dollars over the next three years. Countries can only cover a small share of these costs, so international financing will be critical.Funding is also needed for global and regional stockpiles of medicines and medical equipment, and there are likely to be global funding needs for vaccine research, development, and distribution. It will only be possible to meet the financing gap of more than one billion dollars if development finance partners work together and combine donor funds.For the donors and financing partners who stand ready to help, we will have to show that our talk of harmonization is more than just rhetoric. We are committed to providing sustained and effective support to those countries infected or facing the threat of avian flu.Our partners have asked for a coordinating mechanism rather than a single new fund. The conference co-sponsors have proposed an Avian Influenza Multi-donor Financing Framework covering a menu of country, regional, and global needs. The framework would focus on coordination of donor activities and contributions, giving donors the flexibility to provide support through grants, loans or credits and to channel their funds in various ways, including through a trust fund facility at the World Bank.For its part, the World Bank Group has designed a 500 million dollar Global Adaptable Program Loan for countries to prepare and carry out a national program to control bird flu. Such national programs can be co-financed or financed in parallel by other donors, ideally through grant funding. The trust fund facility would be one of the options for channeling that funding.In conclusion, let me salute your efforts to raise the funding we need to control and prevent this latest form of the avian flu virus from spreading further. None of us can know whether this strain…H5N1…will result in a global pandemic. But what we can be certain of is that the investments we make now, to prevent and control further spread of the virus, are investments in long-term development. They will help countries better protect themselves against future threats of pandemic, and prevent the unraveling of their hard-won economic and social gains.Thank you and good luck to you all in this important endeavor. Show Less -