AGRICULTURAL RISC MANAGEMENT

Abstract

Agriculture remains the dominant sector in most of the developing countries including Indonesia. It accounts for a major share of the Gross National Product (GNP) and is still the primary source of employment. Productivity gains in agriculture are necessary for self sustaining economic development in most developing countries. Despite the importance of agriculture, it has always been a risky business. Unlike the industrial sector, it is subject to the vagaries of both nature and human. Various initiatives taken for the development of agriculture often failed to deliver full benefits in this sector thus there is still a challenge to find appropriate methods to improve the performance of agriculture. The concept of risk management seemed to be a useful approach to manage agricultural risks and improve the performance of this sector. There are five steps to be followed in risk management, they are: risk identification, risk assessment, decision making under risk and uncertainty, implementation of certain method of risk management and monitoring. Applying these steps in the effort of agricultural risk management enable people to identify various risks which are exist in the agricultural system, quantify the magnitude and probability of each risk, formulate the decision and course of actions to be taken to manage risk, prepare the procedure to be used during the implementation of the decision and evaluate all tools and methods used through monitoring process. These processes may need a combination of knowledge, experts, tools and methods, and thus an integrated approach is desired for risk management in agriculture sector. In this study, a case study has been discussed to show how the implementation of the concept of risk management is applicable as an approach to manage agricultural risk. The case study is about Way Jepara irrigation area in Lampung Province of Indonesia. In this case study, the risk chain is figured out during risk identification which consists of environments, hazards, exposures, perils, outcomes and consequences of the risk. From risk identification process, the agricultural risks in the study area are identified. Among natural risks which are exist in the study area are earthquake, drought, flood, decrement of soil fertility and water quality, pest, weed, and disease, while man made risks or hazards are mismanagement of catchment area, poor management of irrigation structures, moral and morale hazards, etc. In risk assessment step, each risk is quantified for its magnitude, probability or both. Based on the iii Abstract risk assessment results, a course of actions are suggested to mitigate the effect of risk involved. Basically there are four decisions processes which can be adopted under risk and uncertainty, namely risk retention, risk reduction, risk avoidance and risk transfer, depending on the characteristic of each risk. Both technical and non technical measures are suggested to be used as method of risk management in the study area such as management of catchment area, adjustment of irrigation and agricultural practices, application of fertilizer, construction of check dam, strengthening of legal and law system, application of crop insurance to transfer risk to another party, etc. All the recommended methods are suggested to be evaluated through a monitoring process to anticipate the failure such as human failure, hardware failure, software failure and organizational failure. Crop insurance as a method of agricultural risk management is still unfamiliar and never been implemented in Indonesia. For this reason, the concept of crop insurance is introduced in this study. Some experiences of implementation of crop insurance in other countries such as India, USA, Canada and South Africa are prepared to encourage the implementation of crop insurance in Indonesia. Opportunities and challenges of the implementation of crop insurance are pointed out and the method of approach is recommended. An example of calculation of premium and indemnity of crop insurance is carried out.