4. Case study synthesis

Abstract

1. 1.1. This chapter synthesises the findings from the four country case studies according to the five dimensions in the revised framework on Risk Management for Resilience. It identifies how the four case study countries are incorporating resilience thinking into their agricultural risk management policies, as well as common challenges they face in doing so.

    

4.1. Introduction

The shifting risk environment and rising uncertainty faced by farmers and other actors in the agricultural sector has put renewed emphasis on the importance of risk management in agricultural policy frameworks: known risks are changing in hard-to-predict ways, long-held mechanisms of responding to known risks are becoming either more costly – including for governments – or less effective, and new unknown risks are threatening producers and value chains every day. At the same time, there is rising awareness that the challenges of the future – particularly due to the uncertain effects of climate change and the associated shift in the frequency and intensity of weather-related extreme events, combined with renewed awareness of the potential knock-on effects of crises external to the sector, such as COVID-19 – are such that policy measures to reduce the effects of adverse events on farmers’ incomes alone will not be sufficient. Indeed, the policy principles agreed upon by OECD Ministers in 2016 emphasise the need to foster greater resilience of farmers to risk, to enable them to cope with more frequent, unpredictable events (OECD, 2016[1]).

As outlined in Part I of this report, resilience principles can be mainstreamed into agricultural risk management policy frameworks by adjusting risk management processes (i.e. the way in which risks are considered and policies are developed) and considering a wider toolbox of measures and policies to achieve risk management objectives (emphasis on the contribution of farmer capacity and no-regret policies to effective risk management frameworks). This can be accomplished through the application of five dimensions to the OECD holistic framework for risk management in agriculture (OECD, 2009[2]):

• Process dimensions

  • Time frame

  • Trade-offs

  • Participatory collaborative process

• Content dimensions

  • Investments in on-farm resilience capacity

  • No-regret policies

Each of these five dimensions is composed of key considerations, related to capacities, tools, incentives, processes and systems.

In order to explore these ideas in greater depth, four case studies from OECD countries – Australia, Canada, Italy, and the Netherlands – were prepared to analyse the extent to which countries’ policy environments strengthen the resilience of the agricultural sector to multiple risks. These case studies were developed using country responses to a questionnaire (the revised version of which is included in Annex A), along with relevant literature and findings from previous OECD work.

Each of the four case studies focuses on a specific risk, in order to provide more concrete examples. The Australian case study focuses on how the policy environment strengthens resilience to droughts. The Canadian case study looks at how the country’s policy framework addresses natural disaster preparation and response. In both Italy and the Netherlands, animal and plant disease management frameworks – and their relationship to the national context of each country’s agricultural sectors – are explored.

Policy frameworks, priorities, and sector conditions vary considerably across the four case study countries. Nevertheless, common themes emerge from each of the cases that may prove instructive for other countries as they make efforts to improve the resilience of their agricultural sectors. This chapter synthesises the overall findings of the case studies according to the five dimensions described in the revised framework on Risk Management for Resilience: time frame, trade-offs, participatory collective process, investment in on-farm resilience capacity and no regret policies.

4.2. Time frame: Countries have made significant progress towards ex ante policies and prevention

In all four case study countries, agricultural risk management policies are placing a greater emphasis on ex ante approaches – that is, each country recognises the value of establishing risk management policies and frameworks well in advance of adverse events to reduce the reliance on ad hoc assistance. Furthermore, countries increasingly recognise the need to anticipate risky events that may seem remotely possible now in order to develop an appropriate ex ante strategy. These adjustments are motivated, in part, by the reality that existing assistance mechanisms can discourage producers from adopting strategies to manage risk over the long term, and in many cases may actually reduce farmers’ capacity to cope with, or respond to, future adverse events. These changes in the policy approach are also likely motivated by rising uncertainty due to more direct exposure to commodity price volatility and climate change, with potentially large implications for national budgets. While the shift has reduced the role of ad hoc ex post assistance, such assistance has not been wholly eliminated in any case study country.

Case study countries are all making efforts to reduce their dependence on ad hoc assistance as a means to respond to catastrophic risks that are beyond the farmers’ and markets capacity to cope. Progress has been observed in all of the studied countries. In Australia, most ex post assistance programmes are limited to households shown to be in financial hardship. In Italy, assistance available through the National Solidarity Fund (FSN) is limited to damage from events not outlined in the National Risk Management Plan. In Canada, assistance provided under the AgriRecovery Framework is limited to exceptional recovery costs beyond what is covered through other Business Risk Management (BRM) programmes. Finally, in the Netherlands, the government shares the cost of animal disease prevention and response up to a certain well-defined ceiling, but it is responsible for costs above the ceiling.

At the same time, the case studies suggest that the challenge to making this shift to ex ante approaches and a longer-term focus lies in defining stakeholders’ responsibilities for risk management. Depending upon where the “catastrophic” risk layer threshold falls, government assistance can still be large, even if delivered through ex ante means. Further refinement of tools may be needed by governments to ensure that their risk management toolkits provide risk coping solutions only in the case of systemic, rare and devastating catastrophic events. Nonetheless, the cases examined here demonstrated some approaches that governments can take to strike a balance in this area, including through participatory approaches (discussed below) and cost-sharing frameworks, as in the case of the Dutch Animal Health Fund.

A related finding from the case studies is that the shift to ex ante approaches often requires stakeholders to reconsider how disasters themselves are defined and managed. In Canada, for instance, the government has clarified which events qualify as disasters, and also developed a predictable framework for dealing with these types of events. In Australia, drought risk was determined to be a part of normal business risk rather than a natural disaster.

In their efforts to reduce ad hoc ex post assistance, some countries are moving toward a mostly crop insurance coverage model. As noted in OECD (2011[3]), the principal rationale for providing subsidies to agricultural insurance is due to the role of these policies as ex ante measures to make disaster assistance more efficient. Insurance has several advantages over ex post disaster relief, including that farmers typically participate financially,1 damages are evaluated by experts, and indemnities are paid out relatively rapidly.2 However, the challenge is to ensure that insurance subsidies do not crowd out farmers’ risk management strategies and use of market tools, and are effective in limiting ex post ad hoc assistance. In practice – and as seen in the case studies – insurance does not fully replace ad hoc assistance, nor does it clearly differentiate catastrophic from marketable risks. Even in cases where insurance mostly replaces ad hoc assistance, the case studies suggest that insurance subsidies can incentivise farmers to take riskier production decisions, which can negatively effect on-farm resilience in the long-term, contrary to the policy’s aim.

Finally, all four countries recognise the need to consider risks over the long-term. Countries are carrying out horizon-scanning exercises and assessing the appropriateness of their policy frameworks to help farmers prepare for and cope with increasing risk and uncertainty. However, the extent to which these analyses influence policy frameworks remains unclear. At the same time, all of the case studies provide examples of how existing programmes are being adjusted (including revisions to policies in Canada subsequent to the recommendations of programme audits, or changes to the design of the annual National Risk Management Plan in Italy following consultations with a technical committee of sector stakeholders) to improve effectiveness following evaluations. Accordingly, countries could consider combining horizon-scanning exercises with programme evaluations as a way to integrate long-term planning into policy frameworks.

4.3. Trade-offs: Analysis of trade-offs can lead to more effective allocation of resources across risk management measures, and ensure that the effects of measures on incentives to build resilience are taken into account

It is important for policy makers to consider the trade-offs inherent in different measures or approaches in order to develop risk management frameworks that will make the agricultural sector more resilient – that is, there will be costs and benefits, along with winners and losers, regardless of the policies and frameworks put into place. The trade-off that may be most relevant for policy makers is the question of where government resources should be allocated in order to most effectively strengthen the long-term resilience of the sector. In particular, governments are becoming more aware that providing assistance to help producers cope with production and market risks now may not be sufficient to strengthen resilience to future risks. Instead, more investments in risk prevention may be warranted, along with more focus on ensuring that the sector can adapt and transform, rather than just cope with existing and future risks.

This trade-off between risk prevention and risk coping exists across all potential threats and hazards, but is particularly prominent in the realm of animal and plant diseases. Proactive efforts to establish good biosecurity practices and incentives for optimal disease risk management can slow the spread of disease and reduce the need for ex post response measures. The Dutch effort to link prevention and response with their Animal Health Fund has helped to discipline the cost of responding to outbreaks, both by ensuring that there is adequate funding for prevention activities, but also by mandating biosecurity practices that have been shown to reduce the impacts of disease events.

The value of linking prevention and response is also increasingly recognised when dealing with natural hazards as well. For example, feedback from Canada’s AgriRecovery framework identifies areas where proactive investments are needed in order to avert similar losses in future. Moreover, the linking of these two activities will become more important as governments move to implement climate change initiatives. Specifically, governments will need to critically analyse the costs and benefits of a policy response that balances managing financial losses from adverse events in combination with supporting activities that help the sector to better adapt to changing conditions.

In addition, existing risk coping tools may need to be further refined to improve their effectiveness and better take into account the incentives faced by farmers from the wider agricultural policy environment. As it currently stands, incentive structures to invest in building resilience on-farm may be skewed by other policies that address risks outside of the catastrophic layer or support income. This spread of policies across other risk layers is partly because there is still some ambiguity, in some countries, around where to define the catastrophic risk layer. In addition, programmes historically operating in the marketable or normal risk layer may be politically challenging to remove.

At the farm level, these trade-offs often manifest in issues of profitability versus long-term sustainability. For example, there is some evidence that in providing a safety net against adverse events in the present, Canada’s crop insurance programme may reduce the incentive to invest in longer-term sustainability and lead to negative environmental outcomes. Similarly, EU direct payments provide an income stream that largely covers producer variable costs in Italy, reducing the incentive for producers to adjust their operations according to market signals and individual risk exposure. Moreover, they may incentivise farmers to make more risky production decisions, to the detriment of improved long-term resilience.

Countries generally seem to struggle with balancing the trade-offs between absorption, adaptation and transformation. While countries recognise the need to invest in activities or examine policy frameworks that support adaptation and transformation, at present, such measures are not integrated into overall risk management frameworks. Many of these efforts focus instead on sustainability, productivity or competitiveness goals. However, linking them with risk management in the long-term may help farmers to better consider how their actions in the present are related to their long-term ability to manage risks.

At the same time, countries should consider that not all activities can or should be supported. In particular, stakeholders should be aware that transformation and structural change may in some cases be necessary to the long-term competitiveness and sustainability of the sector – particularly in areas with serious environmental constraints. In this vein, government actors should acknowledge that support (whether in the form of prevention and mitigation activities, or delivered through ex post assistance) can affect resource allocation decisions and distort the market incentives driving long-term change. In the worst case scenario, support can act as a barrier to change and prevent new opportunities from advancing. Oftentimes, the trade-off between providing support or allowing transformative change to take place entails reaching politically difficult decisions. In some cases, these decisions can have far-reaching consequences for the viability of certain industries and the rural communities that depend on them. Nonetheless, policy makers should at the very least be aware of this trade-off, and consider “no support” scenarios in their cost and benefit analyses.

4.4. A participatory and collaborative process: More focus on co-ordination and the use of collaborative approaches to define strategies and responsibilities

Recent OECD work has established that two elements that are crucial to facilitate agricultural policy reforms are a lengthy preparation time in advance of reforms (including first iterations of frameworks, consultations and discussions), and building a coalition of the willing to support the proposed reforms (Gruère, Ashley and Cadilhon, 2018[4]). In the realm of agricultural risk management, this preparation and coalition building should take place across all stages, including analysis of the risk environment and evaluating the effectiveness of available tools and measures managing both known and unknown risks. These activities should be carried out in conjunction with farmers and other stakeholders, both to increase awareness of the risk environment, and to solicit feedback on the feasibility of proposed measures.

To some degree, all case study countries involve farmers, producer interest groups, and other agricultural sector stakeholders in their policy development processes, which contributes to a better understanding of the respective risk management responsibilities of each stakeholder. This process also contributes to improved overall communication on evolving risks, creates a sense of common ownership and improved acceptance of policy tools, and is key to ensuring acceptance of the boundaries between the risk layers and consequently reducing the political pressure to provide ad hoc assistance. These processes can be very successful, leading to jointly established risk management tools like cost-shared public-private-partnerships (as in the Netherlands), or to realise significant changes in how risk is managed through consistent long-term communication about policy direction (as in Australia). At the same time, these processes can be more challenging in instances where sector stakeholders are very diverse, as illustrated by the Italian case study.

One important factor for gaining stakeholder support is ensuring that reforms and general policy designs are underpinned by research and evidence-based analysis (Tompson, 2009[5]). In this vein, advances in technology, computing power, and data availability are providing new tools that both governments and producers can use to analyse the risk environment and consider the likely future impacts of adverse events (OECD, 2019[6]). In the Netherlands, for example, stochastic models are used to simulate the impacts of both animal and plant disease outbreaks. These types of exercises can help governments test the cost-effectiveness of certain policies and interventions well in advance of their implementation, and as such contribute to cost-benefit analysis to inform resource allocation.

At the same time, improved management of certain risks could require additional outreach and engagement with stakeholders not typically included in these processes. In particular, better prevention and control of animal and plant disease could be achieved by ensuring that non-commercial farmers or other actors are aware of good biosecurity practices and are incentivised to implement them. Previous OECD work analysing farmer behaviour related to climate change identified several potential approaches that could be utilised in this instance as well, including information and awareness-raising campaigns undertaken by advisory and extension systems; schemes or initiatives targeting groups of farmers instead of individuals in order to take advantage of social capital to bring about collective action; and making available information on how a farmer’s individual actions compare with their peers through benchmarking (OECD, 2012[7]). Even with respect to interactions regarding the risk environment more generally, there could be greater scope to involve producers and other stakeholders in the supply chain in a more systematic way to better identify potential risks and appropriate responses.

Finally, all case study countries have demonstrated a willingness to evaluate the effectiveness of their policy toolboxes and frameworks, and to adjust them where necessary. At present, however, there is little evidence as to the effectiveness of many of these programmes and how they affect risk management incentives, profitability, and sustainability over an extended timeframe. Countries should make efforts to establish strong monitoring and evaluation programmes alongside the implementation of new policy tools. This process will continue to be important to ensure effective frameworks in an environment of increased uncertainty.

4.5. On-farm resilience capacity: Policy reforms and structural adjustment in the sector have led to increased farm management capacity, which can be supported by complementary policies

In order to strengthen on-farm resilience to multiple risks, farmers need to have the capacity to absorb the impact of adverse events, adapt to an evolving risk landscape, and transform their operations if the current system is no longer viable. Evidence from the case study countries suggests that farmers are making investments in these capacities, though the exact manner in which they are doing so varies by country and by context. For example, one of the core components of the capacity to absorb the impact of adverse events is having sufficient financial reserves to cope with shocks. Different strategies or tools can contribute to this capacity (including income diversification, savings, or ability to liquidate assets), and a variety of strategies were identified in the four case study countries. In Australia, for instance, producers can take advantage of tax-deductible Farm Management Deposits (FMD) scheme savings accounts that can be used to help cope with short-term contractions in income. A similar savings vehicle is available in Canada. In Australia and the Netherlands, income tax smoothing provisions are available for farmers. In Italy, farmers are moving to diversify on-farm income-generating activities, with significant growth in agritourism operations in particular.

Farmers are also investing in improving their knowledge and entrepreneurship skills, primarily through education, training, and by harnessing new technologies or production practices that could help them improve their resilience and long-term sustainability. Farmers in all of the countries examined are on average more educated than previous generations, and are accessing both privately-provided farm management advice, as well as publicly-offered training courses. In Italy, for example, 169 000 farmers participated in training courses and 32 000 farmers received advisory services funded through the 2007-13 CAP.

The case study countries also provided examples of producers demonstrating their capacities for adaptation and transformation – some of which could prove useful to policy makers as templates to inform future initiatives. For example, farmers in Italy sought out collaborations with researchers to find Xylella-resistant olive cultivars. In contrast, in Australia farmers are transforming their operations in response to changing climate conditions, as seen by the shifting of the cultivation of certain crops out of lower-rainfall areas.

The policy environment can continue to support improvements in human capital by investing – where appropriate – in training and education, research that generates innovations that support more sustainable farming systems, and extension and advisory services that deliver innovations into the hands of producers. There are numerous examples of this in the countries examined, including Rural Development initiatives in Italy and the Netherlands, or Canada’s Living Laboratories Initiative (which employs a collaborative experimentation model to co-develop, test and refine new practices and technologies on-farm). Increasing the availability of training that targets improved risk management could be beneficial, as this type of programme may encourage producers to draft contingency plans for different scenarios.

While there are examples of farmers investing in skills and improving their capacity to absorb the financial impacts of adverse events, governments could do more to facilitate these types of behaviours by ensuring that current policies do not disincentivise these activities. For example, ex post financial assistance should concentrate on the catastrophic risk layer, and policy makers should take care to ensure that programmes do not crowd out private sector initiatives.

4.6. No-regret policies: More focus on policies that will enable farmers to respond to uncertainty and a changing risk environment

Appropriate investments in general services for the sector and other no-regret policies, including investments in the provision of information, education, infrastructure, and research and development, can help support farmers’ capacity to manage risks across all layers. There is scope to ensure that these investments take into account the long-term needs of the sector. Research priorities need to consider likely future conditions (as well as potential constraints that farmers may face under different scenarios); infrastructure investments should be executed only after considering long-term structural trends in the sector and ensuring that investments are climate-resilient, according to appropriate technical standards; and governments should provide an enabling environment that allows farmers to make investments and business decisions for the long-term. These investments and adoptions of innovation will move in the direction of resilience if other policies do not remove the incentives of farmers and the private sector to build on-farm resilience.

This work identified various instances of how the government’s role in the provision of information – including the monitoring of crop progress, pest presence, disease incidence, and weather conditions – can contribute to improved resilience by notifying producers of current conditions and allowing them to take preventative measures when necessary. These initiatives are increasingly facilitated by digital technologies. These technologies have a role to play in refining risk management programmes, and can be used to facilitate monitoring and control activities as well (Langemeyer, 2018[8]).

Research and development activities have a potentially large role to play in ensuring the long-term resilience of the agricultural sector. Indeed, previous OECD work has explicitly discussed the link between innovation and productivity (OECD, 2019[9]). In order to ensure future productivity and long-term resilience, countries should foster an innovation system that responds to sector needs, and helps to orient agricultural policies towards long-term threats and priorities.

Innovation extends to new approaches to planning policies, interacting with private stakeholders, and finding new ways to harness data and information and communication technologies that lead to new and better-adapted risk management tools. For example, a substantial proportion of Australia’s government expenditures on agriculture are spent on research and development. In Canada, research covers tools and strategies that will improve the long-term viability of the sector, with several provincial governments developing initiatives that embody the ex ante preparedness approach to catastrophic risks.

All of the countries profiled in these case studies carry out these types of activities. For example, Italy mobilises 13% of its national rural development programme (RDP) budget on R&D measures, while Canadian stakeholders increasingly recognise the value of preparedness and ex ante approaches, with strategies like improved farm-level management and investments in knowledge systems prioritised over ex post assistance. At the same time, the intensity of investment in public research and development is low, representing less than 2% of agricultural value added in all four countries in this study, with research intensity declining between 1996 and 2016 for each country, with the exception of Italy (OECD, 2017[10]).

An additional constraining factor is that research efforts within countries remain fragmented by policy systems that devolve research responsibilities to the regional or local level. Although there are benefits to tailoring research findings to local conditions, issues of catastrophic risk are relevant at a national level, with catastrophic events in one area potentially impacting economic activity outside of the region – particularly in cases of animal and plant disease, where trade restrictions are often applied at the country level. In addition, there is also a continued role for private research, and greater co-ordination and the planning of national research strategies would help to ensure that public initiatives do not crowd out private ones.

While countries have made substantial strides in these areas, some projects or initiatives would benefit from being better linked with risk management outcomes. That is, while these initiatives on their own have merit, country risk management frameworks would benefit from monitoring and evaluation programmes of no-regret policies to show benefits of risk prevention and mitigation. Such evaluations could also be used to support the adoption of more coherent research agendas, which would reduce the research fragmentation problem identified above.

References

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[8] Langemeyer, M. (2018), Monitoring Approach: Take Up of Digital Technologies in the Management and Control of Direct Payments, OECD, Paris, ftp://u1032:[email protected]/agriculture/events/2018-oecd-global-forum-on-agriculture.zip.

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[9] OECD (2019), Innovation, Productivity and Sustainability in Food and Agriculture: Main Findings from Country Reviews and Policy Lessons, OECD Food and Agricultural Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/c9c4ec1d-en.

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Notes

← 1. Although this is not the case when subsidies cover much of the policy premium.

← 2. Note that this is not typically the case with whole farm income policies, which are typically paid out with a substantial delay, and can even have a pro-cyclical rather than counter-cyclical effect.