**5. Implication of the results**

Farmers in both regions perceived 'unexpected variability of input prices' as the most important sources of risk on the farm. In addition to the prices of chemical fertilizer, the increase in wage rates and higher land rental rates are the main factors that pushed the farm production costs upward. Over the past decade, the intervention of the Thai government in agricultural input policies had actually declined. The distribution of chemical fertilizers at reduced cost was the only scheme that the government organized to assist poor rural farmers. However, this scheme has recently been terminated due to limited government budget and this consequently reduced opportunities for the farmers to control production costs.

The results of the sources of risk perceptions, showed that 'unexpected variability of product prices' was the second most important source of risk among the central and north east region farmers. The Thai government operated a pledging scheme for the major cash crops such as wet rice, dry rice, cassava and maize.(34) This scheme aimed to help farmers when commodity market prices fluctuated early in the harvesting season. However, the pledging scheme has been widely debated among policy experts, especially for rice.(35-37) The advantage of the rice pledging scheme is that farmers can obtain low-interest loans from the government when they decided to pledge their rice to the Bank of Agriculture and Agricultural Cooperatives (BAAC) at the pledging prices and the rice will be transferred to storage at the Public Warehouse Organisation. The government allowed the farmers to redeem and sell their rice in the market when market prices increased above the pledging prices. The pledging price was set by a government announcement and generally the pledging period is approximately five to seven months each year.(38) Conversely, some economists argued that the pledging scheme would have long-term negative impacts on the efficiency of the country's rice market and it seems that the management of the scheme is shaped by political forces.(35) The pledging scheme persuaded farmers to increase their production, but the quality of the products was frequently ignored.(39) Some economists also suggested that the government should discontinue this highly-interventional price policy and should encourage farmers to sell their products using futures contracts to reduce the risk of price and income volatilities.(40, 41) This challenged policy makers to create mechanisms to stabilize agricultural prices at levels that are economically reasonable for both farmers and consumers. In addition, the effects of price policies such as the pledging scheme should be assessed cautiously to improve the effectiveness of the scheme. Direct access to futures trading markets may perhaps be too complicated for smallholder farmers in Thailand. Hence, government agencies such as Ministry of Agriculture and Cooperatives, Ministry of Commerce and The Agricultural Futures Exchange of Thailand should develop strategies that would increase small farmers' access to the futures market.

Sources of Risk and Risk Management Strategies: The Case of Smallholder Farmers in a Developing Economy 471

should promote the benefits of crop insurance schemes that could increase farmers'

Strengthening the role of farmer groups or cooperatives should be considered as part of agricultural risk reduction policies in Thailand. This is because farmers' groups or cooperatives can help farmers to improve their negotiating power. Higher product prices

and lower input prices can then be achieved more easily due to economies of scale.(1)

*Department of Agricultural Economics, Faculty of Agriculture, Khon Kaen University, Thailand* 

*Department of Accounting, Economics and Finance, Faculty of Commerce, Lincoln University,* 

[1] Hardaker JB, Huirne RBM, Anderson JR, Lien G. Coping with risk in agriculture.

[2] Hazell PBR, Norton RD. Mathematical programming for economic analysis in

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[8] Shadbolt NM, Martin SK. Farm management in New Zealand. Auckland: Oxford

[9] Pellegrino JM. Risk management in agriculture: Argentine evidence of perceived sources of risk, risk management strategies and risk efficiency in rice farming [master

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**Author details** 

*Christchurch, New Zealand* 

**6. References** 

Satit Aditto

The development of a national agricultural crop insurance scheme should be one of the Thai government's priorities. Crop insurance is, theoretically, an efficient instrument in managing risks and can facilitate efforts to protect farmers from either the loss of their crops or farm income caused by natural disasters or drops in commodity prices. To date, a new crop insurance scheme for Thai farmers that has been operated by BAAC since 2008 is still in the pilot project stage.(42) The government expects this crop insurance scheme will continue to develop to cover all farmers and crops countrywide in the near future.(43) In addition, there are some obstacles that policy makers should consider for the successful implementation of the crop insurance schemes.(1, 42, 44)

First, the crop insurance scheme itself should not be too complicated because it could lead to high administrative costs for the scheme. Second, the appropriate insurance premiums and coverage accessibility under the scheme for each crop must be carefully considered. Low premiums may not always cover all the losses from the large-scale disasters, but the high insurance premiums will lead to increased farm production costs. Lastly, the government should promote the benefits of crop insurance schemes that could increase farmers' understanding and participation.

Strengthening the role of farmer groups or cooperatives should be considered as part of agricultural risk reduction policies in Thailand. This is because farmers' groups or cooperatives can help farmers to improve their negotiating power. Higher product prices and lower input prices can then be achieved more easily due to economies of scale.(1)

## **Author details**

Satit Aditto

470 Risk Management – Current Issues and Challenges

increase small farmers' access to the futures market.

implementation of the crop insurance schemes.(1, 42, 44)

The results of the sources of risk perceptions, showed that 'unexpected variability of product prices' was the second most important source of risk among the central and north east region farmers. The Thai government operated a pledging scheme for the major cash crops such as wet rice, dry rice, cassava and maize.(34) This scheme aimed to help farmers when commodity market prices fluctuated early in the harvesting season. However, the pledging scheme has been widely debated among policy experts, especially for rice.(35-37) The advantage of the rice pledging scheme is that farmers can obtain low-interest loans from the government when they decided to pledge their rice to the Bank of Agriculture and Agricultural Cooperatives (BAAC) at the pledging prices and the rice will be transferred to storage at the Public Warehouse Organisation. The government allowed the farmers to redeem and sell their rice in the market when market prices increased above the pledging prices. The pledging price was set by a government announcement and generally the pledging period is approximately five to seven months each year.(38) Conversely, some economists argued that the pledging scheme would have long-term negative impacts on the efficiency of the country's rice market and it seems that the management of the scheme is shaped by political forces.(35) The pledging scheme persuaded farmers to increase their production, but the quality of the products was frequently ignored.(39) Some economists also suggested that the government should discontinue this highly-interventional price policy and should encourage farmers to sell their products using futures contracts to reduce the risk of price and income volatilities.(40, 41) This challenged policy makers to create mechanisms to stabilize agricultural prices at levels that are economically reasonable for both farmers and consumers. In addition, the effects of price policies such as the pledging scheme should be assessed cautiously to improve the effectiveness of the scheme. Direct access to futures trading markets may perhaps be too complicated for smallholder farmers in Thailand. Hence, government agencies such as Ministry of Agriculture and Cooperatives, Ministry of Commerce and The Agricultural Futures Exchange of Thailand should develop strategies that would

The development of a national agricultural crop insurance scheme should be one of the Thai government's priorities. Crop insurance is, theoretically, an efficient instrument in managing risks and can facilitate efforts to protect farmers from either the loss of their crops or farm income caused by natural disasters or drops in commodity prices. To date, a new crop insurance scheme for Thai farmers that has been operated by BAAC since 2008 is still in the pilot project stage.(42) The government expects this crop insurance scheme will continue to develop to cover all farmers and crops countrywide in the near future.(43) In addition, there are some obstacles that policy makers should consider for the successful

First, the crop insurance scheme itself should not be too complicated because it could lead to high administrative costs for the scheme. Second, the appropriate insurance premiums and coverage accessibility under the scheme for each crop must be carefully considered. Low premiums may not always cover all the losses from the large-scale disasters, but the high insurance premiums will lead to increased farm production costs. Lastly, the government *Department of Agricultural Economics, Faculty of Agriculture, Khon Kaen University, Thailand* 

Christopher Gan and Gilbert V. Nartea

*Department of Accounting, Economics and Finance, Faculty of Commerce, Lincoln University, Christchurch, New Zealand* 

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**Section 5** 

**Climate Risk Management** 

**Climate Risk Management** 

474 Risk Management – Current Issues and Challenges

27.

[44] Abada J. Micro and area-based schemes: project and program issues. In: Ortiz ID, editor. Social protection in Asia and the Pacific: Asian Development Bank; 2001. p. 408-

**Chapter 21** 

© 2012 Martínez et al., licensee InTech. This is an open access chapter distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2012 Martínez et al., licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

**Improving Climate Risk Management** 

**at Local Level – Techniques, Case Studies,** 

**Good Practices and Guidelines for World** 

**Meteorological Organization Members** 

G. Cockfield, A. Diongue, J. Hansen, A. Hildebrand, K. Ingram,

O. Ndiaye, G. Srinivasan, Eh. Seck, N. White and R. Zougmoré

G. Jakeman, M. Kadi, G. R. McGregor, S. Mushtaq, P. Rao, R. Pulwarty,

Climate can be viewed in a number of ways. As a constraint or setting, climate provides the broad boundary conditions within which a range of ecosystems services function. Climate may be considered a determinant in that it may be part of a causal chain of direct or indirect events leading to a particular impact or outcome. Climate can also be viewed as a resource; this notion implies that climate has a value, could be managed and manipulated and by extension could be allocated. More often than not, climate is viewed as a hazard. Whichever of these views of climate is adopted, it is clear that climate has a close relationship with nature and society and therefore climate variability and change may pose a range of risks

As our understanding of the climate system and our ability to predict it into the future have improved, and as society has become more aware of the possible costs and benefits of managing (including adapting to) climate risks (see Box 1. 'Climate risk definition'), individuals, communities and organisations are seeking suitable information, tools and techniques to enable appropriate management decisions to be made. These need to be accessible, dependable, usable, credible, authoritative, responsive, flexible and sustainable. The generic process of applying such information to climate risk decision making, including identification, assessment and prioritization of the risks followed by a

R. Martínez, D. Hemming, L. Malone, N. Bermudez,

Additional information is available at the end of the chapter

for environments, societies and economies.

http://dx.doi.org/10.5772/51554

**1. Introduction** 
