Modeling agricultural risks to improve market information systems in developing
Oscar Vergara, Heidi Wang, Gerhard Zuba, AIR Worldwide, Cahiers Agricultures1
The world in which small farmers in developing countries determine the fields for each crop and then their yield levels is an uncertain world. How to confront endogenous (market) and exogenous (climate and disease) risks without reliable and readable information?
For several years now, agricultural market information systems (AMIS) have become increasingly significant in such unstable and unforeseeable context. We highly recommend the latest issue of “Cahiers Agricultures”, which is particularly instructive. It covers the need for such information systems that, according to Franck Galtier, aim “to improve public policies by a better awareness of market realities, and to make markets more transparent in order to lead to more effective allocations of resources.” The excerpts we are publishing below come from an article on “Modeling agricultural risks to improve market information systems in developing countries”. Oscal Vergara, Heidi Wang and Gerhjard Zuba are thus addressing the need to include a module to model agricultural risks in the Agricultural Market Information System (AMIS) in developing countries (LDCs), as the “AIR” model existing in the United States and in China.
Yet while such thinking validates the role of modeling agricultural risks to improve market information, it must be recalled that most international organizations and institutions are still relying on assessment tools and indicators based on an outdated vision of agricultural realities. In fact, no model includes the specific nature of agriculture, such as price volatility, farmers’ anticipation errors or the growing influence of speculators active in futures markets.
This is the very purpose of the momagri Model, because beyond curbing the asymmetry of agricultural markets and identifying risks, it is crucial to provide data that relies on reported facts. This is the condition for creating an environment beneficial to all agricultural activities worldwide and to global food security.
momagri Editorial Board
For agricultural production systems around the world, weather is the number one peril. Droughts and floods account for the bulk of crop losses for both irrigated and non-irrigated production systems. Given the importance of weather risk in crop production, it is necessary to model its impact on crop yield losses as accurately as possible.
We are not aware of any market information system operating in a developing country that also incorporates weather modelling for risk management. Perhaps the best example of a successful market information system that combines weather information, crop yield modelling, agricultural market intelligence, commodity pricing, and agricultural finance and insurance is FARMDOC (FARMDOC, 2013), managed by the Department of Agricultural and Consumer Economics at the University of Illinois and funded by a government/private donor partnership. FARMDOC has a broad readership among farmers and ranchers in the United States and is also a trusted source of information for agricultural risk managers looking for information on commodity markets, expected crop insurance payouts given current yields and prices, and local weather conditions. (…)
The primary purpose of agricultural risk modelling is to provide estimates (to farmers, donors, policymakers, financial institutions, and government agencies) of the agricultural portfolio loss potential due to adverse weather events. This estimation provides a critical tool to provide information to farmers and the rest of stakeholders that will allow them to optimize risk management strategies, such as those described below.
s indicated before, AIR has released agricultural risk models for the United States and China which are currently the leading models used by the crop insurance and reinsurance industry to quantify crop portfolio losses. In both the United States and China, more than 90% of crop losses are caused by adverse weather events, including drought, flooding, hail, frost, and windstorm. In the past, estimating the likelihood and magnitude of future crop losses has presented significant challenges. Forecast models are not capable of predicting with certainty average temperature and precipitation levels beyond a few days in advance, let alone the detailed weather patterns during the most critical times of crop production. To estimate yields, AIR uses a weather-based approach that correlates the amount of water available to crops during the growing season with how much water a particular crop requires. AIR closely monitors each growing season and provides detailed information on industry-wide corn and soybean production and potential losses through the CropAlert® Growing Conditions Report3.
Issued every month from June through to October, CropAlert provides farmers, commodity traders, agribusinesses, farm managers, and crop insurers and reinsurers with AIR's crop yield estimates based on season-to-date weather observations calculated with AIR's Agricultural Weather Index (AWI). County- and crop-specific, the AWI is used to assess the overall quality of the growing season. CropAlert includes a discussion on how precipitation, temperature, and soil conditions may impact different crops in various parts of the United States at specific stages of growth.
CropAlert also shows AIR's current corn and soybean yield forecasts in eight key states as well as the United States total, alongside World Agricultural Supply and Demand Estimates (WASDE) and National Agricultural Statistics Service (NASS) yield forecasts, as they become available. CropAlert includes four vivid maps of the United States that illustrate the following aspects of crop growing conditions: Crop Moisture Index, weekly accumulated precipitation, accumulated growing degree days, and weekly average temperature anomaly. CropAlert also includes a discussion section on current weather events that are affecting agricultural production in China and estimates of damage area and crop portfolio losses in real time.
AIR is currently working on additional agricultural risk models for India, Canada, and South America, to be released in the future.
1 Volume 23, numéro 4-5, Juillet-Août-Septembre-Octobre 2014
2 The complete article and issue is available from:
3 CropAlert® reports can be downloaded at