Managing and Sharing the Risks of Drought in Australia

Resource /Energy Economics and Policy,

Considering the Interface of Climate and Productive Natural Resource Use: Market Approaches to Enable Sustainable Development

This dissertation includes three papers related to climate, resource use, and market applications for sustainable development in developed/developing countries. The first paper describes the development of a game-theoretic economic model investigating the linkages between credit and insurance markets for smallholder farmers, and how a new market tool (weather index insurance) may help to overcome credit constraints in rural financial markets of developing countries. The second paper extends consideration of agricultural climate-risk management to potential skill in predictions of late-season rainfall over monsoonal Indonesia, with the aim of better understanding: (i) forecast skill and risk in this region, and (ii) how forecast information may be better tied with financial market products, such as index insurance, to improve smallholder farmer incentives, decision-making, and livelihoods under climate risk. The third paper, in turn, looks at forest resource management in Canada, and what the application of new carbon constraints and a market for carbon would mean for investment, production decisions, and indicators of sustainable forest management in the Canadian boreal, both in respects to the management of the landscape (i.e. the forest resource), and the development of the forestry sector and forest-based communities

Integrated Modeling of Spatial and Temporal Heterogeneities and Decisions Induced by Catastrophic Events

This paper discusses an integrated model capable of dealing with spatial and temporal heterogeneities induced by extreme events, in particular weather related catastrophes. The model can be used for quite different problems which take explicitly into account the specifics of catastrophic risks: highly mutually dependent losses, inherent capacity of information, the need for long-term perspectives (temporal heterogeneity) and geographically explicit analyses (spatial heterogeneity) with respect to losses and gains of various agents such as individuals, governments, farmers, products, consumers, insurers, investors, and their decisions on coping with risks. We illustrate emerging challenging decision-making problems with a case study of severe floods in a pilot region in the Upper Tisza River. Special attention is given to the evaluation of a flood loss-spreading program taking explicitly into account location specific distributions of agricultural and structural losses. This enables us to evaluate premiums, insurance coverage, and governmental compensation schemes minimizing, in a sense, the risk of locations to overpay actual losses, risks of bankruptcy/insolvency for insurers, and overcompensation of losses by the government. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures. We use special risk functions in order to convexity discontinuous insolvency constrains

Trees, crops, and rural livelihoods: Afforestation of marginal croplands in Uzbekistan

The livelihoods of rural population in Uzbekistan, Central Asia, highly depend on irrigated agriculture. However, agricultural production is threatened by the impacts of land degradation, irrigation water scarcity and climate change. The conversion of marginal croplands to tree plantations could represent an option to tackle such problems, while also improving population welfare. Yet, this land use is currently not practiced, owing to lack of farmers’ knowledge on revenues and impacts on livelihoods. In addition, state policies prohibit the conversion of croplands into tree plantations. Therefore, the main objective of this study is to investigate economically viable options of afforestation of degraded irrigated croplands using an example of the Khorezm region and three southern districts of the Autonomous Republic of Karakalpakstan, Uzbekistan. This includes analyzing the impacts on the rural livelihoods by Clean Development Mechanism (CDM) afforestation with its carbon sequestration reward of temporary Certified Emission Reduction (tCER). Using an example of irrigated areas in Uzbekistan, this study contributes to the general knowledge of sustainable rural development via converting marginal lands from crop cultivation to tree plantations. This research employed various methodologies at different scales to evaluate the economic conditions of introducing short-rotation tree plantations along with the CDM requirements. At the field level analysis (1 ha), the net present value and stochastic dominance analyses were employed to investigate the financial attractiveness of afforestation on marginal croplands and to derive tCER payments that would initiate CDM afforestation. At the farm level, the expected utility method was employed to determine the tCER price that would facilitate CDM afforestation on marginal croplands, and to analyze respective effects on land use and farm incomes. At the system level, that comprises commercial farms and rural households, the farm-household stochastic dynamic nonlinear programming model was developed to analyze the effects on rural livelihoods from converting marginal farmlands to tree plantations The results of the study indicate that due to benefits from non-timber products the short-term afforestation can be a more viable land use option on marginal croplands than the cultivation of major crops. At the same time, using the field level analysis while considering variabilites in land use revenues would necessitate an extreme increase in tCER prices, from the current tCER price of 4.76 USD (as of 2009). In contrast, when considering uncertainties in land use returns at the whole farm level, the current tCER price would be sufficient to initiate CDM afforestation. This is because tree plantations would economically improve a commercial farmer’s cropping pattern, while mitigating the impacts of revenue risks via a land use diversification option. Afforestation of marginal croplands at a commercial farm would affect the structure of employment and agricultural contracts between commercial farm and rural households, and thus have positive spillover effects on the rural population and increase of rural households’ income by 27,400 USD in comparison to crop cultivation on marginal lands. The spillover effects would come from the reduced labor demand at commercial farm between the periods of tree plantation establishment and harvest, while the subsequent increase in farm employment would occur during the establishment and harvest of trees. The inclusion of fuelwood and tree foliage into the payment schemes would replace fossil fuels and fodder products and reduce rural households’ expenditure for domestic energy (36%) and fodder products (15%).Bäume, Getreide und ländlichen Existenzgrundlage: Aufforstung auf unproduktiven landwirtschaftlichen Flächen in Usbekistan Bewässerungslandwirtschaft stellt die Existenzgrundlage der ländlichen Bevölkerung in Usbekistan (Zentralasien) dar. Die landwirtschaftliche Produktion wird jedoch durch Bodendegradation, Wasserknappheit und die Folgen des Klimawandels bedroht. Die Umnutzung nicht produktiver Landwirtschaftsflächen zu Baumplantagen stellt eine Möglichkeit dar solchen Problemen zu begegnen und gleichzeitig die Gesamtwohlfahrt zu steigern. Da Erträge und Rückkopplungen dieser alternativen Nutzungsstrategien noch unklar sind, wird diese Landnutzung jedoch noch nicht praktiziert. Politische Richtlinien verbieten die Umnutzung von landwirtschaftlicher Produktionsfläche zu Baumplantagen ohnehin. Entsprechend sind die Ziele der vorliegenden Arbeit ökonomisch durchführbare Aufforstungsvarianten an Beispielen in der Region Khorezm sowie den drei südlichen Distrikten der autonomen Republik Karakalpakstan zu untersuchen. Dies beinhaltet die Analyse der Auswirkungen des Mechanismus für umweltverträgliche Entwicklung (Clean Development Mechanism–CDM) samt der temporären Emissionsreduktionseinheiten (temporary Certified Emission Reduction–tCER) auf die Existenzgrundlage der ländlichen Bevölkerung. Anhand des Beispiels der Bewässerungslandwirtschaft in Usbekistan trägt diese Studie zum generellen Verständnis nachhaltiger ländlicher Entwicklung durch Umnutzung nicht produktiver landwirtschaftlicher Flächen zu Baumplantagen bei. Auf verschiedenen Skalen wurden verschiedene Methoden angewandt um die ökonomischen Rahmenbedingungen der Einführung von Kurzumtriebsplantagen unter Berücksichtigung der CDM Anforderungen zu analysieren. Auf Feldskala wurden die Kapitalwertmethode sowie die stochastische Dominanzanalyse angewandt um zu bestimmen, wie attraktiv besagte Aufforstungensstrategien aus finanzieller Sicht sind und um tCER Zahlungen abzuleiten, die Aufforstungen unter CDM anstoßen könnten. Auf Betriebsebene wurde die Erwartungsnutzen Methode andewandt um die tCER Preise zu bestimmen, die CDM Aufforstung ermöglichen würden sowie um die entsprechenden Effekte auf Landnutzung und Einkommen der Landwirte und Haushalte zu analysieren. Auf Systemebene, die landwirtschaftliche Großbetriebe sowie ländliche Haushalte beinhaltet, wurde das Stochastische Dynamische Betriebs-Haushalts Programmierungsmodell entwickelt um die Effekte der Aufforstung auf die ländlichen Existenzgrundlage zu analysieren.Die Ergebnisse der vorliegenden Studie lassen darauf schließen, dass kurzfristige Aufforstungsmaßnahmen durch Gewinne aus Nichtholzprodukten für den Landwirt mehr Einkommen generieren als der Anbau der gängigen Feldfrüchte. Gleichzeitig zeigt die Analyse auf Feldskala unter Berücksichtigung von Ertragsvariabilitäten, dass eine Erhöhung der tCER Preise vom momentanen Stand (4.76 USD im Jahr 2009) nötig wäre. Gegenläufig verhalten sich die Ergebnisse auf Betriebsebene; hier wären die angenommenen tCER Preise ausreichend um CDM Aufforstung zu initialisieren. Grund hierfür ist die Tatsache, dass Baumpflanzungen die Fruchtfolge von Großbetrieben ökonomisch verbessern würden und gleichzeitig das Umsatzrisiko durch die Möglichkeit zur Diversifikation herabsetzen. Aufforstung von unproduktiven Landwrtschaftsflächen auf Ebene der Großbetriebe hätte Auswirkungen auf die Beschäftigungsstrukturen und die Vertragsverhältnisse zwischen Großbetrieben und der ländlichen Bevölkerung. Externe Effekte würden hier das Einkommen der ländlichen Haushalte im Vergleich zum Anbau klassischer Feldfrüchte um 27,400 USD erhöhen. Diese externen Effekte beruhen auf dem niedrigeren Bedarf an Arbeitskräften in Großbetrieben zwischen Pflanzung der Bäume und Rodung. Die Einführung von Brennholz und Blattwerk in die Vergütungsstruktur würde fossile Brennstoffe und Futterkäufe ersetzen und dadurch die Ausgaben der Haushalte für Energie (36%) und Futterzukäufe (15%) verringern

QUANTIFYING AND MANAGING RISK IN AGRICULTURE

Risk and Uncertainty,

RISK MANAGEMENT THROUGH ENTERPRISE DIVERSIFICATION: A FARM-LEVEL ANALYSIS

Enterprise diversification is a self-insuring strategy used by farmers to protect against risk. This paper examines the impact of various farm, operator, and household characteristics on the level of on-farm diversification. Results provide evidence that larger farms are more specialized. Also, farmers who participate in off-farm income and farms located near urban areas are less likely to diversify. Additionally, results also show a significant positive relationship between diversification and farm/crop insurance and sole proprietorships. Finally, there is also evidence that farms that received government payments are more diversified than their counterparts.Farm Management, Risk and Uncertainty,

An asset-based approach to social risk management : a conceptual framework

There is increasing concern about the vulnerability of poor and near-poor rural households, who have limited capabilities to manage risk and often resort to strategies that can lead to a vicious cycle of poverty. Household-related risk is ususally considered individual or private, but measures to manage risk are actually social or public in nature. Furthermore, various externality issues are associated with household-related risk, such as its links to economic development, poverty reduction, social cohesion, and environmental quality. Hence the need for a holistic approach to risk management, or"social risk management,"which encompasses a broad spectrum of private and public actions. An asset-based approach to social risk management is presented, which provides an integrated approach to considering household, community, and extra-community assets and risk-management strategies. The conceptual framework for social risk management focuses on rural Sub-Saharan Africa. The report concludes with several suggestions on moving from concepts to actions.Health Economics&Finance,Insurance&Risk Mitigation,Banking Law,Environmental Economics&Policies,Banks&Banking Reform

An optimization and simulation framework for integrated tactical planning of wood harvesting operations and lumber production

La planification tactique des opérations forêt-usines est centrée sur trois éléments principaux : la récolte, le transport et la transformation du bois. La planification de cette chaine d’approvisionnement est très complexe. Il existe déjà des outils pour faciliter la décision de décideur tels que FPInterface et Optitek, tous deux développés par FPInnovations. Cette mémoire vise à développer un module d’optimisation qui est connecté aux utiles de simulation. LogiOpt est constituée d'un modèle mathématique. Le modèle développé vise l’optimisation de la chaîne d’approvisionnement entre la forêt et l’usine en concentrant les efforts sur les activités que l’entreprise planifie conjointement avec son entrepreneur d’opérations forestières principal. Grâce à ces solutions de logiciels de simulation et de notre modèle mathématique, nous combinons à la fois dans notre cadre récolte, le transport, l'allocation des bois et des opérations de production. Pour tester notre model mathématique, nous avons utilisé les données d’une année d’exploitation à une entreprise québécoise œuvrant dans le milieu forestier. Nous avons comparé nos résultats avec un plan tactique manuel « simulé ». De ce fait, nous avons constaté que LogiOpt effectue une meilleure allocation de la matière première en allant récolter dans moins de blocs de récolte tout en utilisant des bois ayant un meilleur rendement en usine. Conséquemment, on produit plus de produits finis en usine tout en utilisant la même quantité de bois qu’un plan tactique plus traditionnel.Forest and sawmills tactical planning is based on three main elements: wood harvesting, wood transportation and wood transformation. Planning the whole supply chain, is quite complex. Tools have been built to help manager in his decision process, for example FPInterface and Optitek, which were developed by FPInnovations. The aim of this thesis is to develop an optimization module, LogiOpt, which will be integrated to simulation tools. LogiOpt is made of a mathematical model. The developed model aims at optimizing the supply chain between the forest and the mills. Using simulation software solutions and our mathematical model, we combine at the same time in our framework harvesting, transportation, wood allocation and production operations. To test our mathematical model, we used data obtained from one business year of a Quebec based wood manufacturer. We compared our results with a manual simulated tactical plan. In this regard, we observed that LogiOpt performs better in wood allocation between sawmills, harvesting in less harvesting while using wood with better output. We then end up producing more finished products at sawmills using the same wood quantity as a traditional tactical plan