Risk Management Practices in Agriculture and Rural Lending:
Philippine Experience


By Ramon C. Yedra, Phd


I. Introduction

Risk in agriculture remains a formidable challenge among rural finance institutions and governments. Weather, pests and diseases affect yield of crops while market prices for agricultural produce are unpredictable putting at risk farm incomes. In the Philippines, crop losses due to extreme weather disturbances are huge enough that impact on the economy as agriculture contributes 18% of the GDP. Weather is a particular concern as the Philippines is visited by an average of 19 to 20 typhoons a year. The situation has been exacerbated by changing climate patterns in recent years resulting to more frequent and longer droughts on one hand and excessive rainfall and strong typhoons during wet season. These extreme weather patterns impact on crops resulting to reduced yields and crop losses. In 2009, after being hit successively by two strong typhoons within a span of few months, annual agricultural production output went down by 3.31%. During the last quarter of 2009 when the two typhoons occurred, the drop in rice harvest was as high as 16% compared to output during the same quarter of the preceding year.

Despite the attendant risks associated with agriculture, rural financial institutions cannot ignore lending to the farming sector as agriculture remains a major economic activity in the rural areas. Rural lenders have to find ways to manage the risks of lending to farmers while maintaining continued financial profitability and growth.

This paper reviews the current practices in the Philippines on risk management in agriculture and rural lending. The paper reviews the major government programs that address correlated risks faced by farmers and lenders as well management strategies and techniques of rural lenders that address attendant credit risks. The last section discusses lessons drawn from these practices and offers some recommendations for future actions.