Around the globe, the issues of management of diverse (natural, market, criminal, policy,
etc.) risks in the agrarian and food sectors are among the most topical in academic, business
and policy debates (Weaver and Kim, 2000; Babcock, 2004; Shepherd et al., 2006; OECD,
2008; Olsson and Skjöldebrand, 2008; Ramaswami et al., 2008; Deep and Dani, 2009;
Schaffnit-Chatterjee, 2010; EU, 2011; Trench et al., 2011; CIPS, 2012; and RPDRM, 2012).
In the last decades, newly evolving uncertainty, risks and crises associated with the
progression of natural environment, products and technology safety, social demands, policies,
economy and globalization put additional challenges to the existing system of risk
management in the agri-food sector.
Risks management studies in the agri-food sector predominately focus on technical
methods and capability to perceive, prevent, mitigate, and recover from diverse threats
and risks (Barker, 2005; Luning et al., 2006; Jaffee et al., 2008; DTRA and IIBR, 2011; and
Hefnawy, 2011). In most economic publications, a neoclassical approach is applied. The
risks are studied as other commodity, regulated by market supply and demand and farmers’
‘willingness to pay’ for an insurance contract in relation to agents’ risk aversion, risk
probability and magnitude of damages modeled (Gerasymenko and Zhemoyda, 2009; and
OECD, 2011). Market and private failures are acknowledged, and the need for public
intervention in risk management is increasingly recognized. At the same time, risk
management analyses largely ignore a significant ‘human nature’-based (bounded
rationality, opportunism) risk, critical factors for the managerial choice such as the
institutional environment and transaction costs, and diversity of alternative (market,
private, collective, public, hybrid) modes of risk management. As a result, the efficiency
and complementarities of risk management modes cannot be properly assessed.
Despite significant advancement in risk management technologies and the ‘menu’ of
risk reduction, mitigation and coping strategies, a great number of failures and challenges
(production, supply chain, food and human safety, environmental, etc.) continue to persist
in the agri-food sector (Humphrey and Memedovic, 2006; Luning et al., 2006; Dani and
Deep, 2010; EU, 2011; and OECD, 2011). Consequently, greater attention is directed to
the system of governance which eventually determines the exploration of technological
opportunities and the state of agri-food security (Bachev, 2010 and 2011c).
This paper incorporates the interdisciplinary new institutional economics (Coase,
1937 and 1960; Williamson, 1981 and 1996; North, 1990; and Furuboth and Richter,
1998) and presents a comprehensive framework for analyzing risk management in the agrifood
sector. First, it specifies the type of agri-food risks and the modes of their
management. Second, it defines the efficiency of risk management and identifies factors
of governance choice. Next, it presents stages in analysis of risk management for the
improvement of public intervention in risk governance. Finally, it identifies contemporary
opportunities and challenges for risk governance in the agri-food chain. The ultimate goal
is to improve the analysis of risk management in the agri-food sector, and to assist public
policies and risk management strategies and collective actions of individual agents.
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