Cedric Stephens | Movement of resources is risky business

Member of Parliament Anthony Hylton is the opposition spokesperson on industry, investment, and logistics. I have a general idea of what the first two parts of his shadow portfolio involve. The third is like Greek to me.

Logistics, like icons or social media, are words in popular use that persons who employ them assume others like me understand. I referred to my dictionary to ensure that even though the shadow portfolio exists as a vision, I understood all its parts. Logistics is defined as the process of managing how resources are acquired, stored, and transported to their destinations”.

Jamaica is an open and import-dependent economy. Logistics is important. The process involves risks. Managing the threats associated with the acquisition, storage, and transportation of resources to their destination is part of the logistics manager’s or logistician’s job.

The MP, using his knowledge of logistics, criticised the Jamaican government, when he made his contribution to the sectoral debate. It failed, he argued, “to outline specific solutions to the supply-chain challenges that have contributed to the elevated prices (aka price increases) of consumer goods and services in the economy”.

Supply chains and logistics are connected. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end-user.

The Opposition and other key stakeholders in the society, he said, believe that “the central bank’s approach to fighting supply-chain-induced inflation – increased interest rates – is not likely to achieve its intended result in the short to medium term but would increase pressure on vulnerable businesses and individuals. One of the lessons learned from the pandemic was the risk of over-reliance on any one (economic) sector. The economy cannot be driven on one engine.”

Minister of Agriculture & Fisheries Pearnel Charles Jr and MP Anthony Hylton share similar ideas about the need for the diversification of the economy. The minister’s appeal for more investments in the agriculture and fisheries sectors to support the Government’s efforts to increase local food production was one of the subjects discussed in last week’s article — ‘Can Jamaica emulate Rwanda’s in agriculture? Yes, we can!’

Messrs Hylton and Charles arrived at similar conclusions, coming from different starting points. The former viewed the subject through the lens of logistics, supply chains, and the broadening of the economy. The latter’s conclusion was built on the pillars of food security and the avoidance or reduction of supply-chain risks. Their arguments are complementary when viewed under the umbrella of managing risks.

President of Jampro Diane Edwards presented data at a forum four years ago, according to a Jamaica information Service report, which adds an economic dimension to Messrs Hylton and Charles’ arguments. She linked the agricultural and agro-processing sectors to the performance of the country’s economy.

She was quoted as saying that “agriculture accounts for seven per cent of Jamaica’s gross domestic product, so a lot of times, the GDP sinks or swims depending on how the agriculture sector performs. When you consider value-added products, including agro-processed goods, the contribution of the two sectors rises to 12 per cent of GDP. When agriculture grows, GDP grows, and this is something that we saw happen about three quarters ago when agriculture grew 28 per cent. So, we know that agriculture can grow, and we believe the time for agriculture has arrived”.

The Rwanda Development Board’s CEO, Clare Akamanzi, who was cited in last week’s column, would agree.

According to the UN Food & Agriculture Organization’s 2008 booklet Managing Risks in Farming, farming is risky.

“Farmers live with risk and make decisions every day that affect their farming operations. Many of the factors that affect the decisions that farmers make cannot be predicted with 100 per cent accuracy: weather conditions change; prices at the time of harvest could drop; hired labour may not be available at peak times; machinery and equipment could break down when most needed; draught animals might die, and government policy can change overnight. These are examples of some of the risks that farmers face in managing their farms. These risks affect farm profitability,” it says.

Non-farming businesses can transfer some of their risks to insurers. Farming businesses in Jamaica do not have this option, while their counterparts in many other parts of the world do.

The Brookings Institution is a United States non-profit public policy organisation. Its mission is to conduct in-depth research that leads to innovative ideas for solving problems facing society at the local, national, and global levels. In a May 2021 publication, Agricultural Insurance: The Antidote to Many Economic Illnesses, it said:

“Agriculture — still the most important sector in many poor countries — is directly affected by climatic shocks. Besides threatening global food security and stability, these shocks can cripple livelihoods, disrupt value chains, and even undermine macroeconomic stability. Climatic shocks have caused significant budget volatility in recent years and deepened corruption challenges.

“Agriculture insurance can be an antidote to these risks: It de-risks lending to the farm sector, enables repayment of loans, reduces budget volatility of agriculture-related fiscal expenditures by transferring climatic risk to the private sector, increases fiscal space during shock years, and stimulates the growth of the agriculture sector, which can unlock job creation potential. It can even reduce the scope for fiscal leakages and corruption.”

European risk managers in 27 countries this year identified the threat of supply-chain failures as the second most important hazard facing businesses after cyber risks. Supply-chain threats plus the absence of a risk-transfer mechanism for the island’s industrious farmers are obstacles to investment.

Mr Hylton recommended a supply chain and logistics council that would bring together key institutions, across the public and private sectors, to share critical, high-level data to address the problems. He also suggested that Jamaica’s business sector should review and redesign its logistics channels to ensure resilience and sustainability during this critical period.

I agree and, more importantly, so would the Minister of Finance and the Public Service.

Finally, the Jamaican government has examined the feasibility of universal health insurance and is looking at introducing unemployment insurance. Why has crop insurance been excluded from the public conversation?

– Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com

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