Managing Agricultural Risk through Remittances: The Case of Senegal
Remittances are a significant tool to reduce the impact of agricultural risks. Learn more about the role they play in this report for the Government of Senegal.
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This publication is the executive summary of a study undertaken in 2017 and presented to the Government of Senegal. The study, which entailed a survey of 600 households in two administrative regions in Senegal, sought to distinguish typical agricultural risk management behaviors in households benefitting from remittances from those of other types of households.
During the agricultural risk assessment in Senegal, the World Bank Group and the Platform for Agricultural Risk Management (PARM) identified erratic rainfall and droughts, livestock pest and diseases and illegal fishery as the main risks of the agricultural sector. Among the risk management tools and strategies that emerged from the risk assessment study carried out by PARM, three lines of intervention were prioritized in the Senegalese context:
- Increase farmers’ access to information about suitable inputs, market prices and weather forecasts.
- Strengthen the capacities of public entities responsible for policy, support and agricultural advice to address agricultural risks.
- Optimize the use of remittances.
This study explores the impact of the latter as an effective tool for agricultural risk management.
The Importance of Remittances in Rural Areas
Out of a rural population of around 8.4 million, 2 million rural Senegalese depend on remittances from international migrants, which, for Senegalese households taken as a whole, totaled $2 billion in 2016 (or 13.5% of the gross domestic product (GDP)). While the domestic remittances sent/received are lower and less frequent than the international remittances, more families receive them. Thus, according to the Findex study, in 2014 half of rural Senegalese households received remittances from other parts of the country.
Remittances as an Ad Hoc Tool for Agricultural Risk Management
In the sample surveyed, remittances appear as a “broad spectrum” tool for short-term agricultural risk management centered on covering food needs, supply procurement and the development of short cycle commercial activities. They add to and buttress the ad hoc risk management strategies observed in other rural households.
Remittances are clearly a factor that distinguishes beneficiary households from “nonbeneficiary” households in terms of the ability to adopt agricultural risk management strategies. In beneficiary households, these strategies are also marked by:
- Greater diversification of commercial activities.
- Greater expenditures for supplies.
- Greater propensity to save and build up reserve savings to guard against agricultural risks.
- Greater propensity to obtain credit, especially among households that receive international remittances, to finance agricultural activities at the same level as households that do not receive them.
In contrast to nonbeneficiary households, remittances in beneficiary households serve as a substitute for the safety net provided by the government or nongovernmental organizations (NGOs) to offset losses when agricultural risks materialize.
The use of remittances by households largely dependent on their farm production for subsistence to mitigate the impact of agricultural risks is also reflected in how they use the moneys received:
- A total of 70% of the money is used for current expenses (including health and education).
- Around 20% is used for expenses linked with production (agricultural supplies and commerce).
- The rest is used for social events and savings.
Additional Findings
- Differential effects on agricultural risk management strategies by the geography and frequency of remittances, but a general trend toward better resilience to shocks.
- The potential use of remittances as a risk management tool is hindered by limited access to financial services and local agricultural support.
- More than two-thirds of households benefitting from remittances obtain financial services through informal channels.
- On the supply side, lack of appropriate and sufficiently integrated services for transforming the potential of remittances into longer-term strategies.
Pathways for Increasing the Role of Remittances in Agricultural Risk Management
In order to lift the constraints that limit remittances’ potential for better agricultural risk management with a long-term vision and reach both households that receive remittances and those that do not, three lines of intervention appear to be necessary:
- Increase access to formal financial services and information in rural areas by aggregating and digitizing existing services.
- Develop new financial products tailored to conditions in rural areas and new combinations of services that reduce the credit risks to financial operators and agricultural risks to farmers.
- Strengthen the culture of rural populations, whether or not they receive remittances, in the areas of savings and climate risk management.