What is the product?

Risk and uncertainty are two concepts especially embedded in the agricultural sector. The seasonality of agricultural products, financial crises, climate change and more recently the ongoing Covid-19 pandemic influence the production of a crop, its quantity and quality and thus, its price.

With a primary focus on the agribusiness sector, Stable provides risk management solutions for the 90% of commodities that can’t be hedged on the futures market. This protects the agricultural sector from volatile pricing and the financial troubles stemming from physical risks.

How does it support green outcomes?

As the impacts of climate change increase, there’s a greater risk of adverse weather conditions which affect the agricultural sector and can produce huge price volatility. This is a problem for many food manufacturers and food producers who often live on narrow profit margins and have to make an investment on crops and machinery to be sold at a future date. Many of these small to medium size businesses have little access to risk transfer mechanisms to alleviate the future risk of price fluctuations.

Stable has created an index based insurance mechanism which allows them to protect the future price of the non-tradeable commodities that match their input/output exactly. Stable products can be used as an incentive to promote better practices and finance the transition towards more sustainable agriculture. Stable enables cooperatives to provide a minimum price to its members. This gives more confidence for the producers to invest in more efficient machinery and techniques that reduce the impact and waste. Indirectly, this could also help a producer or food manufacturer have access to a better credit rate.

How does it enable customers today?

The price of avocados is very volatile, and unexpectedly low prices can squeeze profit margins of avocado producers and, worst-case, a price crash could lead to losses.

Stable has helped an avocado producer to manage their exposure to avocado price volatility by providing a price protection policy linked to avocado prices published by CIRAD. A claim was paid based on the average of CIRAD’s July 2021 avocado prices mitigating the lower market price.

Offering the producer a level of price certainty has given them greater certainty around their margins and allows them to pass certainty along to other avocado growers. As a result, all of these growers are able to better project cash flows and invest in the future with confidence.