Effat University Business Global Operation Paper Simple Words, Free of plagiarism , Objective: To understand how risk events impact various stakeholders

Effat University Business Global Operation Paper Simple Words, Free of plagiarism ,

Objective:

To understand how risk events impact various stakeholders across the supply chain. In the process, key risk concepts are brought to light.

Directions:

This exercise below discusses scenarios for Political Insecurity.

Describe the risk event and the area impacted.
Were all stakeholders equally affected?
Which stakeholder(s) was most impacted?
Which stakeholder(s) was most vulnerable?
Which stakeholder(s) gained most from the shock event?
How does this example demonstrate the concepts of multiplicity of risk? (In other words, how do these factors come together and how are the risks managed and perceived within different policy frames).
Did any stakeholders undertake risk management measures? Which ones?
Political Insecurity Risk Event:

Social unrest has taken over the northern region of a developing country shortly after a disputed election. There are random acts of violence and road blocks.

Description of region directly affected:

The mountainous region is the largest producing area of high-quality Arabica coffee. Eighty percent of the nation’s coffee exports originate from the affected region. The violence and road blocks have prevented traders from effectively entering or exiting the region and have therefore curtailed the coffee trade by 50%. Farmers in the region depend heavily on the relatively well-developed coffee industry for their household income and have contractual relationships with traders and access to finance through tripartite agreements. Farmers do some intercropping with other tree crops such as plantain and a few vegetables.

Stakeholders:

Coffee Cooperative (180 members)
Coffee Producer
Coffee Trader / Exporter
Financial Institution
International Coffee Buyer
Government

Stakeholder Impacts from Social Unrest:

Coffee Cooperative (180 members)
The violence in, and isolation of the region has meant that assembly meetings of cooperative members has been sporadic and post-harvest drying (coffee bean processing) activities have been interrupted leaving laborers at these sites, and cooperative members, feeling unsafe. Transportation routes have been compromised and trucks have actually been hijacked and sold to neighboring countries to earn money for arms and munitions.

Consequently, the producer organization is uncertain if and how it can securely transport its dry beans to markets outside the region. Operations are largely at a stand-still and they will likely default on their loan with a commercial bank that recently helped them to expand their processing operation.

Coffee Producer
This coffee producer has a family of 4 (father, 1 daughter and 2 sons). Coffee sales in the past had provided him with an important source of cash that allowed him to send his oldest son to high school (room and board since it was a day’s commute away), and also provided income for electricity and other household consumption. The other children had only elementary school educations, whereby the second son was still attending school, but helped with the farm business. The coffee producer is a member of the local coffee cooperative where he sells his raw coffee beans.

The disruption of coffee sales by the coffee cooperative has motivated the farmer to generate other sources of revenue. He and his 3 children are now engaged in illegal logging of his own land to produce staple crops for his own family’s subsistence, as well as protected forests nearby. They have largely abandoned their coffee trees for the time being, deciding instead to dedicate their time and energy to these other pursuits.

Coffee Trader / Exporter
Social instability in this country has reduced the amount of coffee available for export by approximately 50%. Transport into and out of the coffee producing area is challenging and unsafe. The traders and exporters have been significantly impacted, finding the reduction in sales harmful to their business. Exporters cannot meet contractual expectations of international buyers. Many coffee exporters also serve as importers of various commodities as well. However, their cash flow constraints have also curtailed the import side of the business. Consequently, the exporter has only employed 25% of part-time employees that he usually does and is expecting much lower income earnings this year. Fortunately, he does not have any outstanding loans for the business, but personally will be challenged to pay for the mortgage on his home and may decide to sell a few assets and/or take out a personal loan to make ends meet.

Financial Institution
With technical assistance from a multi-lateral donor, this financial institution has developed a lending instrument that extends capital and cash flow loans to coffee cooperatives using long-term purchase agreements and coffee processing equipment as collateral. A total portfolio of 5 million US$ was extended to coffee cooperatives to support their buying, processing and transportation expenses. This amount represents 10% of the total lending portfolio of the bank, but a much higher percent of the portfolio of the bank branches that provided the loans. Most of the 5 million is at high risk of default. This will impact the total performance of the financial institution and likely make their ability to source capital more expensive in the future which will have a knock-on effect to other bank clients. They will also be more reluctant to continue with this lending product in the future, due to the risks associated with the largest coffee growing region.

International Coffee Buyer
International coffee buyers are concerned about political instability in a region which had historically produced some of the highest quality Arabica coffee. The production deficit has raised the price for Arabica on international markets, adding to the already rising trend of Arabica. A coffee buyer, with long-standing contractual relationships with exporters and even directly with coffee cooperatives in this country, is able to source Arabica from other regions of the world as well. However, uncertain of when stability will return to the region, the buyer modifies its coffee portfolio slightly in favor of Robusta beans, a lower-quality but more widely available variety.

Government
Social unrest in the country has been both politically and fiscally challenging to the government. The government has lost tax revenues from coffee exporters and it expects increased social and infrastructure costs in the affected region once the unrest subsides.

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