Actuarial Applications in Food Production Economics

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From Risk to Roots: Introduction

Actuarial science is often associated with insurance, pensions, and financial risk management. However, its fundamental purpose is managing uncertainty using mathematical, statistical, and financial models. This core strength makes actuarial thinking highly relevant to industries outside insurance. One such promising field is food production and agriculture, where variables such as weather, crop yield, commodity pricing, and investment risk play a critical role.

In emerging economies and vulnerable regions facing food insecurity, the application of actuarial skills can help guide investment, planning, and long-term viability. Projects centered around breadfruit farming in the Caribbean and coconut plantations in Guyana are examples of two such projects where we have worked on utilizing actuarial analytics in designing financially sustainable food systems. We detail these as two case studies here in our article. By applying actuarial frameworks to agricultural planning, food enterprises can better manage volatility, project yields, and design interventions that are both commercially viable and socially transformative.

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Analytics for Abundance: Breadfruit for Food Security in the Caribbean

Breadfruit is a high-yielding, nutritious crop native to the tropics. It holds immense potential to reduce food imports and hunger in the Caribbean. The need is more urgent since historic trade barriers have expired and Caribbean is facing long term decline in food exports like banana and sugar because competing with the natural advantage of Latin America is extremely difficult. 

In a project piloted in Jamaica, we were able to apply a structured actuarial model to the introduction of breadfruit tree cropping. The pilot modelled costs, yields, and revenue over time using statistical projections. Each tree produces around 230 fruits per year. A significant portion, about 70%, is processed into flour for both local use and export. The five-year cost per tree was estimated at USD 140, including maintenance and risk margins.

Assuming 100 hectares of breadfruit plantations in St. Vincent, calculations suggest annual yields between 30,000 and 40,000 kilograms per hectare. Using probabilistic modeling and historical rainfall data, we estimated a baseline productivity of 35,000 kilograms per hectare under normal weather conditions. Introducing stress factors such as droughts or pest outbreaks alters expected outcomes. Sensitivity testing around fertilizer costs and labor availability provided useful insight into net margins per hectare under varying market prices.

The project incorporated an actuarial control cycle: defining the problem of food insecurity, building a model with key inputs like yield assumptions and pricing, monitoring real results, and adjusting as needed. The model estimated that a 20-acre orchard would yield annual income of USD 75,000 by year six. By year ten, this could scale to a billion-dollar food production industry across the region if replicated over 20,000 acres.

Risk margins were included to account for environmental variability and market price fluctuations. Financial models considered self-insurance mechanisms by allocating portions of income into contingency funds. These projections used long-term financial valuation techniques common in actuarial work, such as present value calculations, expense analysis, and long-term profitability metrics.

In actuarial terms, this parallels deterministic projections used in solvency and cash flow modeling, where variables are tested under best, worst, and expected case assumptions. In the breadfruit model, simulations also included demand scenarios, which allowed planners to understand what proportion of school feeding programs or public sector food purchasing could be covered by domestic production over a five-year period. This exercise incorporated pricing, spoilage rates, and storage limitations, all of which influence the expected value and variance of food security outcomes.

Furthermore, the impact of scaling breadfruit cultivation over the entire Windward Islands was studied. Here, long-term projections incorporated policy incentives, land availability, and seedling propagation costs. These projections helped shape not only agricultural strategy but also investment attractiveness. By forecasting returns based on probabilistic climate outcomes and variable market access, the analysis supported informed decisions about where and when to invest in breadfruit as a scalable solution.

Feeding Forecasts: Coconut Plantation Modeling in Guyana

Coconuts are another example where actuarial techniques add value in evaluating the viability and profitability of agricultural ventures. In coconut plantation projects across Sri Lanka and Southeast Asia, business planning exercises resemble actuarial cash flow projections used in insurance liabilities or pension fund forecasting. Key inputs include the type of coconut cultivar (hybrid or tall), gestation period before fruit-bearing begins, average yield per tree, expected mortality, replacement cycles, and market selling prices for various coconut-derived products.

In Guyana, a comprehensive coconut plantation initiative we had worked on illustrates another application of actuarial methods. The plantation spanned 6,000 acres and includes nurseries, water management, community housing, and agro-processing facilities. It also integrates other food sources like poultry and fish farming, contributing to a circular economy. The investment required is about USD 70 million over four years. By year seven, the project is valued at USD 140 million, with projections exceeding USD 200 million by year fifteen.

The detailed project assessment included an initial investment cost covered land acquisition, nursery development, irrigation infrastructure, and planting labor. Revenue streams from coconuts begin from the fourth year onwards, gradually increasing as the trees mature. The revenue model used a triangular pattern similar to actuarial development triangles in claims reserving, with yields increasing sharply from year five and plateauing around year eight to twelve. Discounted cash flow models calculate the net present value and internal rate of return, applying discount rates aligned with prevailing agricultural loan interest rates or equity hurdle rates.

Cash flow forecasts project profitability from year eight onward. The cumulative surplus after fifteen years is expected to exceed USD 50 million. These results rely on actuarial financial models that account for depreciation, biological asset valuation, discounting of future revenues, and performance under multiple scenarios. The planning phase involved stress testing the economic impact of climate shocks, pest infestations, and changing commodity prices. This is not that different from the capital adequacy and stress testing that we actuaries conduct in financial services. The structured evaluation of risk, profitability, and scalability demonstrates how actuarial science supports long-term agricultural development.

Uncertainty in crop yields due to pests, variable rainfall, and market volatility is addressed using risk margins. Sensitivity analysis on three fronts; production risk, price risk, and input cost escalation, allows for robust modeling under uncertainty. Scenario-based modeling shows the range of possible outcomes based on low, medium, and high rainfall years. These risk-adjusted projections mirror the reserve risk modeling that actuaries perform for insurers when calculating solvency capital under regulatory regimes.

Further actuarial-style refinements were introduced in the form of Tail Value at Risk (TVaR) assessments. These simulate worst-case scenarios such as major cyclones or political disruptions in export markets. In the case of the coconut plantation model, the range of scenarios helps to calibrate insurance coverage requirements, optimize hedging through diversified cropping, and justify the case for green financing or blended development capital.

Yielding Food and Insights: Conclusion

The application of actuarial skills in food production highlights a transformative approach to addressing global challenges like food insecurity and rural poverty. In the breadfruit and coconut projects, actuarial science provided financial modeling, risk management, and long-term planning skills to us that go far beyond the conventional roles of an actuary. These projects used stochastic modeling, loss projections, and risk-adjusted valuations to make sustainable agriculture viable. This approach can support public policy, investment decisions, and development planning.

Another area of opportunity is in parametric insurance design. By using historical weather data and crop yield modeling, actuaries can contribute to creating microinsurance products that protect smallholder farmers against loss events without requiring costly loss verification. This type of innovation is already being piloted in parts of Africa and Asia, and actuaries with agricultural modeling experience will be in high demand to refine and scale these products.

Food production is also central to sustainability and ESG (Economic, Social, Governance) investing. Actuaries involved in climate risk modeling for insurance and pensions can extend their knowledge to assess carbon sequestration of agroforestry models, water usage optimization, and biodiversity impacts of land use changes. These are increasingly important metrics for investors and regulators, making the actuary a key stakeholder in sustainable development. Going forward, actuaries should be encouraged to explore agricultural applications. Building agricultural databases, collaborating with agronomists, and developing impact assessments are essential.

In the movie “Interstellar”, we see world-wide failure of crops due to climate change and only the most talented people being chosen to pursue agriculture. If we see reality too in 2025, this probable future is not that far off given how rapidly climate change repercussions are arising. Actuarial education should begin to include training modules on agriculture and development economics.

As demonstrated in the Caribbean and Guyana, actuaries can bring precision, sustainability, and innovation to food production systems, helping societies build more resilient and equitable futures. We need to get involved in food production using our skills so that we can be part of the solution. Given the destruction world-wide due to climate change expected in the future, we would be playing our role in food security which would become a big issue in the probable future.

Syed Danish Ali is an actuarial consultant with 15 years’ experience across multiple global markets; certified in predictive analytics (iCAS) and graduate of University of London.

Shubhash Gosine is a seasoned actuarial and risk executive with over 25 years of leadership experience in insurance, reinsurance, and actuarial consulting across the Caribbean and Latin America, specializing in strategic growth, regulatory alignment, and enterprise risk.