This chapter discusses natural hazards and the preparation of investment projects within the context of the agricultural sector in Latin America and the Caribbean.
A review of existing investment projects in Latin America and the Caribbean indicates that those in the agricultural sector are generally undertaken with little or no consideration of natural hazards. A combination of geographic location, climatic conditions, and limited capabilities for natural hazard assessment and disaster mitigation makes Third World nations more susceptible to the disasters natural hazard events pose than post-industrialized nations. Data from a variety of sources indicate that approximately 90 percent of all natural disasters worldwide occur in developing countries (Long, 1978). In short, from 1960 to 1989 natural disasters caused over US$54 billion in physical damage in Latin America and the Caribbean.
Figure 2-1 shows, in simplified fashion, the impact natural disasters in the agricultural sector can have on the entire economy. Figure 2-1 - Potential economy-Wide impacts of natural hazards in the agricultural sector in Latin America and the Caribbean3. Planning systems and planners in developing countries cannot always be held fully responsible for the inadequacy of the natural hazard assessment and mitigation measures implemented (see Chapter 1). On the other hand, planning systems and planners are responsible for some serious shortcomings of investment projects in hazard-prone areas.
Minimizing the effects of natural hazards on the agricultural sector, and on an entire economy, can reduce the vulnerabilities and increase the ability to survive natural disasters. Although most institutions do not require risk information in project preparation guidelines except at the engineering design stage, both integrated development planning studies and investment project preparation are improved when analysts incorporate natural hazard information into all stages of development planning. The critical factor for the successful incorporation of natural hazard considerations into the project formulation phase is the ability of project planners to use hazard information in the design. The implementation of investment projects is a critical phase in the successful incorporation of natural hazard considerations into the development planning process. In practice, most Latin America and Caribbean governments and their planning agencies lack awareness of the need to reduce the vulnerability of investment projects to natural hazards, and tend to disregard it in their evaluations. National and international banking institutions also tend toward neutrality in the treatment of risks from natural hazards. In dealing with governmental and societal attitudes toward natural hazards, planners can benefit from multicriteria analysis or, as it is sometimes called, multiple conflicting objectives analysis. The consideration of natural hazard risks requires differentiating between the concepts of income stream and benefit stream of a project. Several methods are available for evaluating the natural hazard components in the economic analysis of a project. A subjective decision on the discount rate can incorporate the information available on the possibility of a slow-onset hazard in addition to short-term, immediate impact hazards such as severe storms and flash floods.
When there is no reliable information on probability distributions of hazards, two strategies from game theory can be useful: the maximin-gain strategy and minimax-regret strategy. The types of information that are useful for this analysis are event histories, climatological and meteorological data, and previous damage reports.
Since natural hazards can affect both the benefits of a project (for example, by destroying crops) and the costs (for example, by damaging irrigation systems), in some cases it will be desirable to obtain probability distributions of natural hazard events.
With the methods described in this section, projects can reflect the additional costs that natural hazards pose and the additional benefits resulting from mitigation measures. Natural hazards can have considerable human and economic impacts on the agricultural sector in developing countries.
Because resources are scarce and costly, hazard mitigation actions should be focused and well articulated.
It includes a summarized review of key concepts and policy issues and of selected project formulation and appraisal methods which can be used to incorporate natural hazard information into investment project preparation.
Furthermore, the agricultural sector in these countries is often the most vulnerable and least able to cope with natural hazards in terms of infrastructure and institutional support.

A physical event, such as a volcanic eruption, that does not affect human being is a natural phenomenon but not a natural hazard. While planners and planning systems are not responsible for some problems associated with natural hazards, they can exert influence in correcting some of the shortcomings. In economic terms, this refers to a decline in income due to losses resulting from a natural hazard. Similarly, natural hazard management refers to activities undertaken to reduce the negative effects of natural hazards. This can be achieved by incorporating natural hazard information into the preparation of agricultural investment projects. It brings together issues concerning various sectors and analyzes them in an integrated fashion vis-a-vis the needs of the population and the characteristics of the natural resource base.
Guidelines for the use of natural hazard information in project preparation are listed in Figure 2-3 and discussed below. Risk maps and hazard event frequencies should be consulted in order to identify the area's problems and opportunities. Depending on the nature and scope of the overall study and of the individual projects selected, implementation can be simultaneous with or preceded by the implementation of sectoral and regional support programs and the development of legal and institutional frameworks. Political, financial, economic, and social costs of natural hazard assessments and mitigation may not always be less than their benefits. The benefits from natural hazard mitigation can be measured in terms of income losses avoided. Some can be applied when little hazard information is available, others are appropriate when information on probability distributions can be obtained. The most useful data are a list of historical natural disasters or episodic information, meteorological records, land-use maps, agricultural crop maps, and previous damage assessments. It is more difficult to establish a cut-off period in the case of slow-onset hazards such as droughts or desertification. The same type of information that is useful for a cut-off period can be used to determine the discount rate. Both can be applied in the early stages of project formulation as the necessary minimum of information-records of historical events, climatological and meteorological data, and previous natural hazard damage records-becomes available. These data assist economists in estimating percentage variations in parameters from previous hazard information. Probabilistic information can be obtained for any type of natural hazard with measurable magnitude and frequency, but of course the quality of the information can vary widely. Considering the estimated US$670 billion in investments that will be necessary in this sector between 1980 and the year 2000 (FAO, 1981), there is a great need for an improved understanding of natural hazards, their assessment, and their management.
One of the main differences between losses suffered by industrialized and less developed countries is the extent to which natural hazards and mitigation measures have been considered in the development planning process. The following section discusses the process of integrating natural hazard information into the preparation of investment projects. Appropriate natural resource use along sound environmental management guidelines seeks to maximize development opportunities while minimizing environmental conflicts (see Chapter 3). At the feasibility analysis level, available information can be complemented by specific hazard assessments and used to further refine cost and benefit calculations.
These activities should reflect the natural hazard information collected between the Preliminary Mission and the Development Diagnosis stages of the integrated development planning study. Non-structural measures typically concentrate on identifying hazard-prone areas and limiting their use. Given the prevailing lack of awareness of risks from natural hazards, additional costs will appear unjustified vis-a-vis expected costs and benefits. While most decision-makers will give low vulnerability a high priority in project selection for economic or political reasons, natural hazards will not always be considered in the final decision.

For instance, income and job stability from the project and associated enterprises might be severely affected by a hazardous event, but merely adjusting the income stream to the uncertainty associated with natural hazard events will not reflect the economic and social losses that would accrue from income and job disruption. From this information it is possible to estimate the comparative benefits of equivalent alternatives under varying degrees of natural hazard severity.
Some of the key considerations for incorporating natural hazards into the evaluation of investment projects are listed in the following box.
But even where sufficient hazard risk information was available, projects have been undertaken without minimum mitigation measures. Examples include land-use zoning, the selection of building sites, tax incentives, insurance programs, relocation of residents to remove them from the path of a hazard, and the establishment of forecasting and warning systems. The costs of natural hazard vulnerability reduction, both structural-canal systems, dams, dikes, windbreaks-and in some cases non-structural are direct costs. In addition, satellite photography of the impacts of natural hazards can be useful in deciding on a cut-off period. A variation of this is to add a premium to the discount rate for the benefits and subtract a premium for the costs, a procedure consistent with the fact that hazards decrease benefits and increase costs. Subjective distributions of yields can be provided for projects with or without natural hazard mitigation measures. In areas where there are no human interests, natural phenomena do not constitute hazards nor do they result in disasters. These fluctuations can be caused by natural hazard events, but can also be caused by changing market conditions and weather cycles.3. Or planners might want to consider hazard mitigation practices to reduce the risk to acceptable levels. Furthermore, the agricultural activities that have been the most affected by natural hazards are large-scale agricultural development projects.
In many cases it is not too difficult to obtain this type of information for short periods of time. If natural disasters are to be reduced significantly and consistently, not just in isolated projects, changes will also have to come about in government agencies, development assistance agencies, banking institutions, scientific communities, and attitudes toward natural hazards. This definition is thus at odds with the perception of natural hazards as unavoidable havoc wreaked by the unrestrained forces of nature. For a more detailed discussion of mitigation measures related to specific hazards, see Chapters 8 through 12.
An additional advantage of such an approach is that it lends itself more easily to discussions of minimizing losses, which can be useful when considering hazard mitigation measures. Without a doubt, the availability of timely and adequate information will be a key factor in making these groups aware of the human and economic significance of disasters and of the necessity to support hazard mitigation at different levels. Urban growth and rural exodus are important considerations in the management of natural hazards, since they result in overcrowding of peripheral urban areas and increase the probability of disasters in these areas as a result of floods, landslides, earthquakes, and other hazards. It shifts the burden of cause from purely natural processes to the concurrent presence of human activities and natural events. The following box lists the key elements for incorporating natural hazards into agricultural investment projects. Safety-first criteria can be applied to relatively frequent natural hazards, such as floods and severe storms, but they are not as useful for low-frequency catastrophic events such as volcanic eruptions and tsunamis.

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