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Abstract

Agriculture is a sector that is sensitive to climate variability and extreme weather conditions such as droughts and floods. The occurrence of these events is predicted to increase in frequency and intensity due to climate change. These events have adverse effects on agriculture especially rain-fed agriculture which is significantly exposed to weather leading to food insecurity for millions of people. As a result, it is necessary to determine approaches that ensure better estimation and management of resources needed given the occurrence of these extreme weather events. This is important for better financial risk management and consequently enhancing sustainable growth of the agricultural sector. In this study, we explore the application of Value at Risk (VaR) method in estimating financial loss as a result of drought. Agricultural loss as a result of rainfall variability and drought is calculated. Extreme Value Theory (EVT) is used to model the distribution of the agricultural loss. The VaR method is used to determine the catastrophic risk. Future actions will be proposed with a view enhancing financial risk management in the agricultural sector. This has the potential to enhance resilience to disasters.

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