Some Issues in Dealing with Risk in Agriculture

Risk and Uncertainty,

Ag econ angst crisis revisited: a rejoinder

Poverty reduction has been an underlying goal of governments and the development community since the Second World War, but it was the 1973 Nairobi address of Robert S. McNamara, then President of the World Bank, that created a new commitment to directly address poverty reduction in the quest for development (McNamara 1973). More than half a century after the war and close to 30 years after Robert McNamara’s speech, poverty is still rampant in many parts of the globe. Reflections on why this scourge remains, and what we as agricultural economists can do about it, were the driving forces behind our paper with the late John L. Dillon entitled ‘Agricultural economists and world poverty: progress and prospects’ (Rola-Rubzen et al. 2001). The part of our paper that Johnson, Rossmiller and Sandiford-Rossmiller (JRS) have reacted to was deliberately provocative to stimulate thinking on ways to combat poverty. We are pleased that someone has taken the bait. As the two surviving authors, we find ourselves in agreement with much that JRS have written. However, in preparing this rejoinder we have sadly missed John Dillon, especially his broad international experience. We note that in several respects JRS amplify and support some of our points, as well as adding a new perspective of their own, dealing with the new institutional economics. We find it hard to work out just where they differ from us.Teaching/Communication/Extension/Profession,

Optimal Length of Leys in an Area with Winter Damage Problems – Optimal Economic Lengths of Leys

The optimal economic life cycle of grass leys with winter damage problems in northern Norway and the threshold of winter damage before it is profitable to re-seed grasses are investigated. The loss in profit of a sub-optimal strategy compared to an optimal strategy is briefly discussed. An infinite horizon stochastic dynamic programming model including a normally distributed yield process with possibilities for discrete downward jumps is developed. The jump process reflects the sudden drop in production after winter damage. Normally the yield of ley increases the first few years after a year with downward jump, and this dynamic is included in the model. The transition probabilities used in the model are estimated with Monte Carlo simulation. Our result show that, in the case of winter damage of 50% or more compared to fields without winter damage, it is optimal to replace the ley immediately. If the winter damage is limited to 20-40% of the yield of fields without winter damage, the replacement decision depends on the age of the ley and the current yield level. It does not always pay to replace immediately mildly winter damaged fields that are still producing high yields. It does not pay to replace a ley if there has been no winter damage since establishment and if the relative yield level is ‘satisfactory’ at least until the first episode of winter damage occurs.Farm Management,

Risk and economic sustainability of crop farming systems

Environmental, social and economic attributes are important for the sustainability of a farming system. Comparing farming systems by considering only expected profitability ignores differences in both sustainability and in the riskiness of system returns. Further, in choosing between farming systems, the ability to survive various risks and shocks and con-tinue in the future is important, i.e., system resilience and persistence are important aspects of sustainabil-ity. Yet resilience and persistence have seldom been directly considered in evaluations of economic sus-tainability. A whole-farm stochastic simulation model over a six-year planning horizon was used to compare organic and conventional cropping systems for a representative farm situation in Eastern Norway. The relative sustainability of alternative systems under changing assumptions about future technology and price regimes was examined in terms of terminal financial position. The risk efficiency of the same alternatives was also compared. The results illustrate possible conflicts between pursuit of risk efficiency versus sustainability. The model used could be useful in supporting farmers’ choice between farming sys-tems as well for policy makers to develop more sharply targeted policies

DETERMINANTS OF PART-TIME FARMING AND ITS EFFECT ON FARM PRODUCTIVITY AND EFFICIENCY

Little attention has been given in the agricultural economics literature to the impact of off-farm work on farm productivity and efficiency. More knowledge about what determines part-time farming and whether farm productivity and efficiency are affected by part-time farming could help policy makers introduce better targeted rural development policies. This paper aims to fill the above-mentioned gaps by first analysing factors that influence the choice of off-farm work; and then examining how off-farm work influences productivity and technical efficiency at the farm level. An unbalanced panel data set from 1991 to 2005 from Norwegian grain farms is used for this purpose. The results show that the likelihood of off-farm work and the share of time allocated to it increase with increasing age (up to 39 years), and with low relative yields (compared to others farms in the surrounding area/region). The level of support payments is not significantly associated with the extent of off-farm work. Large-scale farms and single farmers tend to have a lower likelihood of off-farm work. Average technical efficiency was found to be 79%. Farmers with low variability in farm revenue were found to be more technically efficient than farmers with high revenue variability. We did not find any evidence of off-farm work share affecting farm productivity − the predicted off-farm work share was not statistically significant. In other words, we did not find any systematic difference in farm productivity and technical efficiency between part-time and full-time farmers.off-farm work, productivity, efficiency, unobserved heterogeneity, panel data, Farm Management,

PERCEPTIONS OF RISKS AND RISK MANAGEMENT STRATEGIES; AN ANALYSIS OF DUTCH LIVESTOCK FARMERS

The risk environment of farmers is changing and new risk management strategies are being introduced. Beal (1996) stated that risk management strategies adopted by farmers will be in accordance with their personal preferences for risk. In this context it would be useful for developers and sellers of new risk management strategies to have insight into farmers' preferences for risk. This paper studies to what extent such preferences are farmer-specific or whether general relationships exist. By means of a large questionnaire survey among 2700 livestock farmers in the Netherlands we gathered data on four groups of variables, i.e. socioeconomic characteristics of the farm, farmers' attitudes towards risk, their perceptions of sources of risk, and their perceptions of risk management strategies. Various techniques of multivariate data analyses have been used to analyse the relationships between these groups of variables. Many significant relationships were found (although not to a great extent for attitudes towards risk). However, we are cautious in recommending that new risk management strategies need to be fully fine-tuned to aspects analysed in this study. Low values of the adjusted R-squared indicate that there are still other (possibly even more personal) aspects that determine the final perception of a farmer of a risk management instrument. In addition, results of this study reflect farmers' perceptions of risk management strategies, which is not necessarily the same as the extent to which they would actually use such strategies.perception, sources of risk, risk management strategies, attitude towards risk, questionnaire survey, livestock farming, The Netherlands, Livestock Production/Industries, Risk and Uncertainty,

Agricultural economists and world poverty: progress and prospects

New development paradigms come and go, seemingly with increasing rapidity, yet poverty remains the scourge of the developing nations. As we enter the new millennium, we fear that still more development fads and fancies will emerge, to be taken up and then dropped by the development community. These swings in fashion bring with them the danger that the ‘basics’ of effective development strategies for poverty reduction will be neglected. In this article, we advance some personal and perhaps controversial views about the virtues of getting agriculture moving as a means of reducing poverty, and about the role that agricultural economists can and should play in that endeavour.Food Security and Poverty,

Book reviews

Teaching/Communication/Extension/Profession,

Book reviews

Teaching/Communication/Extension/Profession,