Global trends in risk management support of agriculture

The aim of this paper is to make an international comparison of risk management policies in OECD countries as well as in selected emerging economies. The results are based on the data from OECD Producer Support Estimates Database and General Services Support Estimates Database, a study of agricultural insurance schemes carried out by the European Commission and an overview of risk-related policy measures formulated by the OECD. The results indicate that all OECD countries have the price stabilizing support for at least some commodities. Although the share of market price support in the producer support estimates has been decreasing for a long time, it still remains an important component in most countries around the world. The analysis also revealed the pilot experiences with index based insurance in developing countries whose economy is considerably dependent on agriculture.Agriculture, agricultural policy, risk management, market price support, income stabilization, Community/Rural/Urban Development, Environmental Economics and Policy, Financial Economics, International Relations/Trade, GA, IN,

Weather derivative design in agriculture – a case study of barley in the Southern Moravia Region

The aim of this paper is to point out some problems of index estimation for the purposes of weather derivative valuation considering the particularities of agriculture. The assessment of the sensitivity of barley to weather over 40 years has been the basis for the design and valuation of weather derivative in the Czech Republic (The Southern Moravia Region). The analysis is based on regression modeling using temperature index and barley yield. The burn analysis based on parametric bootstrap is used as the method for the valuation of weather derivative contract. With the effective bootstrap tool, the burn analysis may easily be processed and the uncertainty about the pay-off, option price and statistics of probability distribution of revenues can be effectively determined. Nevertheless, the results of the analysis reveal a significant adverse impact of basis risk on the quality of agricultural weather derivative in the Czech growing conditions. The article outlines the scope for use of weather derivative as the reinsurance tool in regions with frequent occurrence of systematic weather risk.Weather derivative valuation, agriculture, risk management, basis risk, burn analysis, Agricultural and Food Policy, Research Methods/ Statistical Methods, Risk and Uncertainty, GA, IN,

The financial condition of the construction companies before bankruptcy

The paper aims to discover the symptoms of the forthcoming bankruptcy in the Czech construction industry. The construction industry in the Czech Republic has been in deep crisis. The analysis compares the financial performance of 81 construction companies which went bankrupt between 1/2011 and 5/2013 with the similar sample of 81 construction companies having relatively good credit risk rating. The basic year for the comparison is 2010. The Propensity Score Matching method (PSM) statistically identifies two similar samples by total assets and NACE code. The comparison uses Mann-Whitney test of differences between two independent samples. The results point out that an inappropriate enterprise financial management is one of the main sources of business failure in the construction industry. Limited liability companies are less resistant to bankruptcy than other legal persons. The companies before bankruptcy do not manage their debts carefully in relation to their profitability. They do not create enough own funds to overcome a crisis. The analysis reveals statistically significant differences in key financial indicators between two samples. Keywords: Bankruptcy, construction industry, financial analysis, insolvency

The Economic Disparity in European Agriculture in the Context of the Recent EU Enlargements

The paper investigates the differences of the farm income and its determinants between the old- (EU-15) and new EU member states (EU-12) before and after the EU enlargement. The analysis covers the period 2001 – 2011. The Economic Accounts for Agriculture and the Farm Structure Surveys are the main data sources. The comparison and evaluation devote to the key structural indicators, production, cost, subsidies, compensation of employees and income indicators in the Purchasing Power Standard (PPS). The cluster analysis identifies the specific structural and economic features within the EU. The paper also contains the international comparison based on the Factor Income per AWU and Wilcoxon signed-rank test. The results show the sharp drop in livestock production in the EU-12 after the EU accession. This was mainly caused by the reduction of the pig production. The unfavorable input-output value relations and the high number of labor input (AWU) per hectare generate relatively low income per AWU in the EU-12. The lower income level in the EU-12 corresponds to the lower compensations of employees in agriculture. The level of the current subsidies in the EU-27 becomes equal. Overall, there has been still the relatively large income disparity between the old- and the new EU member states. However, the gap slightly diminishes. The structure of agricultural holdings within the EU-27 is highly heterogeneous. This raises questions about the future CAP policy settings. Keywords: economic indicators, agriculture, EU enlargement, income disparit

Risk and Subsidies in Czech Agriculture - an ex-ante Analysis of Farmers´ Decision-making

This paper deals with the ex-ante analysis of the effects of farm subsidies on farm behaviour. Beside that the risk factor is implemented in the farm model to reflect and quantify potential (negative) impact on farm results. A farm-level optimization model is used to assess the effects of different kind of policies and risk on production structure, income indicators and land use management. It appeared that a reasonable level of risk (via income variation) have impact, but not significant. If liberalisation would have happened (zero direct and disadvantageous payments) production would homogenised, 30% of land would remained abandoned, production and income would clearly decline. Other scenario points out that environmental objectives (here through more extensively managed land) could not be necessarily more costly, but in such a case without accompanying livestock. To increase profitable livestock production requires to provide grassland and animal payments above the current level (obviously in addition to stimulating production economizing) whereas both payments should be conditional to each other.Agrarian policy, risk assessment, farm model, direct payments, Agricultural and Food Policy, Farm Management, GA, IN,

Is there a relationship between the prevailing model of agriculture and the structure of the crop and livestock insurance markets?

Given the strong dependence of its economic results on natural factors, agriculture is characterised by high exposure to risk. This paper explores the relationship between the prevailing ‘model of agriculture’ in a country and methods of risk management (in particular, insurance schemes). The Czech Republic and Poland are post-socialist countries which are characterised by different models of agricultural development. While agriculture in the Czech Republic is oriented to industrial farming with large farms, Polish agriculture has a bipolar structure that includes both small, family-owned farms and large agricultural holdings. Various approaches to agricultural insurance schemes may arise from the contrasting models of agriculture, and substantial differences in both the demand and supply sides of the crop and livestock insurance markets indicate different policy approaches to the role of agriculture in the economies of the two countries. In both the Czech Republic and Poland, policy options for farm risk management should consider the balance between budget flexibility and the criterion of efficiency (from the perspective of insurers)

How does public investment support change the capital structure and productivity of small enterprises? An empirical study of the food industry

The impact evaluations of public investments are essential for policymakers to evaluate the effectiveness of public resource allocation. European public investment subsidies target small companies to enhance their competitiveness and viability in the market. This article uses the average treatment effect and the differencein- difference approach to evaluate the impacts of investment support from the Rural Development Programme and the Operational Programme Enterprise and Innovation on structural and economic indicators of small enterprises. This representative case study of 550 supported small companies from the Czech food and beverage industry during 2007-2015 clearly shows that investment subsidies increase the fixed assets, the credit-to-debt ratio and the labour productivity of supported companies versus nonparticipants. However, the discussion with recent studies indicates that this is not always positive for participants since high growth versus nonparticipants could result in crowding-out effects and increasing long-term and short-term debt that negatively impact technical efficiency

Global trends in risk management support of agriculture

The aim of this paper is to make an international comparison of risk management policies in OECD countries as well as in selected emerging economies. The results are based on the data from OECD Producer Support Estimates Database and General Services Support Estimates Database, a study of agricultural insurance schemes carried out by the European Commission and an overview of risk-related policy measures formulated by the OECD. The results indicate that all OECD countries have the price stabilizing support for at least some commodities. Although the share of market price support in the producer support estimates has been decreasing for a long time, it still remains an important component in most countries around the world. The analysis also revealed the pilot experiences with index based insurance in developing countries whose economy is considerably dependent on agriculture

Weather derivative design in agriculture – a case study of barley in the Southern Moravia Region

The aim of this paper is to point out some problems of index estimation for the purposes of weather derivative valuation considering the particularities of agriculture. The assessment of the sensitivity of barley to weather over 40 years has been the basis for the design and valuation of weather derivative in the Czech Republic (The Southern Moravia Region). The analysis is based on regression modeling using temperature index and barley yield. The burn analysis based on parametric bootstrap is used as the method for the valuation of weather derivative contract. With the effective bootstrap tool, the burn analysis may easily be processed and the uncertainty about the pay-off, option price and statistics of probability distribution of revenues can be effectively determined. Nevertheless, the results of the analysis reveal a significant adverse impact of basis risk on the quality of agricultural weather derivative in the Czech growing conditions. The article outlines the scope for use of weather derivative as the reinsurance tool in regions with frequent occurrence of systematic weather risk

Economic Effects of Investment Support of Adding Value to Food Products

The reason for this contribution is need for analysis and evaluation of the support of adding value to food products in framework of the Rural Development Programme (sub-measure I.1.3.1) in the context of the preparation of new documents for the new programming period 2014 - 2020. Application of research results is the first step to modification of rules for the RDP granting aid for the programming period 2014 - 2020 in order to be efficient and targeted at food industry in the new conditions. From a methodological point of view the solution is based on counterfactual analysis and identifies the main effects for the food industry using economic indicators. Results show that the supported businesses consolidated their economic position to a certain extent. The investment support has positive impact on financial stability because participants had smaller decrease of profitability than nonparticipants in the period 2007 - 2010. The investment support increases labour productivity. But due to the higher depreciation, as the consequence of investments in fixed assets, the overall effects on economic results are slightly reduced. The author gratefully acknowledge the support of the Ministry of Agriculture – the support came from the institutional support of the Institute of Agricultural Economics and Information (internal research project no. 1262 – “Economic performance of the Czech food processing sector with focus on small and medium enterprises in the context of the measures Rural Development Programme”)