Vollenweider, Xavier

English

Research Papers in Economics

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Managing Climate Risk and Market 
Risk in the Irish Agriculture
Until recently, dairy prices oscillated gently to accommodate demand and seasonal supply (fig.3, fig.4). Post
2005, Irish prices join the world prices (fig.7) : the spike in oil prices leads to a spike in bio-fuel prices which
in turn impact the price of maize, soya and other cereals used as feedstuff by farmers, constraining their
inputs use and therefore their supply, which, ultimately, drove up dairy prices. The combined effect of this new
linkages and the 2006-2007 drought in Australia, a further shock to the world supply, brought dairy prices at
record level. However, the landing was tough (fig.7): following the massive responses of US producers, prices
collapsed even lower than before, because of the lowering of intervention prices (2003 CAP reform)
Fig.1 The Irish agriculture Fig.2 Trade calance of dairy products (t.)
Fig.6 Farm Family Income and subsidies 
Fig.3 Seasonal supply and price
2003 is also the year of the decoupling of subsidies from the production level (Single Farm Payment). The
goal is to stop distorting production incentives while providing the farmers with an income cushion against the
higher price volatility: the farm family income is virtually 100% subsidized (fig.6), but the volatility of gross-
margin increase (fig.5). The wet and temperate climate of Ireland is its main competitive advantage: the
abundant grass reduces to minimum the feed costs. Even though the third aspect of the reform aims at
making agriculture more sustainable (REPS), this might well not last. (fig.7, fig.8).
My PhD:
On the theoretical side, I want to build a model that disentangle the price effect from the quantity effect,
integrate input price risk and better grasp the link between climate risk and market risk. I am also working on
the use in risk analysis of inequality index. Both wealth and risk might be represented by a distribution and
both interact. On the empirical side,
Fig.4 Milk prices and oil prices linked Fig.5 Gross-Margin, 100=1994
Xavier Vollenweider, Geography and Environment
X.Y.Vollenweider@lse.ac.uk
The integration of the world commodity markets, climate uncertainty and the rollback of the Common
Agricultural Policy (CAP) increase for farmers the exposure to risk. This is particularly true for Irish agriculture
as its dairy and cattle industry is mainly exported oriented (fig1., fig.2). Irish agriculture is based on its
abundant grass. The cycle of production match therefore closely the seasonal cycle of rain (fig.3).
I want to estimate the impact of
the CAP on the risk exposure of
farmers and what could be done
in the next reform (e.g. Market
instruments, weather index
insurances) as well as the cost
of uncertainty of climate change
and its likely impacts. I am using
a panel data of several hundreds
of farms over 10 years (NFS). Fig.7 Rain and Hay since 1996 Fig.8 Temperature increase since 1958

Managing climate risk and market risk in the Irish agriculture.

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Research Papers in Economics