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Risk Balancing in an Integrated Farm Risk Management Plan

Author

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  • Escalante, Cesar L.
  • Barry, Peter J.
Abstract
Using optimization techniques in a Simulation framework, this study demonstrates the synergy between risk balancing and alternative strategies in effectively reducing risk under changing farm conditions. Highly risk-averse farmers tend to prefer integrated risk-management plans, based on the diversification principle, that yield offsetting combinations of the risk-reducing benefits of most strategies and the profit-generating capacities of the others. The greater appeal of a more diversified plan usually downplays the risk balancing strategy as the farm utilizes credit reserves to implement other production and marketing plans considered essential to Overall risk reduction. The farm, however, still realizes overall, though more regulated, reduction in its financial risk position.

Suggested Citation

  • Escalante, Cesar L. & Barry, Peter J., 2001. "Risk Balancing in an Integrated Farm Risk Management Plan," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 33(3), pages 413-429, December.
    • Handle: RePEc:cup:jagaec:v:33:y:2001:i:03:p:413-429_02
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    References listed on IDEAS

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    Cited by:

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    2. Byrd, Mark M. & Escalante, Cesar L. & Wetzstein, Michael E. & Fonsah, Esendugue Greg, 2006. "A Farm-level Approach to the Methyl Bromide Phase-out: Identifying Alternatives and Maximizing Net Worth Using Stochastic Dominance and Optimization Procedures," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35265, Southern Agricultural Economics Association.
    3. Larsen, Ryan A. & Mjelde, James W. & Klinefelter, Danny A. & Wolfley, Jared L., 2009. "Geographical Diversification in Agriculture: An Applied Case to Western U.S. Wheat Growers," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46819, Southern Agricultural Economics Association.
    4. Nganje, William E. & Hearne, Robert R. & Orth, Michael & Gustafson, Cole R., 2004. "Using Choice Experiments To Elicit Farmers Preferences? For Crop And Health Insurance," 2004 Annual meeting, August 1-4, Denver, CO 20357, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Aderajew, Tamirat S. & Du, Xiaoxue & Pennings, Joost M. E. & Trujillo-Barrera, Andres, 2020. "Farm-Level Risk-Balancing Behavior and the Role of Latent Heterogeneity," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 45(2), March.
    6. Uzeaa, Florentina Nicoleta & Poon, Kenneth & Sparling, David & Weersink, Alfons, 2013. "Farm Support Payments and Risk Balancing: Implications for Financial Riskiness of Canadian Farms," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150708, Agricultural and Applied Economics Association.
    7. Sharma, Sankalp & Bairagi, Subir K., 2021. "Role of Producer Risk-preferences on Debt Undertaking: Evidence from Nebraska," 2021 Annual Meeting, August 1-3, Austin, Texas 313998, Agricultural and Applied Economics Association.
    8. Escalante, Cesar L. & Turvey, Calum G., 2003. "Sustainable Growth Trends in U. S. Agriculture," 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri 132515, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    9. William Nganje & Robert Hearne & Cole Gustafson & Michael Orth, 2008. "Farmers' Preferences for Alternative Crop and Health Insurance Subsidy," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(2), pages 333-351.
    10. Adhikari, Sudip & Khanal, Aditya R., 2020. "Does higher business risk influence financial risk and induce savings among small agricultural operations? Findings from Tennessee," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304509, Agricultural and Applied Economics Association.
    11. Sarker, Rakhal, 2021. "Farm Safety Net Payments and Risk Balancing in Ontario Beef Sector," 2021 Conference, August 17-31, 2021, Virtual 315321, International Association of Agricultural Economists.
    12. Tamirat, Aderajew AS & Trujillo-Barrera, Andres A. & Pennings, Joost M. E., 2017. "Similia Similibus Curantur: Farm Level Risk Balancing Behavior," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259138, Agricultural and Applied Economics Association.
    13. Christopher G. Davis & Jeffrey M. Gillespie, 2007. "Factors Affecting the Selection of Business Arrangements by U.S. Hog Farmers," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(2), pages 331-348.
    14. Rakhal Sarker & Truc Phan & Yu Na Lee & Alfons Weersink, 2022. "Business Risk Management Program and risk‐balancing in Ontario hog sector: An empirical analysis," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(4), pages 287-304, December.

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