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Business Risk Management Program and risk‐balancing in Ontario hog sector: An empirical analysis

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  • Rakhal Sarker
  • Truc Phan
  • Yu Na Lee
  • Alfons Weersink

Abstract

Business risk management (BRM) has been an important focus of Canadian agricultural policy in the New Millennium. Safety net payments received by farmers can alter their investment portfolio and lead to risk‐balancing behavior in agriculture. Risk‐balancing is an unintended consequence of the farm safety net program and has a direct implication for future growth and sustainability of farm business. Does risk‐balancing exist in Ontario agriculture? This question is addressed in this paper using data for the hog sector in Ontario. While safety net programs were designed to address Business Risk (BR) for all farms, our empirical results indicate that CAIS/AgriStability payments reduced BR for small, medium, and large farms. The results from our fixed effect panel regression analysis demonstrate that there is a significant risk‐balancing behavior among medium hog farms in Ontario. Our results also reveal that the presence of risk‐balancing behavior in Ontario hog sector does not pose any problem for future growth of the hog sector or the long‐term sustainability of the farm safety net program. La gestion des risques d'entreprise a été un élément important de la politique agricole canadienne au cours du nouveau millénaire. Les paiements de filet de sécurité reçus par les agriculteurs peuvent modifier leur portefeuille d'investissement et conduire à un comportement d'équilibrage des risques agricole. L'équilibrage des risques est une conséquence imprévue du programme de filet de sécurité agricole et a une incidence directe sur la croissance future et la durabilité des entreprises agricoles. L'équilibrage des risques existe‐t‐il dans l'agriculture ontarienne? Cette question est abordée dans le présent document à l'aide de données sur le secteur porcin en Ontario. Bien que les programmes de filet de sécurité aient été conçus pour répondre au RE pour toutes les fermes, nos résultats empiriques indiquent que les paiements du PCSRA/Agri‐stabilité ont réduit le RE pour les petites, moyennes et grandes fermes. Les résultats de notre analyse de régression par panel à effets fixes démontrent qu'il existe un important comportement d'équilibrage des risques parmi les exploitations porcines de taille moyenne en Ontario. Nos résultats révèlent également que la présence d'un comportement d'équilibrage des risques dans le secteur porcin de l'Ontario ne pose aucun problème pour la croissance future du secteur porcin ou la durabilité à long terme du programme de filet de sécurité agricole.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:canjag:v:70:y:2022:i:4:p:287-304
    DOI: 10.1111/cjag.12321
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    References listed on IDEAS

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