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Farm Wealth Implications of Canadian Agricultural Business Risk Management Programs

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  • Trautman, Dawn E.
  • Jeffrey, Scott R.
  • Unterschultz, James R.
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    Abstract

    This paper examines the effect of Canadian agricultural business risk management (BRM) programs on farm financial performance. Monte Carlo simulation is used to model stochastic prices and production for a representative Alberta cropping operation. Net present value (NPV) analysis is used to evaluate BRM program participation. Participation is modeled for AgriInvest, AgriStability, and AgriInsurance. Adoption of select BMPs is also modeled to examine the impact of BRM programs on incentives to adopt environmental stewardship practices. Results indicate that BRM program participation significantly improves farm financial performance with a corresponding reduction in risk. Much of the benefit from participation comes from subsidization associated with the programs. While recent changes to BRM programs result in reduced support, the impact on representative farm performance is small. BRM program participation reinforces incentives to adopt BMPs that already have positive net benefits (e.g., crop rotation BMPs) and increases the magnitude of disincentives (i.e., net costs) associated with adoption of land use BMPs such as wetland restoration or buffer strips. The results from this analysis raise questions related to both risk management and environmental policy in terms of policy effectiveness, efficiency and compatibility.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149881.

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    Date of creation: 2013
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    Handle: RePEc:ags:aaea13:149881

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    Keywords: risk management; Monte Carlo simulation; environmental stewardship; Crop Production/Industries; Farm Management; Land Economics/Use; Production Economics; Risk and Uncertainty; C15; Q12; Q15; Q18; Q28;

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    1. David J. Pannell & Getu Hailu & Alfons Weersink & Amanda Burt, 2008. "More reasons why farmers have so little interest in futures markets," Agricultural Economics, International Association of Agricultural Economists, vol. 39(1), pages 41-50, 07.
    2. Olivier Mahul & Charles J. Stutley, 2010. "Government Support to Agricultural Insurance : Challenges and Options for Developing Countries," World Bank Publications, The World Bank, number 2432, October.
    3. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
    4. Marra, Michele C. & Schurle, Bryan W., 1994. "Kansas Wheat Yield Risk Measures And Aggregation: A Meta- Analysis Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(01), July.
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