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Farm Support Payments and Risk Balancing: Implications for Financial Riskiness of Canadian Farms

Author

Listed:
  • Uzeaa, Florentina Nicoleta
  • Poon, Kenneth
  • Sparling, David
  • Weersink, Alfons

Abstract

The risk balancing literature suggests that business risk management (BRM) programs may, through risk balancing (offsetting adjustments between business risk and financial risk), lead farmers to take on more financial risk than they would take otherwise, which, in turn, increases the risk of equity loss. Business risk management continues to be the central objective of Canadian agricultural policy, and this was re-enforced with the recent introduction of the Growing Forward II policy framework. However, it is not known whether Canadian BRM programs designed to offset business risk lead to increased financial risk and possibly higher levels of overall risk for individual farm operations. This paper aims to empirically examine the impact of Canadian BRM programs on the financial riskiness of farms using a longitudinal farm data set from Ontario. Results show that: 1) the lag of payment of Canadian Agricultural Income Stabilization/AgriStability diminishes the effectiveness of BRM programs in reducing business risk; 2) a relatively small share of farms exhibit risk balancing behaviour, and 3) BRM payments have no impact on the likelihood of risk balancing. Taken together, these findings suggest that the impact of BRM programs on the financial riskiness of farms is limited.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:aaea13:150708
    DOI: 10.22004/ag.econ.150708
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    References listed on IDEAS

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    3. 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.
    4. Geoffroy Enjolras & Magali Aubert, 2020. "How does crop insurance influence pesticide use? Evidence from French farms," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 101(4), pages 461-485.
    5. Robbie Maris & Zack Dorner, 2021. "Cost Efficiency Analysis using Operating Profit Margin for the New Zealand Dairy Industry," Working Papers in Economics 21/04, University of Waikato.
    6. 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.
    7. Ifft, Jennifer & Jodlowski, Margaret, 2017. "Federal crop insurance and agricultural credit use," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259120, Agricultural and Applied Economics Association.

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    Keywords

    Demand and Price Analysis; Farm Management; Financial Economics; International Relations/Trade;
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