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Risk Management Through Enterprise Diversification: A Farm-Level Analysis

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  • Mishra, Ashok K.
  • El-Osta, Hisham S.

Abstract

Enterprise diversification is a self-insuring strategy used by farmers to protect against risk. This paper examines the impact of various farm, operator, and household characteristics on the level of on-farm diversification. Results provide evidence that larger farms are more specialized. Also, farmers who participate in off-farm income and farms located near urban areas are less likely to diversify. Additionally, results also show a significant positive relationship between diversification and farm/crop insurance and sole proprietorships. Finally, there is also evidence that farms that received government payments are more diversified than their counterparts.

Suggested Citation

  • Mishra, Ashok K. & El-Osta, Hisham S., 2002. "Risk Management Through Enterprise Diversification: A Farm-Level Analysis," 2002 Annual meeting, July 28-31, Long Beach, CA 19711, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea02:19711
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    File URL: http://ageconsearch.umn.edu/record/19711/files/sp02mi02.pdf
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    References listed on IDEAS

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    1. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
    2. Samuelson, Paul A., 1967. "General Proof that Diversification Pays," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(01), pages 1-13, March.
    3. El-Osta, Hisham S. & Bernat, G. Andrew, Jr. & Ahearn, Mary Clare, 1995. "Regional Differences In The Contribution Of Off-Farm Work To Income Inequality," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 1), pages 1-14, April.
    4. Ashok K. Mishra & Barry K. Goodwin, 1997. "Farm Income Variability and the Supply of Off-Farm Labor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 880-887.
    5. El-Osta, Hisham S. & Bernat, G. Andrew & Ahearn, Mary C., 1995. "Regional Differences in the Contribution of Off-Farm Work to Income Inequality," Agricultural and Resource Economics Review, Cambridge University Press, vol. 24(01), pages 1-14, April.
    6. Wolfgang Briglauer, 2000. "Motives for Firm Diversification. A Survey on Theory and Empirical Evidence," WIFO Working Papers 126, WIFO.
    7. Ashok K. Mishra & Carmen L. Sandretto, 2002. "Stability of Farm Income and the Role of Nonfarm Income in U.S. Agriculture," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 208-221.
    8. Berry, Charles H, 1971. "Corporate Growth and Diversification," Journal of Law and Economics, University of Chicago Press, vol. 14(2), pages 371-384, October.
    9. K. Borch, 1969. "A Note on Uncertainty and Indifference Curves," Review of Economic Studies, Oxford University Press, vol. 36(1), pages 1-4.
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    Citations

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    Cited by:

    1. Peterson, Hikaru Hanawa & Schurle, Bryan W. & Langemeier, Michael R., 2005. "Three-Dimensional Efficient Portfolio Frontier: Mean, Variance, and Farm Size," 2005 Annual meeting, July 24-27, Providence, RI 19298, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Ani L. Katchova, 2005. "The Farm Diversification Discount," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 984-994.
    3. Bernard Kiprono, Rotich, 2012. "Contribution of On-Farm Diversification to Incomes of Smallholder Farmers in Konoin District, Bomet County," Research Theses 243441, Collaborative Masters Program in Agricultural and Applied Economics.
    4. repec:spr:nathaz:v:86:y:2017:i:3:d:10.1007_s11069-017-2748-z is not listed on IDEAS
    5. O'Donoghue, Erik J. & Key, Nigel D. & Roberts, Michael J., 2005. "Does risk matter for farm businesses? The effect of crop insurance on production and diversification," 2005 Annual meeting, July 24-27, Providence, RI 19397, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Lighton Dube & Revaux Numbwa & Emmanuel Guveya, 2016. "Determinants of crop diversification amongst agricultural co-operators in Dundwa agricultural camp, Choma district, Zambia," Asian Journal of Agriculture and rural Development, Asian Economic and Social Society, vol. 6(1), pages 1-13, January.
    7. 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.

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    Keywords

    Farm Management; Risk and Uncertainty;

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