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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.

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.

Suggested Citation

  • Trautman, Dawn E. & Jeffrey, Scott R. & Unterschultz, James R., 2013. "Farm Wealth Implications of Canadian Agricultural Business Risk Management Programs," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149881, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:149881
    DOI: 10.22004/ag.econ.149881
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    References listed on IDEAS

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    1. Olivier Mahul & Charles J. Stutley, 2010. "Government Support to Agricultural Insurance : Challenges and Options for Developing Countries," World Bank Publications - Books, The World Bank Group, number 2432, December.
    2. 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, July.
    3. James Rude & Alan Ker, 2013. "Transfer Efficiency Analysis of Margin-Based Programs," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 61(4), pages 509-529, December.
    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(1), pages 1-9, July.
    5. 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.
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    Cited by:

    1. Xuan Liu & Jun Duan & G. Cornelis van Kooten, 2018. "The impact of changes in the AgriStability program on crop activities: A farm modeling approach," Agribusiness, John Wiley & Sons, Ltd., vol. 34(3), pages 650-667, June.

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    More about this item

    Keywords

    Crop Production/Industries; Farm Management; Land Economics/Use; Production Economics; Risk and Uncertainty;
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