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From total farm to household risk: implication for risk management

Author

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  • de Mey, Yann
  • Wauters, Erwin
  • van Winsen, Frankwin
  • Vancauteren, Mark
  • Van Passel, Steven
  • Lauwers, Ludwig H.

Abstract

Modeling the farm level impact of risk management programs, policies and instruments is traditionally been done on a farm-level basis. Hence, farm simulation models typically use the behavioural assumption of profit or utility maximization is risk aversion taken into account. However, abundant – albeit indirect – evidence from different literature sources suggest that minimization of household risk – being the chance of falling below a certain threshold level of household cash flow – might be more realistic behavioural assumption. In this paper, we present concepts of operational, financial, total farm and household risk. Further, using a stochastic simulation model on two typical Belgian dairy farms, we illustrate possible farmers responses in the presence or absence of farm income stabilization mechanisms. Although some limitations to the current model are mentioned, the results already suggests the usefulness of considering household risk when assessing the impact of risk management programs, policies and instruments.

Suggested Citation

  • de Mey, Yann & Wauters, Erwin & van Winsen, Frankwin & Vancauteren, Mark & Van Passel, Steven & Lauwers, Ludwig H., 2012. "From total farm to household risk: implication for risk management," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122470, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaa123:122470
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    File URL: http://purl.umn.edu/122470
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    References listed on IDEAS

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    1. Anton, Jesus & Kimura, Shingo, 2009. "Farm Level Analysis of Risk, and Risk Management Strategies and Policies: Evidence from German Crop Farms," 2009 Conference, August 16-22, 2009, Beijing, China 51729, International Association of Agricultural Economists.
    2. Freshwater, David & Jette-Nantel, Simon, 2011. "Risk Management and the Role of Off-farm Income," Staff Papers 120184, University of Kentucky, Department of Agricultural Economics.
    3. G Lien & JB Hardaker, 2001. "Whole-farm planning under uncertainty: impacts of subsidy scheme and utility function on portfolio choice in Norwegian agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 28(1), pages 17-36, March.
    4. Hardaker, J. Brian & Lien, Gudbrand, 2010. "Probabilities for decision analysis in agriculture and rural resource economics: The need for a paradigm change," Agricultural Systems, Elsevier, vol. 103(6), pages 345-350, July.
    5. Stephen C. Gabriel & C. B. Baker, 1980. "Concepts of Business and Financial Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 560-564.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Household risk; typical dairy farms; stochastic simulation; household buffering capacity; Risk and Uncertainty;

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