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Valuing the risk associated with willow and miscanthus relative to conventional agricultural systems

  • Clancy, Daragh
  • Breen, James P.
  • Butler, Anne Marie
  • Thorne, Fiona S.
  • Wallace, Michael T.

The agronomic characteristics of willow and miscanthus make these crops highly susceptible to risk. This is particularly true in a country such as Ireland which has limited experience in the production of these crops. Issues such as soil and climate suitability have as yet to be resolved. The lengthy production lifespan of energy crops only serve to heighten the level of risk that affects key variables. The uncertainty surrounding the risk variables involved in producing willow and miscanthus, such as the annual yield level and the energy price, make it difficult to accurately calculate the returns of such a project. The returns from willow and miscanthus are compared with those of conventional agricultural enterprises using Stochastic Efficiency with Respect to a Function (SERF). A risk premium is calculated which farmers would need to be compensated with in order for them to be indifferent between their current enterprise and switching to biomass crop production. With the exception of spring barley, a risk premium is required if farmers are to be indifferent between their current enterprise and willow or miscanthus. The value of the risk premium required to entice farmers to switch to miscanthus production is significantly less than that required for willow. This suggests that a greater level of risk is associated with willow than with miscanthus.

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File URL: http://purl.umn.edu/43972
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Paper provided by European Association of Agricultural Economists in its series 2008 International Congress, August 26-29, 2008, Ghent, Belgium with number 43972.

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Date of creation: 2008
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Handle: RePEc:ags:eaae08:43972
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  1. Lien, G. & Stordal, S. & Hardaker, J.B. & Asheim, L.J., 2007. "Risk aversion and optimal forest replanting: A stochastic efficiency study," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1584-1592, September.
  2. Schurle, Bryan W. & Tierney, William I., Jr., 1990. "A Comparison of Risk Preference Measurements with Implications for Extension Programming," Staff Papers 118185, Kansas State University, Department of Agricultural Economics.
  3. Lien, Gudbrand & Brian Hardaker, J. & Flaten, Ola, 2007. "Risk and economic sustainability of crop farming systems," Agricultural Systems, Elsevier, vol. 94(2), pages 541-552, May.
  4. Clancy, Daragh & Breen, James P. & Butler, Anne Marie & Thorne, Fiona S., 2008. "The economic viability of biomass crops versus conventional agricultural systems and its potential impact on farm incomes in Ireland," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6485, European Association of Agricultural Economists.
  5. J. Brian Hardaker & James W. Richardson & Gudbrand Lien & Keith D. Schumann, 2004. "Stochastic efficiency analysis with risk aversion bounds: a simplified approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 253-270, 06.
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