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Should Farmers Invest in Financial Assets as a Risk Management Strategy? Some Evidence from New Zealand

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  • Nartea, Gilbert V.
  • Pellegrino, Juan M.
  • Webster, Paul

Abstract

Off-farm investment as a risk management strategy is not widespread among New Zealand sheep and beef farmers. This study explores the potential for risk reduction by the diversification of farm asset portfolios to include financial investments such as industrial equities and government bonds of various types. Results show that the negative correlations between long-run rates of return on farm assets and financial investments could result in a significant reduction of risk if equities and bonds were included in farm investment portfolios. However, when combined with information about attitudes to risks, it does not seem likely that farmers would adopt such strategies purely in order to stabilise incomes. Deregulation of the New Zealand economy in the mid 1980's had little impact on farmers' optimal allocation of their assets.

Suggested Citation

  • Nartea, Gilbert V. & Pellegrino, Juan M. & Webster, Paul, 2003. "Should Farmers Invest in Financial Assets as a Risk Management Strategy? Some Evidence from New Zealand," 14th Congress, Perth, Western Australia, August 10-15, 2003 24376, International Farm Management Association.
    • Handle: RePEc:ags:ifma03:24376
    DOI: 10.22004/ag.econ.24376
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    2. Leppälä, Jarkko & Rautiainen, Risto & Kauranen, Ilkka, . "Analysis of risk management tools applicable in managing farm risks: A literature review," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 4(3).
    3. Svend Rasmussen & Anders L. Madsen & Mogens Lund, 2013. "Bayesian network as a modelling tool for risk management in agriculture," IFRO Working Paper 2013/12, University of Copenhagen, Department of Food and Resource Economics.
    4. Shadbolt, Nicola M. & Olubode-Awosola, Femi, . "Resilience, Risk and Entrepreneurship," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 19(2), pages 1-20.
    5. Svend Rasmussen, 2013. "A model for the optimal risk management of (farm) firms," IFRO Working Paper 2013/10, University of Copenhagen, Department of Food and Resource Economics.

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