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Can Risk Reducing Policies Reduce Farmer's Risk and Improve Their Welfare?

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  • Anton, Jesus
  • Giner, Celine

Abstract

This paper develops an analytical model able to represent the decisions of an individual risk averse farmer facing variability in both prices and yields. A comprehensive set of stylised risk reducing policy measures is represented. A calibration of the model is used to run Monte-Carlo simulations and to obtain optimal responses. The main focus is the interaction between policy measures and market strategies in terms of impacts on production, welfare and risk. Risk reducing strategies that cover different sources of risk, such as price and yield variability, may be complementary for the farmers. Counter-cyclical area payments create incentives to bring land into production and their capacity to reduce farming risk is mitigated by the potential crowding out of substitutive market strategies. They are found to be more transfer efficient in terms of profit, but the impact on the farmer's welfare depends on the trade-off between optimal farm return and farm income variability reflected in the farmer's risk aversion. The policy package set up by the government matters because measures interact between each other, particularly when market mechanisms are available. In general, it is found that market mechanisms are better suited for reducing the relevant risk of farmers. Optimal policy mix crucially depends on the government objective, and there can be a trade off between risk reduction and farmers' welfare.

Suggested Citation

  • Anton, Jesus & Giner, Celine, 2005. "Can Risk Reducing Policies Reduce Farmer's Risk and Improve Their Welfare?," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24578, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae05:24578
    DOI: 10.22004/ag.econ.24578
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    References listed on IDEAS

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    Cited by:

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    2. Tangermann, Stefan, 2011. "Risk Management in Agriculture and the Future of the EU's Common Agricultural Policy," National Policies, Trade and Sustainable Development 320171, International Centre for Trade and Sustainable Development (ICTSD).
    3. Rauh, Stefan & Berenz, Stefan & Heissenhuber, Alois, 2007. "ABSCHATZUNG DES UNTERNEHMERISCHEN RISIKOS BEIM BETRIEB EINER BIOGASANLAGE MIT HILFE DER MONTECARLO-METHODE (German)," 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 7588, German Association of Agricultural Economists (GEWISOLA).
    4. Fabienne Femenia & Alexandre Gohin & Alain Carpentier, 2010. "The Decoupling of Farm Programs: Revisiting the Wealth Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 836-848.
    5. Donnelly, Kallie & Noel, Jay E., 2006. "Optimal Market Contracting in the California Lettuce Industry," 2006 Annual meeting, July 23-26, Long Beach, CA 21461, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Rauh, S. & Berenz, S. & Heißenhuber, A., 2008. "Abschätzung des unternehmerischen Risikos beim Betrieb einer Biogasanlage mit Hilfe der Monte-Carlo-Methode," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 43, March.
    7. Sulewski, Piotr & Czekaj, Stefania, 2015. "Climate and institutional change versus expected economic performance of agricultural holdings," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 245045, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).

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