Farm Policy Journal, Vol. 9, Number 1, Autumn 2012, Managing uncertainty in the world’s riskiest business, Australian Farm Institute, 72 pp
ISSN 1449–2210 (Print)
ISSN 1449–8812 (Web)
Anton, J, Kimura, S, Measuring Risk in Agriculture and Implementing Good Risk Management Policies, Farm Policy Journal Vol9 No4 pp 1-9, Australian Farm Institute, Sydney
This article proposes an approach to risk management in agriculture that is based on a broad assessment of the full set of risks, tools and strategies, and identifies three different layers of risk that deserve different policy responses. For good risk management, the assessment and measurement of farming risks need to be made at the individual farm or farm household level and risks can be compared through their impact on the variability of income. There is evidence that the correlation among some risks, such as between input and output prices, can contribute to smoothing the impact of shocks on income. Government policies are part of the risk environment and they can discourage proactive farm risk management. Policy should preferably focus on assistance for catastrophic risks that are rare and cause significant damage. Governments also have a role in facilitating good information and regulation conditions for the development of market based instruments and other private solutions. The paper is based on Organisation for Economic Co-operation and Development (OECD) work under the project on risk management in agriculture, in particular the recent publication Managing risk in agriculture: policy assessment and design (OECD 2011), available at: www.oecd.org/agriculture.
Keogh, M, Including risk in enterprise decisions in Australia's riskiest businesses, Farm Policy Journal Vol9 No4 pp 11-21, Australian Farm Institute, Sydney
This study uses measures of revenue volatility to make comparisons between the business environments experienced by Australian and international farm businesses, and also between Australian farm businesses and businesses in other sectors of the Australian economy. The results indicate that Australian farm business managers operate in a more volatile business environment than is the case for virtually all national agriculture sectors worldwide, and also that businesses involved in Australian agriculture experience more than twice the level of volatility on average of businesses in other sectors of the Australian economy. These findings highlight the importance of risk management for Australian farm businesses, and also the differences between agricultural and non-agricultural businesses, and therefore the need for different approaches to business management within different sectors.
Kingwell, R, Revenue volatility faced by some of the world's major wheat producers, Farm Policy Journal Vol9 No4 pp 23-33, Australian Farm Institute, Sydney
Farmers’ revenues from wheat production are altered by changes in wheat yields, wheat prices and areas sown to wheat. This paper uses decomposition modelling to explore how wheat revenue volatility and its components have changed over recent decades in Australia and some other major wheat-growing nations. Australia consistently has experienced greater wheat revenue variance than the other nations, but especially more so over the last decade. Apart from China and India, all nations have experienced increased revenue variance over the last decade, principally due to greater price volatility attributable to price spikes. Australian farmers have additionally experienced enhanced yield variance over the last decade, mostly attributable to the incidence of drought. How farmers and government in Australia respond to this greater volatility of wheat revenue will affect the viability of wheat farm businesses.
Cordier, J, What is the impact of the G20 2011 on agricultural prices volatility, the declared source of global food insecurity?, Farm Policy Journal Vol9 No4 pp 35-45, Australian Farm Institute, Sydney
We, the Leaders of the G20, met in Cannes on 3–4 November 2011. [...] Today, we reaffirm our commitment to work together and we have taken decisions to reinvigorate economic growth, create jobs, ensure financial stability, promote social inclusion and make globalization serve the needs of the people. (G8-G20 2011) After this preamble, the official declaration of the Heads of State introduces the topics for discussion and recommendation on world food security: – to address the volatility of commodity prices and promote agricultural – to avoid the use of protectionism and strengthen the multilateral trading system – to address the challenges of development. In general, the text strongly associates global food security and agricultural price volatility, with many references to the Action Plan defined by the Agriculture Ministers at the Agricultural G20 earlier in June 2011, in Paris (MAAPRA 2011). This paper addresses these statements in depth and answers the following questions: What impact can be expected from these general recommendations as well as announced proposals? What are the implications for agricultural producers in developed and developing countries? What are the likely impacts on consumers? What are the impacts for producing and importing countries?
Edwards, W, Hart, C, Introduction to the US livestock revenue insurance system, Farm Policy Journal Vol9 No4 pp 47-51, Australian Farm Institute, Sydney.
Livestock producers face high financial risks from volatile commodity prices and feed costs. The Risk Management Agency (RMA) of the United States Department of Agriculture (USDA) has approved two revenue insurance products to help livestock producers manage this risk: Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM). Both policies can be purchased through approved crop insurance providers in the major production areas in the United States. Premiums may be partially subsidised by the USDA, depending on the species. LRP and LGM protect against declining livestock prices and rising feed prices. Losses due to disease, weather, or other causes are not insured. LRP started in 2002 with swine coverage for Iowa producers. Since then, the product has expanded to cover more states and types of livestock, including cattle. Lamb coverage was added in 2008. LGM started at roughly the same time for Iowa hog producers. Cattle coverage was added in 2006 and dairy coverage started in 2009. Both products continue to evolve in geographic and livestock species coverage.
Abler, C, Danhong C, The role of contracts in managing risk in the fresh food supply chain, Farm Policy Journal Vol9 No4 pp 53-61, Australian Farm Institute, Sydney.
Risk is one of the defining characteristics of the fresh food supply chain. Risk for farms or firms at one stage of the supply chain creates risks for others upstream and downstream in the supply chain. These spill-overs in risk create a need for coordinated action among firms at different stages of the chain in order to effectively manage risk. Well-designed contracts can provide this coordination. Contracts have the greatest potential in managing risks that are under the control of farms or firms within the food supply chain, such as food contamination or failure to meet quality standards. Risks that are outside of the direct control of anyone in the supply chain, such as bad weather, natural disasters or sudden changes in government policy, are more difficult to address through contracts. Contracts can be formal or informal (often called relational or implicit contracts). Among formal contracts are market specification contracts, resource provision contracts, and production management contracts, each being appropriate for different market situations.