Managing Risk in Agriculture

A Holistic Approach

image of Managing Risk in Agriculture
The sources of risk in agriculture are numerous and diverse, ranging from events related to climate and weather conditions to animal diseases; from changes in agriculture commodities prices to changes in fertilizer and other input prices; and from financial uncertainties to policy and regulatory risks. Agricultural risks are not independent, but rather are linked both to each other and as part of a system that includes all available instruments, strategies and policies designed to manage risk. A holistic approach is thus necessary.

This book examines the current magnitude and characteristics of risk-related policies in agriculture and what is known about the quantitative size of agricultural risks. It looks at the on-farm, off-farm, and market instruments available to manage risk, and it explains how the holistic approach helps clarify the role of governments.

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An Assessment of Risk Exposure in Agriculture Based on a Review of the Literature

Agriculture is often noted as a textbook case of economic activity fraught with risk. Agricultural producers regularly demonstrate concern for the economic uncertainty of the industry and major risk management tools such as futures markets have their origins in the agriculture sector. Similarly many farm support programs are justified primarily as risk safety net for agricultural producers. While risk has clear academic definitions as discussed in the next section, lay perceptions of risk are often associated with potential negative outcomes but often not articulated in probabilistic terms. This is in spite of the fact farmer behaviour is often clearly reflective of perceived subjective risk and demonstrated risk aversion.

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